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.


Central bank independence under siege

The Reserve Bank of Australia’s independence is an illusion.  The RBA exists because the Menzies government passed the Reserve Bank Act 1959 to create it, and subsequent governments, while occasionally tinkering with the operational framework, have seen no reason to abolish it. I have long found it interesting that even relatively minor fiscal decisions of


Westpac ACCI Survey thumped

Westpac and the ACCI today released the 200th edition (started in Dec 1961) of their quarterly joint survey of Australian industry and it does not make comfortable reading. Westpac says in the summary conclusion that: This is a survey which is sending a very clear message. It is time for the authorities to ease financial


All hail Swan!

As no doubt many of you are already aware, Wayne Swan has been declared Finance Minister of the Year by Euromoney magazine. As someone who has created and engineered similar types of magazine executions, let me establish first that I really don’t think this is worth the bally-hoo it has received. Such special issues are


IMF slashes Australian growth

I am more used to laughing at IMF prescriptions for solving financial crises than I am used to praising their work, but the latest World Economic Outlook is a breath of fresh air in more ways than one. It begins with an admission that the last WEO got it all wrong, something a few Australian


Beautiful one day, bust the next

There are a couple of areas around Australia that I consider interesting microcosms of the risks of non-diversified long term investment portfolios. There are obviously some regions in Australia, such as mining towns, that are currently booming and you would probably be laughed at to suggest that these places are in danger of having their


Parko: No such thing as Dutch disease

Yesterday Treasury Secretary, Martin Parkinson, gave a speech in the lions den of the Australian Industry Group National Forum (perhaps not lion’s den, more like cat’s basket). In it, the head of the Australian Treasury held forth on the benefits and risks of the mining boom. It was a very long speech and I won’t


The people want a mining tax

Per Capita is a small progressive thing tank run by former LEK consultant, David Hetherington. Today it released a new study of Australian attitudes towards the tax system. Hetherington says: The Per Capita Tax Survey for 2011 has asked 1,300 Australians for their views on personal tax contributions, overall taxation levels, public service spending and


Australia has Baumol’s disease

Why does the wage of a musician in a string quartet rise over time at roughly the same pace as wages in other areas of the economy, despite the lack of productivity gains in the performance of music? William J Baumol solved this riddle in the 1960s.  His insight, known as Baumol’s cost disease, is


Where are the job losses?

The ABS released its detailed quarterly labour force survey data for August today.  Digesting this data takes a little time and it needs to be interpreted alongside the monthly employment data, which has shown an uptick in unemployment in July and August. Since August 2008 the following sectors of the economy have reduced their share


Car sales bounce again (or do they?)

ABS new cars ales are out for August and show a 3.3% jump yoy: TOTAL NEW MOTOR VEHICLE SALES The August 2011 trend estimate (83 720) has increased by 1.3% when compared with July 2011. Seasonally Adjusted – The August 2011 seasonally adjusted estimate for new motor vehicle sales (87 935) increased by 3.3% when


Consumers’ dour expectations

Westpac has today released its “Expectations Chart Pack”, which includes both inflation and employment expectations (find it below). This month’s results are fascinating. It is no surprise that consumers view of future inflation remains unchanged from last month as the heat has gone out of the CPI debate: I am a little surprised, however, at


CPI change confuses markets

Yesterday the ABS released a revision to their methodology for seasonal adjustment to CPI subgroups – an outcome of the 16th Series CPI review.  It resulted in a new lower estimate (not a revised estimate) of the trimmed mean and weighted median measures of inflation for the June quarter. News headlines and the foreign exchange


CPI revisionism

Here are a couple of bank takes on today’s ABS CPI revisions. Consensus is that the RBA’s job of holding rates steady just got a bit easier. I beg to differ. The ABS just handed a PR weapon to every disgruntled business lobby in the services economy. Anyways, Rumplestatskin, our very own CPI guru, will


Interest rate magic

Consumer Confidence for September is out and shows a jump of 8.1%. Bill Evans puts this down to: This is a surprisingly strong result. We think it emphasises just how important interest rates are to households. Recall that since early May the Reserve Bank has been threatening to raise interest rates. As recently as the August Board meeting


Do we need a media inquiry?

Well…yes…I should say so. Rupert Murdoch owns 70% of Australian newspapers. One of his UK operations has been shown to use unethical practices on an unsettling scale. Those two seem fair enough reasons to me. On the first, the concentration of ownership in newspapers is both a competition issue and a social-democratic one. Many of


Insolvencies jump

Just in case you missed my recent post about growing Australian business insolvencies or are still living on planet Bullhawk with the belief that everything is just fine and anyone complaining is simply a whinger, here comes Dun & Bradstreet with even more evidence to the contrary: Australia has joined Europe as the only markets to


Attention manufacturing, here’s your hire

Not just manufacturing, actually. There needs to be a new umbrella peak body/lobby group covering all non-resource exporters – manufacturing, tourism and education (maybe primary goods too). That group needs to go head-to-head with the Minerals Council of Australia over the soul of the Australian people and the fear gene of the Australian government. And


Whose GDP is it anyway?

They say what gets measured gets managed, but a measure as nebulous as GDP needs careful interpretation when used as a guide for economic management.  Putting aside the conceptual problems surrounding the use of GDP as a measure of progress, there is still the practical problem of taking estimates of production or expenditure in current


Balance of trade still in surplus

The ABS today released their estimate of the balance of trade in goods and services for July.  The headline data showed that trade surplus inched up a little in both trend and seasonally adjusted terms since June to around $1.8 billion. This is good news. While the monthly release is extremely volatile, the surpluses over


Swannie’s con job

Did you know the Australian government is holding a jobs forum on October 6th? Me neither. Apparently the uptick in unemployment has them so spooked that they feel they need to come out on the front foot and have a confab. I stumbled upon this fact yesterday whilst choking on an appalling quote from Treasurer


Insolvencies rise, Gerry heads west

The dark clouds are reappearing particularly fast over Australia’s private sector after the little rays of sunshine on Tuesday. MacroBusiness readers would be well aware that households are under pressure from high levels of indebtedness and most recently we have seen the rate of arrears climbing sharply in some areas of the country. The other


More on labour hoarding

Find below HSBC’s and NAB’s take on today’s jump in unemployment. Both are even handed assessments on the unwinding of labour hoarding but also more sanguine than I am about the immediate trajectory for the jobless rate. Two reasons I can think of for the weakness concentrated in both WA and QLD. First, that’s where


More on unemployment

So, NSW lost 12,000 full time jobs, VIC added 17,000 but that was a give back for last month’s drop of 29,000 so over two months is down 12,000, Qld and SA dropped 2,000 and WA lost 5,000. Here’s a chart of the states unemployment rates: And here is what is about to become a


Extinction is a crisis

Yesterday Deutsche Bank released a new report into Dutch disease and it makes fascinating reading. The report more or less follows the line put forth by the Canberra boffins, that manufacturing has been in long term decline and offers some quite useful charts. The report concludes the following (with comments): Manufacturing is in long-term decline,


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