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.

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Aussies still shunning return to office

Australians continue to shun bosses’ demands to return to the office, with occupancy rates across the major city still a fraction of pre-pandemic levels: Melbourne office occupancy remains flat at about 36 per cent, Property Council of Australia data shows. But it plummets to just 19 per cent on Mondays and Fridays and peaks at

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Across-the-board falls in Aussie construction in Q1

The Australian Bureau of Statistics (ABS) has released data on construction work done for the March quarter, which recorded an across-the-board decline in activity. As shown in the next table, total construction work done fell 0.9% to $53,663.2 million. Building work done fell 1.3% to $30,111.8 million, whereas engineering work fell 0.4% to $23,551.4 million:

23

Brilliant unions push back against skilled visa influx

ACTU secretary Sally McManus says skills and immigration are among the issues that unions want to discuss at the new federal government’s employment summit. Michael Wright, the acting national secretary of the Electrical Trades Union, contends that the minimum income for temporary skilled visa holders, which has been frozen for a decade, is set far

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NBN enters ‘death spiral’ phase

The competitive threat from mobile broadband is an ever present problem for Australia’s National Broadband Network (NBN). Telstra, TPG and Optus have each rolled out relatively cheap, fast Fixed Wireless Access 5G broadband, which can deliver significantly higher data transfer speeds and lower latency. 5G is already stealing market share from New Zealand’s far superior NBN-equivalent

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Albo signs Australia up to another mega trade bloc

Prime Minister Anthony Albanese has committed to joining the Indo-Pacific Economic Framework for Prosperity, a new 13-nation economic bloc. The alliance has been proposed by US President Joe Biden as an alternative to the 11-nation Trans-Pacific Partnership (TPP). The new economic bloc will include Australia, the US, New Zealand, India, Japan, Indonesia, Malaysia, the Philippines, Singapore,

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Aussie post-COVID bounce fades away

The S&P Flash PMI in a marked deceleration. One swallow does not a winter make. — Flash Australia PMI Composite Output Index at 52.5 (Apr: 55.9). 4-month low. Flash Australia Services PMI Activity Index at 53.0 (Apr: 56.1). 4-month low. Flash Australia Manufacturing Output Index at 49.3 (Apr: 54.1). 4-month low. Flash Australia Manufacturing PMI

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Jim Chalmers backs up immigration dump truck

Incoming treasurer Jim Chalmers claims inflation is “almost out of control” and says the business community has “the big role” to play in the post-pandemic recovery, basically mimicking the statements of the Business Council of Australia. He says Labor will help businesses solve their skills shortages and that increasing immigration has to be “part of

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Why aren’t Aussie wages rising?

As we know, Australia is enjoying the best labour market in generations with unemployment (3.9%) at its lowest level since 1974 and underemployment (6.1%) tracking at its lowest level since 2008: Australia’s participation rate and employment-to-population ratio are also tracking a whisker below record highs. However, while the labour market is undoubtedly booming, Australian wage

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Mirvac: immigration reboot to overwhelm housing supply

While all the usual suspects continue to claim that rigid planning and lack of land release is responsible for Australia’s housing shortage, Mirvac CEO Susan Lloyd-Hurwitz basically admitted that this shortage has been caused by excessive levels of immigration, which will worsen as the Big Australia policy is rebooted: “We’re in a genuine national crisis

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Thank immigration collapse for 48-year low unemployment

Yesterday, the Australian Bureau of Statistics (ABS) released labour market data for April, which revealed that Australia’s unemployment rate (3.9%) fell to its lowest level since August 1974, whereas the underemployment rate (6.1%) fell to a fresh 14-year low: While stimulus prevented the economy from sliding into a deep recession, it has merely filled the

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Australia experiencing ‘profit-price inflation’, not wage inflation

While the business lobby, its captured media, and the Coalition are all scaremongering about a ‘wage-price spiral’ if the minimum wage lifts in line with the Consumer Price Index (CPI), Jim Stanford from the Centre for Future Work has instead argued that “profit-price inflation” is the far bigger concern: De-unionisation, insecure work, and deregulation of

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Wealthy to reap most benefit from higher childcare subsidies

Analysis by the Australian National University (ANU) suggests that families on higher incomes will benefit the most from the child-care policies of both Labor and the Coalition. The analysts shows that the wealthiest 20% of households will save an average of $2,547 a year under Labor’s policy. In contrast, the Coalition’s child-care policy will result

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Aussie consumer confidences plunges to August 2020 low

The mood among Australian consumers continues to worsen, with the ANZ-Roy Morgan consumer confidence index plunging to its lowest level since mid August 2020 when Australia was in the early stages of the pandemic: Four of the five confidence subindices dropped. ‘Current financial conditions’ fell 4.4%, while ‘future financial conditions’ dropped 0.4%. ‘Current economic conditions’

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Australian wage growth badly misses expectations

Australian wage growth missed economists’ expectations in the March quarter of 2022, according to new data released today by the Australian Bureau of Statistics (ABS). Total wages grew by only 0.65% in the March quarter, missing analyst’s expectations of 0.8% growth. Private sector wages grew by 0.65% over the quarter, whereas public sector wages grew