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.


Time to refinance?

The question has been legitimately raised, as fixed interest rates fall, is now the right time to re-finance? This week, housing finance results showed a bounce for refinancing, primarily driven by QLD: Interestingly, visual analysis of the nominal levels shows a stall in refinancing, whilst established dwelling lending (i.e buying houses off each other) has also reversed


GDP double takes

Here are some more analyses of today’s National Accounts. The pick in my view is the first by Bill Mitchell: As winter arrived (June 1), the March quarter Australian National Accounts came out and showed that the Australian economy contracted by a staggering 1.2 per cent. With the seasons passing into spring and the warm


A couple of points from the Guv

I really quite enjoyed this morning’s speech from Glenn Stevens. It was lively and candid and offered a couple of points worth noting for monetary policy debates. The first point I want to make is that Stevens has rather subtly ridden to the defense of the RBA board: By the time of the May Board meeting, there


Still interesting times

Here’s a copy of Glenn Stevens speech he is currently delivering in WA: Still Interesting Times Glenn Stevens Governor Address to the Chamber of Commerce and Industry (Western Australia) and the Chamber of Minerals and Energy (Western Australia) Corporate Breakfast Perth – 7 September 2011 It is very good to be with you this morning. In the


Retail pain here to stay

Yesterday’s announcement by the Reserve Bank of Australia (RBA) that the official cash rate would remain on hold provoked a stinging response from the Australian Retailers Association (ARA): The Australian Retailers Association (ARA) says the Reserve Bank of Australia’s (RBA) decision to hold interest rates has left retailers struggling to hold on. The ARA had


The optimistic NSW budget

I spent a bit of time looking through the NSW budget documents overnight. The major announcements are: $8 billion in savings over four years Privatisation of Port Botany to fund roads 5000 public servants to be offered redundancies Increase in coal mining royalties to offset carbon tax First-home buyer stamp duty exemption to be changed to


Stimulus for a recession that never was

Hands up who knew that Australia avoided a technical recession in the aftermath of the GFC? Kevin Rudd certainly got some miles out of it, noting in his farewell speech how proud he was of that fact and the role his government played.  But as usual all is not what it seems.  The Keynesians shouldn’t


Qld drives housing finance bounce

So, we’re having a bit of a bounce in housing finance. Owner occupied was up 1.6% in July and investors 1.9%. Nothing too extravagant but certainly a rising from the floor. To the knees one might say: We’ve recovered much of the territory lost in the first half slump, though as you can see the


Decrease in CAD equals lower GDP

The Australian Bureau of Statistics (ABS) released current account figures for the June 2011 quarter (emphasis added) today: In seasonally adjusted, current price terms, the current account deficit fell $3,696m (33%) to $7,419m in the June quarter 2011. Exports of goods and services increased $5,837m (8%) and imports of goods and services increased $2,985m (4%).


Economic cogs in the mining PR machine

As Houses and Holes pointed out yesterday, the Minerals Council of Australia (MCA) public relations machine is hastily filling the mainstream media vessel with its store of positively framed economic analysis. The latest analysis from the stockpile is a study undertaken by Deloitte Access Economics (DAE) which surveys Australian mining companies about their tax obligations in order


CPI chameleon

The Consumer Price Index (CPI) forms a backbone for economic analysis.  We apply it to a broad range of circumstances to modify nominal dollar values into comparable real dollar terms, and our central bank has relied heavily upon it since mid-1993 when it found practical expression for its statutory objectives for monetary policy in the


Fighting Australia’s “hot money” problem

Tell me the first country that comes to mind when I state the following economics terms. Long running current account deficits, large private sector debt, high household indebtedness, high hidden inflation, falling productivity, falling real incomes, hot money flows, asset bubbles. Greece ? Spain ? Italy ? How about Australia? Last week I posted an


Mining 1, everyone else 0

For a group of pick wielding boof heads mining sure does a hell of a job on its public relations. Such a good job, in fact, it is running rings around the city-slicking bags of fruit who are supposed to understand the services business. What the hell am I talking about? This, from the SMH today:


ANZ job ads point to rising unemployment

ANZ job ads was out earlier today. It continues its recent trend of slowing growth: Total job advertisements on the internet and in newspapers decreased by 0.6% in August. Annual growth in total job advertisements decelerated to 6.1% y/y. • Newspaper job ads fell by 3.0% m/m, while internet job advertising decreased by 0.5% m/m.


