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.
April retail sales are in and fell 0.2% month on month, well below consensus of a 0.2% rise. March was revised up 0.2% to 1.1%. The internals were uniformly weak with only food and eating out eking out growth: So, more evidence of an April freeze in the household sector, with some hope apparent in
By David Llewellyn-Smith From me this morning: China yesterday unveiled a $400 trillion yuan ($60 trillion) stimulus package that aims to put empty apartments on the moon. Dubbed a “maxi-me” of the stimulus package unveiled in 2008 to combat the initial hit from the global financial crisis, the program includes dead end infrastructure and ghost
From Roy Morgan today: Consumer Confidence is at 108.3pts (up 0.1pts in a week) according to the Roy Morgan Consumer Confidence Rating conducted last weekend (May 26/27, 2012). Consumer Confidence is now 4.4pts lower than a year ago May 28/29, 2011 (112.7). Australians have gained a little confidence over the past week about their personal
HIA-JELDWEN new home sales for April are out today and show a small bounce from March’s crater low. The internals are not at terribly encouraging, surging in Victoria on disappearing stimulus and where more dwellings are least needed: The HIA – JELD-WEN New Home Sales report, based on a survey of Australia’s 100 largest builders, showed
I have intermittently tracked the economic narrative emanating from our economic leadership in Canberra and Martin Place. Looking for sense in the transition we face from yesteryear’s credit driven model of economic growth to today’s commodities investment driven growth. At times leaders have made some sense, even if they refused to acknowledge what we were
NAB’s April online retail index for April is out and shows slowing growth: According to the Index, the value of online sales in Australia for the year to April 2012 was $11.1 billion. However, our research shows a clear slowdown in growth over the past year, with year-on-year growth rates declining to 15.5% in April. The Household goods
Cross-posted from Mark the Graph. Most people who come here will be familiar with the Australian private sector debt story over the past 35 years. Since Q4-1976, private sector debt has risen from a touch over 40 per cent of nominal GDP. It peaked with the onset of the Great Recession at around 155 per
David Uren has an important report today on the forthcoming bust of the commodities investment boom: Following his post-budget address to business economists, Treasury secretary Martin Parkinson was asked whether the slowing rate of new resource projects getting a go-ahead cast doubt on the strength of the investment outlook. He replied that Treasury applied very
By Leith van Onselen From Property Observer today comes news that the 50 basis point cut in official interest rates in May, of which around 35 basis points was passed onto borrowers, has failed to stimulate mortgage demand: The Reserve Bank has presented the carrot, but few borrowers appear to be biting, according to mortgage
Cross posted with permission from Mark the Graph: DEEWR publishes monthly data on its payments. The April data was released Wednesday. Based on this advice from Centrelink, it looks like two of these payment data series – Youth Allowance Other and New Start Total Recipients – can be added together and used as a rough
So, more data confirmation of the April freeze. DEEWR Skilled Vacancies is out for that month and is down 7% in seasonally adjusted terms (trend down 0.8%): The internals aren’t pretty either with wall to wall declines in sectors and states: I am officially worried. Vacancy Report May 2012
Attached is Myer’s profit downgrade release. The Myer downgrade is becoming a staple bi-annual event buy today was a little more worrying that usual. On current trading conditions, Bernie Brookes said: …the result was solid considering the very difficult trading environment in April, which has continued in the first few weeks of the fourth quarter.
