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.


Is coronavirus loose Downunder?

Via Domain come more cases: Australian residents trapped in the epicentre of the coronavirus in China are considering rejecting the federal government’s offer to evacuate them to Christmas Island, as Qantas prepares for an emergency flight into Wuhan. Queensland authorities said on Wednesday night that a Chinese man had tested positive for the virus and


UNSW: Sydney’s water supply facing multiple threats

Emma Johnston, Dean of Science at UNSW Sydney, is the latest to warn that Sydney’s water supply is under threat from a combination of population growth, reduced rainfall, greater evaporation, and contamination from bushfires. Therefore, more desalination plants will need to be built: With water restrictions increasing around NSW and talk about Sydney moving to


FPA demands Frydenberg cork dirty LIT loophole

Via LiveWire comes Chris Joye: In huge news today, IFA reports that the Financial Planning Association of Australia has “sought the removal of the current stamping fee exemption in relation to listed investment entities due to its inherent conflicts of interest for advisers”. The story continues: FPA chief executive Dante De Gori said he welcomed the opportunity to


CPI in Detail: Inflation up in smoke

The Australian Bureau of Statistics (ABS) today released the Consumer Price Index (CPI) data for the December quarter 0f 2019, which registered plummeting headline and underlying inflation on weakening domestic demand. According to the ABS, headline CPI rose by 0.7% in the December quarter, with annual growth rising to 1.8%: Looking at the major components,


Exclusive! Dr Victor Shih: Coronavirus MUCH worse than SARS

Via our friends at GLJ Research LLC in the US, comes an exclusive interview with China expert Dr Victor Shih who, in my experience, knows what he talking about. Fireside Chat w/ China Economist, Victor Shih, Sheds Light on the True Extent of Coronavirus “Threat”. In short, after our conference call this morning with Harvardeducated


Australian leading index improves a bit

Via Westpac: Despite the lift, the Leading Index growth rate remains below zero, indicating momentum tracking well below trend. In fact the December print represents the thirteenth straight month where the Index growth rate has been negative. This has been consistent with the persistent below trend growth we have seen for the Australian economy. The


China cancels all IELTS courses

Nasty for Australian education, via Xinhua: China’s Ministry of Education announced that English proficiency exams Chinese students take to get enrolled by foreign universities will be cancelled nationwide during February in view of the ongoing novel coronavirus outbreak. The exams include the International English Language Testing System (IELTS), the Test of English as a Foreign


CommSec crowns Victoria number one economy as Victorians go bust

CommSec has released its latest State of the States report, which once again ranks Victoria on top due largely to a combination of strong population growth, construction, and debt-fuelled consumption: How are Australia’s states and territories performing? Each quarter CommSec attempts to find out by analysing eight key indicators: economic growth; retail spending; equipment investment;


Infrastructure deficit impossible to fix without tackling immigration

Cross-posted from Online Opinion: Australian politicians never tire of telling the public how they are investing record amounts in infrastructure. Barely a day goes by without a minister announcing a new “congestion busting” infrastructure project designed to ease bottlenecks in Australian cities. Malcolm Turnbull said he wanted to be known as an “infrastructure prime minister”.


Coronavirus quarantines go global as ScoMo goes to Hawaii

We know that China has some 60m people in lockdown. The always pragmatic British have now joined the push, via The Telegraph: Britain will put people airlifted from China into quarantine amid concerns that around 1,500 people who arrived in the UK since the new year have not undergone checks. Matt Hancock, the Health Secretary,


Ancient history NAB business survey fades

It’s pre-bushfires and coronavirus but it was weak anyway, from NAB: Key messages from the Survey: The final monthly business survey of 2019 provides further evidence that activity stabilised in Q4. Conditions edged 1pt lower in the month to +3 index points – another below average result and one that is well below the level


David Jones confirms gutted consumer

Via The Australian: In a statement to the Johannesburg Stock Exchange released on Monday, Woolworths Holdings, the South African company that owns David Jones, said sales were 4.9 per cent higher over the 26 weeks to December 29. But the prior year’s figures were for the 26 weeks up to December 23, which meant the


Shane Oliver: Underemployment “a chronic problem” for Australia

AMP chief economist, Shane Oliver, has warned that labour underutilisation is now “a chronic problem for Australia”, is far higher than other developed nations, and will continue to depress wage growth: “It has been trending up this year and has been high for a while now, since the global financial crisis,” he said. “It’s indicative


George Megalopolis hails Melbourne’s diving living standards

Political commentator, George Megalogenis, penned a long-winded article in The Age’s Good Weekend hailing the rise of Melbourne to Australia’s largest city, and how this will make it the cultural, political and economic capital of Australia: The rise of Melbourne is shaping up to be the social and economic story of the 21st century, tilting


Did the Game of Mates kill Kaufland?

