The “miracle” Australian economy (with its famous run of 24 years without a recession) is an amalgam of pre-modern and post-modern industries with very little in between.
Most economies run at least partially upon the productivity gains produced out of manufacturing and ‘making things’ but in Australia productive investment is supplanted with commodity exports (which make up half of exports) and the recycling of the resultant income is deployed as cash flow for borrowings offshore to pump house prices.
The former step is basically the selling of dirt, a pre-modern activity. The second step is managed via the sophisticated use of derivative markets and is essentially a post-modern activity.
Not that GDP cares given it is only the mindless measure of whirring widgets.
However, both of these activities systematically reduce economic competitiveness by inflating both input costs and the currency. “Dutch disease” by another name. This continuous “hollowing out” of productive activity means the broader economy relies heavily upon the non-stop import of capital, either in the form of debt or in the form of assets sold to foreigners, to generate ongoing income growth.
So long as the underlying income from dirt keeps flowing then the leveraging into house prices that supports consumption can continue, supported by both tax distortions and government spending.
If, however, the dirt income flow halts the hollowing out of modern industry will leave the Australian economy very exposed to a current account adjustment. We saw this in the global financial crisis but the flow of dirt income was restored sufficiently quickly to prevent any deep adjustment.
A second risk is that the debt accumulation simply becomes overly onerous for the underlying economy to service, also resulting in a current account adjustment. Well north of $1trillion of the debt is owned externally and household debt is a world-beating 186% of GDP so this is a real risk.
It is offset by a relatively clean public balance sheet that deploys fiscal stimulus in times of economic stress. However, in recent years, as both of the two above risks have increased, the public balance sheet has deteriorated as well, setting Australia up for a famous adjustment to end its famous bull run.
MacroBusiness covers all apposite data and wider analysis of these issues daily.
By Leith van Onselen The RBA has released its commodity price index for March, which fell by 0.9% in SDR (currency weighted) terms – the key determinant of the terms-of-trade – but was flat in Australian dollar terms: Preliminary estimates for March indicate that the index decreased by 0.9 per cent (on a monthly average
By Leith van Onselen The retail smash rolls on, with Woolworths announcing that it will close 30 Big W stores over the next three years, along with two distribution centres. From The Australian: The closure of the Big W stores, representing around 16 per cent of the current store network, is not as bad as
The NAB survey is out for March and the news is very mixed: Key messages from the Survey: Survey results were mixed this month. Business conditions saw a welcome increase to above average levels with each subcomponent of the index rising. The employment index itself remains well above average, suggesting that for now, survey indicators
By Leith van Onselen The lack of planning and foresight to cope with the never-ending population (immigration) deluge into Australia’s big cities never ceases to amaze. After a conga-line of reports about overcrowding across roads, public transport, schools and hospitals, now we hear that Sydneysiders are at war over accessing the city’s shrinking green spaces.
By Leith van Onselen After spending 6-plus months on the sidelines, Ross Gittins cautiously re-entered the immigration debate over the weekend, noting that Australia’s turbo-charged immigration intake is “hiding the economy’s long-running weakness”: Let me tell you about some comparisons of our performance by decade, calculated by independent economist Saul Eslake in a chapter he
By Leith van Onselen The Reserve Bank of Australia (RBA) has released its debt ratios for the December quarter, which revealed that Australian households’ debt loads have hit another all-time high. The ratio of household debt to disposable income hit a record high 189.6% in December, with mortgage debt to income a record high 140.2%:
Or should that be “barristamaggedon”, via AFR: Small business owners are alarmed at Opposition leader Bill Shorten’s vow to increase weekend penalty rates and boost the minimum wage, arguing they are already battling higher power prices, rising rents and drought. Labor legislating a “living wage” and increasing Sunday penalty pay in some industries would force
Via the AIG: I’m sorry to say there never a “recovery”. There is only a steepish downtrend. Some good news came in employment rebounding but it is not going to last as new order tumble again: Full report.
By Leith van Onselen The Australian Bureau of Statistics (ABS) yesterday released its quarterly labour force report, which breaks-down employment at the industry level to February 2019. Below are some key charts, which present the changes in employment aggregates on a trend basis. First, the quarterly change in employment by industry: Next, the annual employment
Via the ABS: HOUSEHOLD WEALTH FALLS Household wealth (net worth) decreased 2.1% in the December quarter 2018, driven by real holding losses on land and dwellings, and financial assets. The fall in household wealth is the largest since the September quarter 2011 (in percentage terms), and follows a 0.1% (revised) decrease in the previous quarter.
