Markets are showing some signs of ‘exuberance’ again. It’s something the Bank of International Settlements (BIS) admitted in their Annual Economic Report released this week.
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The Australian economy is a unique beast. It almost completely relies on housing price growth and commodity exports to China. If both of these engines are firing, the economy does very well. If only one fires, the economy does OK. If both struggle, then the economy is in trouble.
The sectors behind house prices and commodity exports…
The financial sector and the resources sector are closely tied to these two things.
By market capitalisation, financials and materials or resources make up more than half of the ASX index:
Source: Canaccord Genuity
And of the more than 2,200 stocks available, 33% are junior mining stocks — this gives you a sense of where priorities lie in the Aussie economy.
What factors influence the Aussie economy?
Like many developed economies, Australia’s economy has recently been propped up by cheap money (low interest rates) and debt.
While debt is often ignored by mainstream outlets — it plays a critical role in the Australian economy.
The Australian government has traditionally kept the debt to GDP ratio relatively low compared to major economies.
As of 2018, this stood at 40.70% compared to Japan which has the highest — coming in at a whopping 238%.
But even though the government’s ‘credit card’ isn’t maxed out like other countries — Australians household debt is one of the highest in the world.
Coming in at 119.4%, Australians’ wealth (or more precisely debt burden) is very much tied up in their homes.
So it is no surprise that rising house prices have gone hand in hand with rising household debt.
It is also worth noting that all up, the services sector makes up around 75% of the pie.
Turns out, Australia doesn’t ‘make’ all that much.
How we look at the economy at The Rum Rebellion…
An expensive house, lots of household debt, a job providing services for others, all propped up by digging things out of the ground for export, and a central bank hell-bent on the extinction of savings.
It may seem like a grim picture, but The Rum Rebellion analyses the Aussie economy through this lens. We will often show how the economy is going by looking at charts of key stocks or sectors. Charts tell you where the money is going. If it’s going into or out of banks and resources, for example, it can give you great insight into where the economy is heading.
Looking purely at economic data releases isn’t always useful. Economic growth data for example, is backward looking. It tells you where we’ve been, not where we’re going.
At The Rum Rebellion, we want you to be ahead of the game. So we analyse the economy from this unique perspective. Check out our latest news and articles on the Aussie economy below…
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