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.
From the AFR this morning comes an allegation from the boss of Glencore that Australia’s sovereign risk profile has deteriorated: “We have spent a long time on roadshows [with investors] and one of the biggest questions on the roadshows was: ‘Glencore you are in difficult, risky countries. You’ve got a vast amount of assets in
Sorry for a couple of late stories today. From Crikey: Online finance journalism publisher Australian Independent Business Media is edging ever closer to sealing a takeover deal with Kim Williams’ News Limited. AIBM chairman Alan Kohler declined to comment this morning other than to say the tie-up was yet to be done and dusted. However,
By Leith van Onselen As reported by Houses and Holes earlier today, the Australian Bureau of Statistics (ABS) today released labour force data for the month of May, which revealed more strong jobs growth. In seasonally adjusted terms, total employment increased 38,900 (0.3%) to 11,537,900. Full-time employment increased 46,100 (0.6%) to 8,107,900 and part-time employment
Labour Force is out and the strength continues with 46k full time jobs created in May. Part time fell 7k. The unemployment rate still rose 2bps to 5.1%. This result defies heavy falls in both the DEEWR and ANZ job ads for the month. Here are the details with more to come… MAY KEY FIGURES
The Australian Industry Group’s Performance of Construction Index (PCI) is out today and shows move deeper into recession for the sector: As I’ve said before, I am no fan of this index. In fact, it has such a clear bias towards dwelling construction that it makes almost no sense given we’re in the midst of
Cross-posted from Mark the Graph. I am still wrestling with the national accounts data that says we are living in the midst of a deflationary boom. It’s a very rare beast; the opposite of the 1970s stagflation. Either way, I will need to find a theoretical framework to explain our fast-growing, yet price-deflating economy. (Or
By Leith van Onselen Mark the Graph and Stephen Koukoulas yesterday provided some great insights into the main reason why Australia’s March quarter GDP print of 1.3% growth was so strong: because inflation, as measured by the GDP Implicit Price Deflator, fell sharply over the quarter. To highlight the effect of the Implicit Price Deflator
Cross posted from Mark the Graph is an excellent take on the effects of falling inflation on the GDP result. The headline GDP growth story is fantastic: 4.3 per cent growth through the year. Wow! Break out the party, the economy is back on track to a stunning recovery. But the growth in nominal GDP
By Leith van Onselen As noted by Houses and Holes earlier today, the Australian Bureau of Statistics (ABS) today released the national accounts for the March quarter today, which registered very strong 1.3% increase in real GDP over the quarter and a 4.3% rise over the year. The below chart shows the breakdown by component
Well, how about that! National Accounts for the March quarter are out and BOOM! A quarter on quarter increase of 1.3%. An annual increase of 4.3%. Now, the annual increase does overstate things to an extent, given it contains the rebound quarter from last year’s floods. But even so, if you cut a half point
So, yesterday I caught up with Kyran Curry, the sovereign analyst at Standard and Poors. He was kind enough to grant an interview to help clarify the recent debate around his comments that Australia may be at risk of losing its credit ratings in any downturn. For those that missed it, the AFR gave prominent
From Roy Morgan today: Consumer Confidence is at 108.9pts (up 0.6pts in a week) according to the Roy Morgan Consumer Confidence Rating conducted last weekend (June 2/3, 2012). Consumer Confidence is now 4.9pts lower than a year ago June 4/5, 2011 (113.8). Australians confidence about Australia’s economy over the next twelve months has fallen with 39%
The ABS has released the March quarter current account balance and the blowout has begun with a current account deficit (CAD) of -14892 million recorded. That was slightly worse than consensus at -14850. This subtracted 0.5 points of GDP in the quarter: Here are the internals: The big turnaround is obviously in exports, with imports
The AIG Performance of Services (PSI) for May is out and shows a decent rebound, though still languishing well into recession territory: The latest seasonally adjusted Australian Industry Group/Commonwealth Bank Australian Performance of Services Index (Australian PSI®) shows that the services sector contracted again in May, but at a slower pace than in April. ■ The
By Leith van Onselen The Australian Bureau of Statistics (ABS) has just released overseas short-term arrivals and departures figures for April, which contained mixed fortunes for the tourism industry. While short-term resident departures decreased by -0.3% 0ver the month in seasonally adjusted terms – partly driven by a reduction in (bogan) departures to South East