Via UBS’s excellent George Theranou: Households are still leveraging. Even though household liabilities growth dropped to a >5-year low of 4.2% y/y, because nominal income growth collapsed even more to just 2.0% y/y, the household debt-to-liabilities ratio lifted to a record high of 199% in Q4- 18. However, mainly due to falling house prices, household
By Leith van Onselen Over the past year or so, I have ridiculed the new found push by Coalition politicians towards decentralisation, noting that this is a pipe dream based on the settlement pattern of new migrants, which have overwhelmingly chosen to flood the major cities. My view was initially based primarily on data from
By Leith van Onselen The Australian Bureau of Statistics (ABS) has released job vacancies data for the February quarter, which recorded a 1.4% seasonally adjusted rise in the number of vacancies over the quarter and a 1.1% rise in trend terms: Over the year, job vacancies rose by 10.0% in seasonally adjusted terms and by
Via Capital Group: I put Australia just ahead of the UK on that curve. The rest of the report is a useful little guide to asset allocation in recessions in general. Full report.
By Leith van Onselen The ABC’s Stephen Long and Michael Janda have produced an interesting report looking at Australia’s weak wages growth, which includes the below pearls [my emphasis]: “The biggest cost to most companies is their wage bill,” said Warren Hogan, a professor at the University of Technology, Sydney Business School and formerly chief
New today from Manpower: It’s not so good when you look under the bonnet: Bureaucrats forever! More at Westpac: Westpac’s employment confidence read has dropped by 7.1 points to 114.2 in the March quarter, reversing the strong rise from December. At these levels, the index is now close to its long-term average – with jobs
By Leith van Onselen Judo Capital founder Joseph Healy has told a banking and wealth summit that a generation of bankers lack sufficient knowledge of the lending requirements of the small business sector, as they favour lending to property buyers. From The AFR: The co-founder of challenger SME lender Judo Capital said bankers were addicted
By Leith van Onselen Yesterday’s capital city population figures from The ABS revealed that Sydney’s population ballooned by 93,411 people in 2017-18, driven by 77,091 net overseas migrants, who accounted for 83% of Sydney’s growth. At the same time, 27,264 locals departed the city: One only needs to look at Sydney’s housing market to see why
By Leith van Onselen A conga-line of ‘growth lobby’ rent-seekers have united in a bid to force the ACT Government to overturn a community plan limiting the height of high-rise development down Northbourne Avenue. From The Canberra Times: The ACT branches of the Property Council, Master Builders Association, Planning Institute of Australia, Institute of Architects
By Leith van Onselen The Australian Bureau of Statistics (ABS) has released its Regional Population report for the 2017-18 financial year, which revealed that Melbourne remains the king of the population ponzi, adding an insane 119,421 people to its population in 2017-18, representing growth of 2.5%. Sydney’s population also surged by 93,411 people in 2017-18,
By Leith van Onselen For the past year or so, MB has warned that consumption growth will necessarily have to fall owing to crashing house prices, anaemic wage growth, and the mountain of debt carried by Australian households. The below analysis by Gerard Minack last month said it best. According to Minack, there is historically
By Leith van Onselen As reported in The Australian today, former prime minister John Howard has rejected suggestions that wealth inequality is rising in Australia, noting that research by Credit Suisse in 2018 refutes this. He says that on a per capita basis, the nation has the largest middle-class in the world. Howard concedes that
By Leith van Onselen The ANZ-Roy Morgan consumer confidence survey continues to scream pessimism, with the index stuck well below average levels: ANZ’s Senior Economist, Felicity Emmett, was sobering in her assessment: “Confidence was broadly unchanged over the past week, remaining well below average. The strong February labour market report, showing further modest jobs growth
We report, you fall asleep: Because the property “fight of the century” looks more like a little false binary.
By Leith van Onselen Over the past four years, Australia has experienced a huge lift in international students, with arrival numbers nearly doubling to around 600,000 in the 2018 calendar year: The boom in international student numbers is frequently hailed as Australia’s third biggest export, generating $32 billion in export earnings in 2017-18: However,
Yesterday Coles announced this: Coles said on Tuesday it would pay Ocado to open automated fulfillment centres in Melbourne and Sydney by 2023, which will double its home delivery capacity and improve profitability. “The picking accuracy is better, the product is better and we will be able to offer more delivery windows than we can
By Leith van Onselen Trade Minister Simon Birmingham has derided Labor’s obsession with “trivial left-wing obsessions” and its call for greater transparency in free trade agreement (FTA) negotiations. From The AFR: With Senator Birmingham to sign a free trade deal with Hong Kong in Sydney on Tuesday, Labor has hit back by promising to address public
There’s going to be a deluge of this stuff forever now, via Domain: The former operator of a Melbourne restaurant is facing allegations it underpaid a migrant employee almost $70,000 in less than two years and provided false records to Fair Work inspectors during their investigation. The Fair Work Ombudsman (FWO) is taking legal action
While the horribly late to the party Fake Left is celebrating at The Guardian: Under the Labor proposal, a Bill Shorten government would amend the Fair Work Act to first instruct the Fair Work Commission, which sets the nation’s minimum wage, to determine “what a living wage should be”, taking into account the views of
By Leith van Onselen Economists claims that the federal government’s plan to cut the permanent migrant intake by 30,000 annually over four years will reduce economic growth by 0.13% and put further downward pressure on house prices. They also contend that the cut in permanent migration could lead to a tighter skilled labour market, with
