
The Australian economy is a weird beast.
According to the Australian Industry Group (AIG), both the manufacturing and services sectors have been contracting for an extended period of time, signalling broad-based weakness across the domestic economy. And yet the FIRE sectors of the Australian economy – Finance, Insurance and Rental, Hiring & Real Estate Services – are back and going from strength-to-strength.
Yesterday’s national accounts data for the June quarter, released by the Australian Bureau of Statistics (ABS), showed the FIRE sectors’ share of the Australian economy rising to an equal record high of 12.0% of GDP – a level recorded only once before, just prior to the onset of the Global Financial Crisis (see next chart):

In fact, since financial markets were first deregulated in the mid-1980s, the FIRE sectors have grown at twice the pace of the rest of the economy (see next chart).

The situation is even more extreme if Rental, Hiring & Real Estate Services is removed from the mix, with the Finance and Insurance sector growing at well over double the pace of the rest of the economy since deregulation, and hitting an equal record 9.9% share of the economy as at June 2013 (see below charts).


Perhaps it is no coincidence that Australian house prices decoupled from rents at roughly the same time as the FIRE sectors’ growth decoupled from the rest of the economy, as the deregulation of the financial sector ignited credit growth, most of which has been channeled into housing (see next chart).

Like Frankenstein’s monster, it would appear that the financial sector, which once acted merely as an enabler of the productive economy, is now pulling its master’s strings.