The ABS this morning released its Company Operating Profits survey for the first quarter and the news wasn’t great, -4% in the first quarter, a slight improvement from the December quarter which saw profits at -6%. Consensus was for -2.5%. The history shows how weak this is: Company profits are a component of GDP so
Aaaand, the good news keeps on rolling with ANZ job ads down 2.4% in May. Although, the good news is the previous month was revised up from -3.1 to -0.8% so the damage is not as bad as first blush. Here is the ANZ’s take: The number of jobs advertised in newspapers and online declined
There are signs that the iron ore price correction is easing. The price has risen a couple of bucks (blue line) over the past few days since the mooting of a Chinese stimulus, whatever it will be. Also encouraging is that the Chinese steel prices for billet (pink) and rebar (green) have bounced at the
Sigh. They’re onto us all right. From the AFR on Saturday: Credit ratings agency Standard & Poor’s has warned it could cut Australia’s coveted AAA rating if the federal government abandons the budget surplus in response to a global recession triggered by the European debt crisis. …S&P’s director of sovereign ratings, Kyran Curry, said an extended
This morning the ANZ’s morning note said the following: In Australia today, there are no major data releases. Only the manufacturing PMI. In the US, and just about every other country on earth, the manufacturing PMI is one of the top five data releases for the month. Just sayin’. And so, on to the manufacturing
Yesterday I noticed a story in the AFR about the coming cuts to the South Australian government, obviously on the related news of the state’s downgrade: South Australia’s public sector has come under the knife, with the state’s treasurer axing 1000 jobs over the next three years and delaying a number of infrastructure projects as
From Roy Morgan late yesterday: In May 2012 according to Roy Morgan: Unemployment was 8.2% (down 1.1% since April 2012) — an estimated 997,000 Australians were unemployed and looking for work. A further 9% of the workforce* (up 0.8%) were working part-time looking for more work (underemployed) — 1,107,000 Australians. In total 17.2% (down 0.3%)
Late today S&P announced that: Long-Term Rating On South Australia Lowered To ‘AA+’ On Budgetary Pressures, ‘A-1+’ Short-Term Rating Affirmed; Outlook Remains Negative MELBOURNE (Standard & Poor’s) May 31, 2012–Standard & Poor’s Ratings Services said today that it had lowered its long-term rating to ‘AA+’ from ‘AAA’, on the state of South Australia and the
From the SMH: Julia Gillard told a dinner hosted by the council last night that Australians deserved to benefit from the mining boom – and that the nation’s resources belonged to its people and not the government or mining companies. ”And here’s the rub. You don’t own the minerals. I don’t own the minerals. Governments
By Leith van Onselen The Reserve Bank of Australia (RBA) today released credit aggregates data for the month of April, which revealed a continuation of the soft credit conditions prevalent over the past year. According to the RBA: Total credit provided to the private sector by financial intermediaries rose by 0.4 per cent over April
By Leith van Onselen The Australian Bureau of Statistics (ABS) has just released the Building Approvals data for the month of April. At the national level, the number of dwelling approvals fell by a seasonally adjusted -8.7%% to 10,330, driven predominantly by a -11.1% decrease in approvals for private sector houses. The result significantly undershot
So, private capex is out and kapow! Yes, it’s an extravaganza of investment with the March quarter delivering 6.1% growth against consensus of 4%. Year on year it is up 28.3%. That’s all to the good, but I was more interested to see if capex projections had at all been reigned in in the March
My favourite economic Mandarin, Martin Parkinson (AKA Parko), Secretary of the Treasury, is on the hill today beating the exceptionalism drum. From the AFR: Treasury secretary Martin Parkinson said Australia would have the capacity to respond to any potential renewed global credit crisis or recession triggered by Europe, including returning to larger deficits. “I disagree
By Leith van Onselen As noted by Houses and Holes earlier today, Australian retail sales fell -0.2% in the month of April, which was below consensus estimates of a 0.2% rise. For me, the most interesting aspect of the Australian Bureau of Statistics (ABS) release was the two-speed nature of the result. First, there was
The ABS has released its Construction Work Done report for the March quarter this morning and the result is a good one up 5.5% versus a market consensus of 3%. Some of that gloss was taken off by a downwards revision to the December quarter of 1.2% to 3.4%. There is no real surprise about
