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.
Tomorrow we get the release of the AWOTE measure of wages which is widely known and probably more commonly watched than today’s wage cost index which was just released. The WCI is a little more obscure so it probably worth explaining what the ABS says it measures: The wage, non-wage and labour price indexes measure
A day after the most hawkish RBA Minutes that anyone can remember, Westpac’s Consumer Confidence is only going the other way: The fall for May was moderate but it’s now a major downtrend. Not to mention the expectations component, which is falling off a cliff. Can the RBA really be thinking of hiking in this environment? The
Attached find the full transcript of the inaugural speech of the new Treasury Secretary, Martin Parkinson. I will return later with analysis.
The ABS has released March Lending Finance. It shows strengthening business lending and stabilisation in conmsumer lending after three months of heavy falls: MARCH KEY POINTS MARCH 2011 COMPARED WITH FEBRUARY 2011: HOUSING FINANCE FOR OWNER OCCUPATION The total value of owner occupied housing commitments excluding alterations and additions fell 1.7% in trend terms and
Regular readers will know that I have little time for the complaints of vested interests. But, one can’t help noticing just how many are out there talking down their circumstances just now. Don’t get me wrong, MacroBusiness has led the nation’s understanding of the economies’ current travails, and there are losers, contrary to the post-GFC
ABS has released Housing Finance for March and Car Sales for April. First up Housing Finance, which we knew from other indicators was going to come in weak, and it did: MARCH KEY POINTS VALUE OF DWELLING COMMITMENTS March 2011 compared with February 2011: The trend estimate for the total value of dwelling finance commitments
The total number of people employed in Australia fell by 22,119 in April. This is the third time in the past 5 months we have seen the total number of people employed in Australia fall. Yes, that’s right, the 3rd time in 5 months. The market was looking for a gain of 17,000
For almost a year now I have been warning about the Australian market. It became clear quite some time ago that the falling rate of credit issuance towards housing and the demographics of Australia where going to lead to downward pressure on prices. Most recently I have been stating that I can’t see any new
The trade balance roared back in to surplus in March as exports surged 9.2% over the month, outpacing the 1.2% rise in imports. The surge in exports was drive by an 11% jump in non-rural goods exports which account for two thirds of total exports. While imports were mixed with intermediate imports climbing 7.5% while
The NAB April Business Survey is out and it’s got something for everyone. For the rate doves, the lead Business Conditions Index softened: And the internals dropped pretty substantially: However, two other key indexes for the RBA are strongly inflationary. First and foremost, labour: And employment: In sum, I would say that despite the weakness,
Those poor bullhawks. That strange creature – half housing bull, half rate hawk – must be having a few doubts. Personal crises even. Retail sales for March are in and look, well, crapola. First from the ABS itself: I will add that on a monthly basis there were a few eye-opening falls for different segments. Department stores
Adam Carr won’t be happy. He’s relied on growing car sales in part to rationalise his intense campaign for rate hikes. Westpac has just released a note on the April sales figures from the Federal Chamber of Automotive Industries and it’s into reverse I’m afraid: Westpac Economic update Australia: new vehicle sales down 4.5% in
The RBA made reference to the likelihood of a negative print when Q1 GDP is released on the first of June so I thought I would visualise what a negative number. Without positive revisions to previous quarters this would take the annual rate below 2%: While we were the only developed nation to avoid a
Today AIG PMI shows manufacturing still in recession in April. However, there is a the hint of a trend change in both the the headline index and its internal measures. It is slow progress and nobody should be breaking out the champagne, expecially since the dollar has not stopped rising but there is slow progress towards expansion.
