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.


Why are there so few boat people?

The contemporary public debate over population growth in Australia has, in my mind, overlooked a crucial question that would help us understand population issues in more depth.  Why is there so little illegal immigration to Australia? If the way illegal immigration is portrayed in the media is anything to go by, many would suspect that


Eggheads still gloomy

Find below the Melbourne Institute November economic forecasts update. Nothing changed from last month, still forecasting lousy 2.4% growth over this financial year and benign inflation. I have to say though, their unemployment peak of 5.2% looks very optimistic to me. Rather out of the blue, they did include this rather provocative little paragraph that


Look to Germany to resolve Qantas

Germany, the current European workhorse, is one of the nine OECD countries without a national statutory minimum wage.  As election time rolls around, Angela Merkel is considering adopting the opposition party’s position on regulating a Germany-wide minimum wage as a political tactic.  Given Germany’s great economic success and historically low unemployment, why bother? Germany has


Population growth has normalised

Yesterday’s Daily Telegraph contained an interesting article on the increasing number of Australians departing Australia permanently: OVERALL migration from Australia has soared to a record high – with 88,000 leaving in the past year, almost half from NSW. The stampede abroad is a 90 per cent increase 10 years ago, figures from the Department of


Praise for good regulation

There is enough bad regulation out there that it really should be newsworthy when good regulation is implemented.  Last week, Stephen King, arguably Australia’s best current economist, presented a report card for Australian competition regulation at a UQ luncheon in Brisbane which highlighted a few of these good regulations. For the bread and butter regulation


Wages boom slipping away

So, the ABS has released its two wages reports now, Labour Price Index (WCI) yesterday and Average Weekly Earnings (AWE) today and the results show a clear slowdown in trend growth. These two measure slightly different things. The WCI is defined as: The wage, non-wage and labour price indexes measure changes over time in the


A tipsy Xmas and houses looking good

Consumers plan a modestly increased Christmas outlay this year versus last and increasingly think that now is a good time to buy a house. Those are two of the findings in Westpac’s excellent November Red Book.  No matter what business you’re in, reading this is worth 10 minutes of your time. It is the defining document


DEEWR jobs report confirms weakness

The signs are everywhere that employment has slowed but, as we know, the ABS figures continue to paint unemployment in a sideways pattern. Today there is yet more evidence that that will not last. From DEEWR Job Vacany Report for October: The Internet Vacancy Index (IVI) declined by 1.9%1 in October 2011, the seventh consecutive


Wild rivers, or wild politics?

Queensland’s alternative Premier, former Brisbane Lord Mayor Campbell Newman, has been on the campaign trail for most of 2011.  Last week he announced the Liberal Party’s position on Queensland’s Wild Rivers Legislation.  He intends to remove three rivers in Cape York from the legislation, which is no surprise given that Tony Abbot announced a year


More cuts, more credit

From News today comes the following: Billions of dollars in spending cuts will be announced when the Government releases the latest official assessment of the national economy before Christmas. The reductions will be aimed at bolstering the Government’s determination to deliver a Budget surplus in 2012-13. And it will come in the face of persistent


Our economic model is dated

Throughout this year, I have posited that Australia is now a one speed economy – slow. That this has transpired amidst a mining boom has amazed and befuddled economists and media alike. But it’a really not all that hard to understand. Offsetting the mining boom is a huge and unprecedented slowdown in the issuance of


Is Australia complex enough?

Specialisation as an instrument of economic growth is close to an undisputable fact.  Whether there are limitations to this process, I am not sure, but for me there is a more significant question that really needs a satisfactory answer if we are to understand economic growth – if specialisation causes economic growth, what causes specialisation?


Inflation expectations plummet

It’ll be no surprise to any one still breathing that inflation expectations dropped over 19% in one moth from October to November. From the Melbourne Institute: The median expected inflation rate, reported in the Melbourne Institute Survey of Consumer Inflationary Expectations, fell to 2.5 in November from 3.1 per cent in October. According to Dr.


Consumer confidence falls on rate cut

This afternoon, Roy Morgan released its first consumer confidence survey since last week’s rate cut and it shows a small deterioration. Obviously much of the gain transpired in advance. Will be interesting to watch as Europe descends: Consumer Confidence was virtually unchanged at 116.4pts, (down 0.4pts in a week) according to the Roy Morgan Consumer


The mining boom is over

There is something of a revolution brewing in Australian economic thinking just now. It began several months ago when the RBA suddenly stopped talking about inflation and started considering stimulus. The change of heart is that the minnig boom is not delivering the kind of inflationary blowoff growth that everyone outside of MB and the


Unemployment steady

Looks like I got a bit ahead of the market earlier in the week. No evidence yet of a further weakening in the labour market, even if the various marginal indicators are showing it. Unemployment was stable at 5.2%, with 20k full time jobs created and 10k part time lost.  Here’s the details from the


Captain Parko: All ahead dirt!