Revisiting last year’s forecasts

The economy is a complex beast, and even forecasts based on solid theory and evidence can get the timing wrong.  Here’s just a quick snapshot of some economic forecasts from a year ago to lighten the mood as we head this week into the National Accounts (Wednesday). Bill Evans – Westpac Chief Economist – 3


TD Securities monthly inflation undershoots

I’m not sure that anyone is terribly concerned about the squawking of bullhawks anymore but for those that are you may rest easy for another month as the TD Secrurities Monthly Inflation gauge just dramatically undershot expectations recording outright deflation in August: Here are the details from the release: The TD Securities – Melbourne Institute


Terms of trade stall

Missed this yesterday. From the RBA: Australia’s recent spectacular run of terms of trade rises finally stalled in August. Preliminary estimates for August indicate that the index rose by 0.4 per cent (on a monthly average basis) in SDR terms, after rising by 1.8 per cent in July (revised). The largest contributor to the rise in August


Gerry’s black Christmas

It’s a dour line-up today and I was going to give you all a break from the steady drumbeat of recession talk but, sadly, I’ve just received more of same from the excellent folks at Forecast. In addition, I notice  that the usual suspects are engaging in spruikalicious drivel on the back of Gerry Harvey’s


Disleveraging and retail II

  Thanks to Cameron Murray for producing the following scatterplot chart revisiting the question of the relationship between the growth of mortgage credit and retail spending growth. As you can see, my earlier chart was misleading. When scatterplotted, any direct correlation is quite low. I’m pleased to advise that Cameron will be joining MB next week.


Mixed news for tourism

ABS short term arrivals and departures for July are out and its up for former and down for the latter. There is a hint of a trend change for visitors so a glint of hope for tourist operators. Hard to believe it’ll be sustained with the dollar where it is but you never know. Less


Disleveraging and retail

Over the past couple of days, I noticed a correlation in the trends between housing credit growth and retail sales growth that is worth a mention. Of course, at MB, we’ve long established the link between house prices and retail sales, but here is a pretty clear illustration of the link between mortgage creation and


Capex boom broadens (a bit)

There’t no doubt that Australian capital investment intentions are booming. The good news is that in the latest round it was the broader economic sectors, including manufacturing that drove all of the jump  in intentions. Here is the total chart: You’re looking at the farthest bar on the right. That’s now the full year capex


Manufacturing recession deepens

The PMI is out today and confirms that the manufacturing recession that has been running for a year is deepening. The Australian Industry Group (AIG) describes conditions thus: Conditions in the manufacturing sector deteriorated further in August with the seasonally adjusted Australian Industry Group-PwC Australian PMI® down a slight 0.1 points to 43.3. It remains


Retail hangs in

Retail sales for July are out and beat estimates, rising 0.5% in July against expectations of a 0.3% rise: Sales Ex-Food was only up 0.3%, as food rose 0.8%, and is now actually down 0.5% over the past 12 months: Of the other components, Household goods were flat, Department stores were up 1.2%, Cafés and


Our economy is fundamentally broken

Everyday at MacroBusiness we endeavor to cover a wide range of topics about the Australian economy that are either unreported or misrepresented by the mainstream media. One of the major themes since we began, just 7.5 months ago (I know, it does seem longer), has been the changing face of the Australian economy as private sector credit


Mining is making us lazy

Well…forgive the headline. Mining making us less “productive” would be more accurate. I’ve certainly been less than nimble in bringing to your attention a new study by the Australia Institute into Australian productivity. It was released six days ago but better late than never. And what a fascinating study it is. Explosive even: The recent debate


Disleveraging continues

The RBA credit aggregates for July are out this morning and it’s a mixed picture with a small uptick in business lending, falling growth in mortgage credit and outright falls in personal credit: Total credit growth is completely stalled: And credit for housing has hit a new Y/Y growth low: Both investors and owner-occupiers are


More on getting poorer

Above is a time series chart from today’s ABS Household Income, Income Distribution release. The blue line is gross average household income. The red line is eqivalised disposable  income, which the ABS describes as: Disposable household income adjusted using an equivalence scale. For a lone person household it is equal to disposable household income. For a


The average household is getting poorer

Those who support Australia’s exorbitant house prices and new economic model of Quarry Australia usually rationalise that support with figures showing that household income growth is strong and widespread. Well, no longer. The ABS has just released its biannual Household Income and Income Distribution report and the results are a shock. From the report, the 2007/08