My kingdom for a rational media. Today’s selection of economic commentary, from interest rates to the Budget and carbon taxes is so full of amphetamines that one is tempted to conclude that everyone is still high from last night’s Logies. From the top, we have a piece from Alan Kohler that makes no economic sense:
Sinclair Davidson has a terrific insight today into what transpired in the RSPT debacle for the Rudd Goverment. Much of the piece is derived from freshly released FOI documents: It is now possible to reconstruct much of what was happening within government and the bureaucracy in the run-up to the announcement of the RSPT and
In my recent budget analysis piece I spoke about public final demand. Forecast 6: Public final demand, having risen strongly in 2009‑10, is forecast to moderate in 2010‑11 and 2011‑12, reflecting the unwinding of the Government’s fiscal stimulus measures and a broader moderation in spending growth across other levels of government. Analysis: I am going
Well it seems the last fortress of denial is starting to see some real estate trouble with the Daily Telegraph reporting recently on Sydney’s market. Sydney’s great property divide is being turned on its head, with the wealthy Eastern Suburbs suffering a shock 15 per cent slump in property prices, while values in the city’s
Last week’s article, Hooked on property, provided some detailed facts and figures from RP Data highlighting how Australia’s state and local governments are addicted to property-related taxes, and discussed how these revenues are expected to fall precipitously as housing sales decline and prices stagnate. The article concluded with the following statement: Over the past decade,
As you can probably tell we are all having a bit of a break over Easter. But just while I have a bit of time before the Easter Bunny arrives and my yard apes turn into sugar crazed lunatics I thought I would share a few stories I am watching. China Protests Over the last
Sam Birmingham runs a top quality networking site for young professionals called WeBe, which provides up-to-date information on financial matters, work-related issues, lifestyle news and reviews, and current affairs and opinion pieces. WeBe also provides a platform where members can have their voices heard, express opinions and share ideas with other like-minded Young Professionals. Yesterday,
The press is full of condemnation of Wayne Swan’s preliminary Budget speech yesterday. Personally, it didn’t strike me as so awful. In parts, it was a pretty candid take on the conundrum facing the economy: But this phase of the mining boom, mining boom mark II, will be very different to mining boom mark I,
It is that time of year again where the government, specifically the treasurer gets to tell you what a wonderful job they/he are doing. This year the Treasurer seems to be using the old “it was the last guys fault” strategy to cover up his own inadequacies. His latest speech in Brisbane was a definitely
From Westpac and the Melbourne Institute today comes leading indicators for the economy (full report below). And they’re solid: The annualised growth rate of the Westpac–Melbourne Institute Leading Index, which indicates the likely pace of economic activity three to nine months into the future, was 4.7% in February 2011, above its long term trend of
Dunn & Bradstreet’s latest report on credit is out and it is not for the faint hearted. One third of Australians expect to experience difficulties meeting their credit commitments over the next three months and nearly 40 per cent anticipate having to use their credit card to cover otherwise unaffordable expenses. At the same time
The following is the domestic economy section of the Minutes on Monetary Policy released today. Any regular reader of MacroBusiness will be unsurpised by the PROCESSION of negatives noted during the meeting. Indeed, we might have written these notes ourselves over the past two months. In total, it’s a very negative assessment of the economy that
Wow, it’s funny what a bit of accountability can do. Last week I noted how Craig James at Commsec was a part of a more general discourse that needed to stop looking down on Australians for adopting a laudable savings cultre and voila today we have a new tone. From Smart Company: Aussie businesses have
Yesterday one of our more bullish commenters (BK) asked us what we thought of yesterday’s car sales. It’s not usually something we track but it probably should be so thanks for the question and here it is. First from the ABS: I always work in seasonally adjusted figures (unlike DE). The overall result here looks
In a follow up to a story I posted about the failed Clem7 tunnel in Brisbane, it looks like some of the aspects of the story I mentioned have still got some legs. Less than two months after the spectacular collapse of listed toll road operator RiverCity Motorways, its traffic modelling forecaster Aecom faces a
There’s a piece today by Peter Martin and Phillip Wen in the Fairfax press about how: Australians are richer than ever, paying off debt at an unprecedented rate – but still losing confidence in the economy. New figures show wealth per person climbed to a record high of $266,600 at the end of December, easily
