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.
Here are the full minutes from this month’s interest rate decision – where they held at 4.25% – by the Reserve Bank of Australia (RBA) with a Wordle of the text above: International Economic Conditions Members noted that the growth rate of the world economy was expected to be at a below-trend pace in
Cross posted with permission from Mark the Graph At the risk of being labeled a pedant, I will return to Matt Cowgill’s chart from which he argued that full-time employment growth has been seriously failing to keep pace with population growth. Matt’s chart is as follows: In response to my previous blog, Matt tweeted that his chart
John Howard once famously described himself as “Lazarus with a triple bypass” but there is another political survivor who has shown every bit as impressive political cunning to push his star to new highs despite a series of policy debacles that have brought down those around him. That man is the Treasurer, Wayne Swan. Consider
By Leith van Onselen Earlier this month, Australia’s unofficial provider of labour force data, Roy Morgan Research, released its employment figures for March, whereby it estimated that 9.3% of Australians were unemployed, down -0.4% from February 2012. As explained previously, Roy Morgan Research measures employment differently from the Australian Bureau of Statistics (ABS), which is
On Friday, Saul Eslake released a note condemning Australian manufacturing to its fate, not to mention condemning outright anyone who sees it as not such a good idea to let Dutch disease have its way. The Merrill Lynch note was a near carbon copy of Canberran rhetoric on the issue and as such is worth
By Leith van Onselen The Australian Bureau of Statistics (ABS) this morning released the Lending Finance data for February, which registered a sharp fall in the value of personal and commercial financing commitments; although lease financing commitments registered a solid rise: In seasonally adjusted terms, the value of personal finance commitments fell -3.8% in February
Former TD Securities economist and advisor to Julia Gillard, Stephen Koukoulas, has emerged as an interesting new voice in the blogosphere in the past few months. Today he appears in the AFR to put his stamp of approval on the Swan plan to drive a surplus as soon as possible: There is an almost unlimited
Cross posted with permission from Mark the Graph. The Insolvency and Trustee Service Australia is the government agency responsible for the administration and regulation of the personal insolvency system in Australia. Every quarter it releases data on personal insolvency actions. Yesterday it released data for Q1 2012. That data showed a 10 per cent increase in personal
So, the MRRT truce is broken. From the AFR: A truce in the mining industry’s advertising war against the government – agreed when Julia Gillard became Prime Minister and offered to renegotiate the mining tax – is about to be broken with new print ads set to complain about possible new imposts in the budget.
Today’s (late) chart, given the overwhelming subject throughout the day has been the “surprising” employment figures, is from Matt Cowgill, and is fairly self evident – most job growth has been via part time employment, whereas full time jobs remain static: As Matt tweeted earlier, three points come about from the numbers released today.
ANZ has an interesting note out today asking the suddenly all too real question: HAS THE UNEMPLOYMENT RATE PEAKED? •Employment rose by 44k in March, well above market expectations of +6.5k. The unemployment rate was steady at 5.2% (mkt: 5.3%), and has been broadly stable since July 2011. •In a trend sense, the multi-speed nature
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As you may be aware, this morning the IMF rode to the support of the Australian government’s surplus drive (if resistance hasn’t already been killed by S&P). Here’s a summary of what it said: Saving up during good times for use in bad times—via countercyclical budgetary policies—protects small commodity-exporting countries from swings in commodity prices.
So, rate cut euphoria is rapidly fading with today’s Westpac/Melbourne Institute Consumer Confidence survey registering another 1.6% fall. Although that may seem minor, check out the doom saying from our favourite mainstream economist, Bill Evans: There is a very disturbing message in the movements of the components of the Index. Two components measure respondents’assessments of
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ANZ released their monthly Job Advertisement series this morning, and it provides an interesting picture going into Thursday’s official job figures release from the ABS. Does it provide some confirmation that maybe the RBA was right to hold rates for a little longer as they are still cautious regarding a wage spiral? Here are the
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Cross posted with permission from Mark the Graph: There has been a bit of chatter today on the spike in the monthly number of companies entering into external administration. The raw data comes from ASIC. Undertaking a seasonal decomposition of this data shows that things are quite serious. The state where the problem appears the largest
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Cross posted from Mark the Graph: It’s been a while since the whole GFC thing. While it was not as deep as the early 1980s and 1990s recessions, it is proving remarkably stubborn and enduring (at least in terms of sub-trend GDP growth). Today’s blog is some comparative charts of the last three Australian downturns.
Market pundits were again surprised by yesterday’s trade deficit. Notes from a number of banks expressed surprise and Peter Martin captures the mood this morning: Unexpectedly bad trade figures for February show income from resource exports down for the second consecutive month. Over the quarter, income from coal exports fell 19 per cent, and income from metal
CBA has produced a useful new note that depicts the strength and weakness in labour market segments using heat maps. You’ll notice from the above image that the result is a wall of red. It’s a short note and worth a read. Labour Market Heat Maps Regional Industry Jobs Growth 04 Apr 2012 1457 1
The Reserve Bank of Australia (RBA) has released its monthly Chart Pack – “a set of graphs that summarise macroeconomic and financial market trends”. Let’s have a closer look at a select few interesting and relevant charts for MacroBusiness readers. World Economy Its pretty simple folks – growth, whilst positive, is slowing down. This series