Below find the OECD’s assessment of the Australian economy over the two years. It’s an exciting piece of fiction best enjoyed on a short plane flight. Australia can be expected to keep reaping the benefits from the minig boom. Despite sharp sectoral disparities, economic growth should be around potential in 2012 and 2013. Mining expansion
Find below the AWU’s Paul Howes’ Press Club address of yesterday. The speech has been largely ignored by the vested interests driven business media which is a shame because it’s pretty good. Sure, there’s some contradiction in it. And a lot I don’t agree with, such as his assessment of bank re-regulation being an excuse
There has been some debate about the influence of external events upon Australian consumer confidence. To my knowledge, nobody as actually tried to measure the effects discretely, but this week’s Roy Morgan Consumer Confidence reading weighs in heavily on the side of deep impact. The number fell 7.5 points to the lows of mid last
From The Australian this morning: WEST Australian Premier Colin Barnett has warned his state will “fully integrate” with Asia if the federal government doesn’t ensure WA gets its fair share of the GST pie. Speaking on Sky News’s Australian Agenda program yesterday, Mr Barnett said his state was becoming “much more independent financially” and the
Everything you ever wanted to know about the consumer but were afraid to ask… WestpacRedBookMay2012 (1).pdf
Time to buy with both hands! The Pascometer has written off the mining boom thereby ensuring its shift to an altogether unimagined high. But seriously, now that BHP has outflanked yesterday’s rousing chorus of “sell ’em dirt” insiders by itself declaring the commodity super cycle dead, it’s going to be immensely entertaining to watch the
Some good news and bad news today on Australia’s paired macro vulnerabilities. The good news first. On the houses side of the economy, bank CDS prices have fallen a little: I’m as certain as anything in this world that this is only a breather before we go higher. Meanwhile, on the holes side of the
Go Wazza! From The Australian: AUSTRALIA’S government will have to scrap plans to reverse a $44.4 billion budget deficit in the next fiscal year and the country’s central bank will have to cut rates further as Europe’s economic problems worsen, said an influential former board member of the Reserve Bank of Australia today. The new
The ABS has released its Feb quarter Average Weekly Earnings (AWOTE) report today and it shows ongoing solid wage rises across the nation. Better than the market was forecasting too with QoQ growth of 1.1% versus expectations of 1% and YoY growth of 4.4% versus 4.1% expected. Here’s the long term chart: That’s still very
From Roy Morgan: Consumer Confidence is at 115.7pts (up 5.4pts in a week) according to the Roy Morgan Consumer Confidence Rating conducted last weekend (May 12/13, 2012) — the first measure of Consumer Confidence after Treasurer Wayne Swan delivered the Federal Budget last Tuesday and Opposition Leader Tony Abbott’s Budget reply on Thursday. Consumer Confidence
You will perhaps be unsurprised to hear that the twin measures of Australian vulnerability both deteriorated overnight. On the housing side of the economy, bank CDS prices rose another 10 pips or so and are clearly at levels associated with closed markets for Australian bank bonds, approaching 190bps: Gotta love that Budget surplus. Except, maybe
By Leith van Onselen Meet Harry Triguboff. For those who aren’t aware, Mr Triguboff is also known as “High rise Harry” and is the head of Meriton. Meriton is the largest developer of apartments in Australia, with around 50,000 under their name. In early 2010, Mr Triguboff declared his interest in a “Big Australia” when
By Leith van Onselen The Australian Bureau of Statistics (ABS) this morning released the Lending Finance data for March, which registered a large increase in the value of commercial finance commitments and smaller rises in both personal and lease financing commitments: In seasonally adjusted terms, the value of commercial finance commitments rose 8.8% in March,
By Leith van Onselen The Australian Bureau of Statistics (ABS) has just released the labour price index for the March quarter of 2012. According to the ABS, in trend terms total wages (excluding bonuses) increased by 0.9% over the quarter, with private sector wages rising by 0.9% and public sector wages increasing by 0.7%. The
It appears consumers are not easily bought at the moment with the Westpac/Melbourne Institute Consumer Sentiment reading a measly gain of 0.8% following a 50bps rate cut and cash splash Budget. Here are the major components: Nice pop in family finances which reverses April’s dump. Otherwise, nada. Full details below. er20120516BullConsumerSentiment
It’s Treasury’s turn today to confess how they got their economic forecasts so wrong over the past eighteen months. Treasury head Martin Parkinson describes the Treasury’s errors at length in the attached speech. In short, they made the same errors as the RBA, over estimated exports, under estimated imports and assumed lot’s of capital gains
By Leith van Onselen The Australian Bureau of Statistics (ABS) has just released new motor vehicle sales data for the month of April: On a seasonally adjusted basis, new motor vehicle sales fell by -0.7% in April, but were 7.3% higher over the year. The reduction in sales over the month was driven by passenger
By Leith van Onselen Last month, I noted how Australian State Government Budgets are under increasing pressure from falling stamp duty receipts on the back of the slowing property market: …last week, the Australian Bureau of Statistics (ABS) released Government finance statistics for the 2010-11 financial year, which revealed that Australia’s state and territory governments
