Australian Economy

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.


Manufacturing crashes to post GFC low

The AiG PMI is out this morning and it’s wish me luck as I wave you goodbye manufacturing! Yes, activity has now sunk to the lowest level since the GFC. And it’s broad based: And accelerating: But worry not, it would have happened anyway ;-). And to celebrate, here is the theme song of the


Housing credit plumbs record lows

By Leith van Onselen The Reserve Bank of Australia (RBA) has just released the private sector credit aggregates, which registered a small increase in total credit in the month of June, but the second lowest monthly housing credit growth in the series’ 35-year history and the lowest annual mortgage growth ever recorded: Total credit provided


Dwelling approvals fall in June

By Leith van Onselen The Australian Bureau of Statistics (ABS) has just released the Building Approvals data for the month of June. At the national level, the number of dwelling approvals fell by a seasonally adjusted -2.5%% to 13,336, driven predominantly by a -4.9% decrease in approvals for private sector units and apartments. In the


New home sales off the canvas

HIA New Home sales for June are out and show a modest improvement: New home sales increased for a second consecutive month in June 2012 due to a spurt in multi-units, said the Housing Industry Association, the voice of Australia’s residential building industry. The HIA New Home Sales report, a survey of Australia’s largest volume builders, showed


Veda: Credit demand stabilises

By Leith van Onselen Find below the Veda’s Consumer Credit Demand Index results for the June quarter of 2012, which shows a stabilisation in credit demand. 25 July 2012 Sydney, Australia, July, 2012: The results of  Veda’s Consumer Credit Demand Index for the second quarter of 2012 show that overall consumer credit demand has flattened


Queensland dices with Spain

Back in June I mentioned that the new Newman government of Queensland appeared to be implementing a substantial austerity program in order to re-balance the Queensland budget. As I stated in the previous post, one of the major issues with the government’s budget is the highly optimistic forecasts used by the Queensland Treasury under the


Abbott declares himself a sovereign risk

There’s some vague rhetoric and halcyon days analysis of Tony Abbott’s great China gaff today. As usual, the tribal nature of the Australian media is trumping more hard-nosed analysis, with both The Australian and the AFR going very light indeed on Abbott’s extraordinary declaration that Chinese SOE investment is not welcome in Australia. The AFR, via


Another tourism ad debacle?

From the SMH: Australia needs to rethink its sales pitch to Asian tourists who believe a holiday here is too expensive because of the way is marketed in Asia, the boss of Malaysia’s budget airline, AirAsia X, says. Giving an outsider’s perspective of Australia’s latest ad campaign, Azran Osman-Rani said Australia’s tourism industry needs to be


CPI weak

Told ya. CPI is out and it’s weak, 0.5% on the quarter and 1.2% on the year. The trimmed mean, the weighted median are all weak. Looks like most of what inflation there is in retail, suggesting the recent rate cut induced bounce has delivered a little short term pricing power, which will fade. Look


Glenn Stevens: The lucky country

Find below Glenn Stevens new speech on why we are different: The Lucky Country! One wonders he hasn’t been reading… Thank you for coming today to support the Anika Foundation. Before I proceed I want also to thank Macquarie Bank for their support, once again, in providing today’s venue and sustenance, and the Australian Business


NAB Q2 manufacturing report falls

Find below the Q2 NAB Manufacturing Index. Here’s the summary: NAB’s Manufacturing Activity Index recorded further declines in the June quarter, down to -0.6 points (from -0.4 points in March). This implies further declines in manufacturing activity for this period – around -0.8% qoq. • ABS data for Industry Gross Value Added has recently been revised


CPI previews

Find below a couple of CPI previews from NAB and Westpac. They agree on a relatively benign June QTR result of 0.7% headline and lower for core. My own view is lower still but I still don’t agree that the CPI is the key release in the next few weeks. Barring an out of the


Construction sector job losses mount

By Leith van Onselen Fairfax’s Adele Ferguson today published an important article on the growing number of collapses in the building industry, where at least two companies a day are going under, mostly in New South Wales and Victoria: The latest statistics on liquidations and voluntary administrations show that since January 1 more than 363


Dumb and dumber do trade

AAP appears to have led off another of those wondrous moments in the Australian business media when a bad economic statistic is somehow alchemically transmogrified into gold. Today it is the ABS quarterly International Trade Prices which showed a 2.4% rise in import prices and a 1% rise in exports: The magic occurs when you


Westpac: Q2 CPI to bounce

Westpac has an interesting note out that is forecasting a big bounce in Q2 CPI to 0.7% on rebounding food prices. Still not overly high in the scheme of things but a decent rebound. My own view is we will see weaker but I don’t think the CPI is all that relevant this quarter anyway.


Retail gets some tax-payer funded propaganda

It always pays to be an interest in Australia. From the The Oz: The online shopping habits of Australians will be tracked for the first time by the Australian Bureau of Statistics. The Gillard government today announced $2.1 million over four years for the ABS to get a better picture of online spending habits and


NAB June QTR Business Survey collides with RBA

Today’s June quarter NAB survey shows just how ridiculous the RBA Minutes were earlier this week. Here are the vitals: Confidence down, conditions down, trading down, profitability down, employment down, capacity utilisation down. Labour prices, exports, forward orders were flat at poor levels. Capex was up a smidge. Business conditions are falling in every sector


Rudd is coming

The headline story today at the AFR is a neat investigative report into union power brokers shifting towards the return of Kevin Rudd: The top leaders of the trade union movement discussed the prospect of Kevin Rudd returning to the leadership of the Labor Party as they prepared a battle plan against Coalition leader Tony Abbott.


Revenge of the Nanny state

Two stories this afternoon at the AFR shows how happily populist our politics is, not to mention how well Nanny State politics goes down with the battlers. Both are stories about Coalition intervention into government payments.  The first is about a plan, or at least an intention, by the Coalition to police carbon tax rebates


Housing completions hit decade low

By Leith van Onselen The Australian Bureau of Statistics (ABS) has just released building activity data for the March quarter, the highlight of which is the sharp contraction in dwelling completions. According to the ABS, there were only 32,557 (seasonally-adjusted) dwellings completed in the March quarter, which is a decade low (see below chart). The


Leading Index rises from canvas

The Westpac/Melbourne Institute Leading Index for May is out and accelerated from its recent lows: 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 1.6% in May 2012, below its long term trend of 2.6%. The annualised growth rate of the Coincident