Yesterday, Secretary of the Treasury, Martin Parkinson, gave another in a series of speeches that seem designed to give Australia no choices in its current trajectory towards the world’s largest quarry. This is a long speech and I can’t address it all but will take what appears to be its main purpose: trashing any idea


Bankruptcies jump above GFC

ASIC released September quarter bankruptcy data today and despite what Fairfax’s cheerleader in chief would have think, company bust number surged past GFC levels: Mr Adrian Brown, ASIC’s Senior Executive Leader of Insolvency Practitioners, said that each month of the September quarter saw a consistently high number of appointments, notwithstanding a decrease from August (1049)


Peter Costello confesses

There is a terrific piece of rhetoric from Peter Costello today at Fairfax. It is a must read in terms of historical revisionism and politicking: Imagine an investment portfolio – say your superannuation fund – which has a whole bunch of assets that are going sideways and one prime asset that is growing strongly. Imagine


Unemployment looks set to jump

Tomorrow the ABS releases its October Labour Force survey and the chances are growing that we’ll see a jump in unemployment.  The August report wasn’t bad, with the unemployment rate falling from from 5.2862044% to 5.2477873%. But despite the decent month, the trend for unemployment is firmly up: Another measure that appears to have crossed an


Golden hammer bashes trade suplus

The ABS September trade figures are out and show a $400 million hit to the surplus: SEPTEMBER KEY POINTS BALANCE ON GOODS AND SERVICES The trend estimate of the balance on goods and services was a surplus of $2,718m in September 2011, a rise of $122m on the surplus in August 2011. In seasonally adjusted terms,


NAB Survey soft on jobs

The October NAB Business Survey is out and shows a retracement of much of September’s gain. The most important of the numbers above are the employment index, which dropped to -1 following the incongruous jump in September and the clear easing in labour costs, down to 0.6, more than halving in two months. I suspect


Grilling Qantas

The hansard of last Friday’s Qantas Senate hearing was released today and it’s a real eye-opener.  I recommend you read it cover to cover because you’re unlikely to find anything quite so darkly amusing for some time. What it shows is that there is something very weird happening in relations between government and business these days.


Swan is right to keep cutting

Speaking to the ABC this morning, Treasurer Wayne Swan maintained his commitment to a 2012/13 budget surplus despite the growing realisation that revenue is going to fall well short, as forecast here weeks ago: WAYNE SWAN: Well it’s a forecast from Access Economics. I can’t say that it’s accurate. What we are going to do


The RBA throws a bucket of cold water

The RBA’s November Statement on Monetary Policy was released this morning and shows the bank in retreat from both its inflation concerns and growth forecasts. Growth for 2011 has been cut 0.25% to 1.75%. Growth for 2012 growth has been cut 0.5% to 4%. CPI inflation has been cut from 3.6% to 3.25% for 2011


Do we like troubled times?

I follow the key Roy Morgan economic data sets as a useful counterpoint to ABS data. The Roy Morgan database is very large and their data generally raw so it can be useful in pinpoint turning points. In that vein, RM yesterday released consumer confidence and unemployment numbers for October, which show a much stronger divergence


Retail sales match wages

So, after a big bounce in July of 0.8% and solid follow through in August of 0.6%, ABS September Retail Trade slowed again to 0.4%. To the charts. The result was in line with expectations: It looks like retail sales growth is now running at roughly the same rate as wages growth, in the 3.5%


Services in recession, again

If you’ve been running a services sector business and wondering why your turnover is down despite all the talk of a boom, then today’s Services PMI might help clear things up for you. The Australian services sector has been dipping in and out of recession all year, including in October: In case you’re wondering whether


RBA Chart Pack

The Reserve Bank of Australia (RBA) has released its monthly chart pack today. The Pack (downloadable as a PDF or in separate GIF images as below) has 16 categories covering the state of the Australian and world economies, via diverse metrics and observations. I’ve reorganised the charts as follows: Economic growth The major measure of


Building approvals backflip

Well, so much for the good news. The August pump in Building Approvals has more than reversed, returning the series to its declining trend in September:   The state by state table shows universal (-SA) falls: NSW more than reversed its jump. The Victoria boom continues its unwind as well. Here’s the chart: Once again