Via the AFR: Suppliers have alleged a formal or informal agreement between leading fresh food companies, including fruit and vegetable suppliers, to withhold supply from Kaufland was one of the factors contributing to its shock decision on Wednesday to withdraw from Australia before opening its first store. “It’s Masters all over again,” said one supplier,


Full-time jobs evaporate for Australian youth

Yesterday’s ABS labour force release for December revealed a mixed outcome for Australia’s youth labour market – i.e. those aged 15 to 24 years old – with annual jobs growth falling, but unemployment and underemployment improving. The trend headline unemployment rate fell further to 11.59% in December: However, total employment growth for those aged 15-24


Australian corruption worsened “significantly” since 2012

Transparency International has released its latest corruption index, which reveals that Australia is among 21 nations where perceived corruption has worsened “significantly” over the past eight years. From The Guardian: Australia scored 77 from a possible 100, the same mark as last year. It means Australia has again failed to reverse a longer-term decline of


CBA Flash PMI sinks

Via CBA: The latest Commonwealth Bank Flash Composite PMI® signalled a continued decline in business activity in January. In fact, the latest fall in output was the sharpest since the survey began in May 2016. New orders and employment increased, however, thanks to improvements in the service sector. The rate of input cost inflation softened


Jeanswest tears itself to pieces

Via Domain: National fashion chain Jeanswest will shut nearly 40 stores across the country, running the tally of retail store closures to over 200 in the new year. KPMG administrators Peter Gothard and James Stewart announced on Thursday the company’s restructure would result in 37 stores being closed and 263 staff made redundant, including 21


NBN’s viability threatened by 5G roll-out

Veteran Telecommunications analyst, Paul Budde, has challenged the notion that the roll-out of 5G mobile across Australia threatens the viability of the National Broadband Network (NBN): First of all, anybody who has started to use video-based media over mobile networks seriously – beyond Facebook, YouTube and so forth – will have noticed that you will


Dan’s West Gate tunnel farce escalates

The hits keep on coming for Victoria’s beleaguered West Gate Tunnel Project. After the project’s cost ballooned by $1 billion, and amid widespread criticism from transport experts and the state’s Auditor-General, it was revealed this week that the project could be delayed for another six months as the project’s builders, John Holland and CPB Contractors,


ABS employment in detail: Another dead cat bounce

As summarised earlier, the Australian Bureau of Statistics (ABS) today released its labour force report for December, which registered a 28,900 increase in total employment and a decrease in the headline unemployment rate (from 5.2% to 5.1%). In trend terms, the unemployment rate also fell to 5.1%: Again, total employment rose by a seasonally adjusted


UBS: Gas crash to provide power price relief

Via UBS: Wholesale electricity price futures are sharply lower Our updated wholesale electricity price forecast expects prices will average $74/MWh across the National Electricity Market (NEM) in CY20, declining to $70/MWh in CY21—reflecting a material revision down from our prior forecast. Baseload futures through CY20-21 are sharply lower than 3 months ago and our mark-to-market


SEEK jobs ads plunge

Some blather from SEEK today: SEEK data shows that a large proportion of Australians are looking and actively applying for interstate employment opportunities. Hobart is the most popular destination, with 64.3% of applicants coming from interstate or overseas. Brisbane followed, with 43.6% of candidates applying from external locations. Majority of the job seekers coming to


Jobs weak but…

But not weak enough for RBA’s meeting, I suspect. Via ABS: SEASONALLY ADJUSTED ESTIMATES Employment increased by 28,900 to 12,981,600 people. Full-time employment decreased by 300 to 8,834,700 people and part-time employment increased by 29,200 to 4,146,900 people. Unemployment decreased by 12,900 to 693,100 people. Unemployment rate decreased by 0.1 pts to 5.1%. Participation rate