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Future Financial Forecast
An update on the big economic picture for
credit, interest rates and inflation.
Paul Cahill
Chief Executive Officer
Discussion Items
1. The Global Financial Crisis – What Actually Happened?
2. Where Are We Now?
3. What Is It Looking Like Going Forward?
4. BRICS and PIGS.
5. Close and Questions.
2
Item 1.
The Global Financial Crisis – What Actually Happened?
1.1
1.2
1.3
1.4
1.5
1.6
Global GDP Growth
Unemployment Rates
Government Debt
Corporate Australia Re-Capitalised
Exchange Rates
Consumer Confidence
3
1.1 – Global GDP Growth
Challenging financial and economic conditions. First negative growth year for
75 years.
4
1.1 – Global GDP Growth
Australia maintained positive growth through the crisis – better than any
other advanced economy.
5
1.1 – Global GDP Growth
Australia has continued to recover toward trend levels. Only Asia has
rebounded stronger.
6
1.1 – Global GDP Growth
RBA’s GDP forecast revisions. Dramatic and ongoing revisions as conditions
improved.
GDP Grow t h - RBA Forecast Vint ages
Actual
6.0
RBA (May 09)
RBA (Aug 09)
RBA (Nov 09)
RBA(Feb 10)
ann % change
4.5

Expectations
expectations
Ausbil
3.0
1.5
0.0
-1.5
Jun-06
Jun-07
Jun-08
Jun-09
Source: GSJBW Research estimates, RBA, ABS
Jun-10
Jun-11
Jun-12
7
1.2 – Unemployment Rates
Unemployment is lower than nearly all the majors and peaked well below
market expectations.
8
1.2 – Unemployment Rates
Employment actually rose during the crisis, reflecting the resilience of the
economy and usage of part-time staff.
9
1.3 – Government Debt
Government debt is particularly low compared to other major economies.
10
1.4 – Corporate Australia Re-Capitalised
Corporate Australia re-capitalises, with A$120 billion since January 2008.
Australian market
Equity Supply vs. Equity Demand
A$b
A$b
7.3%
90
Other
Secondary Raising
Primary Raisings
Equity market demand*
Expected equity demand 09
80
70
80
4.4%
70
5.0%
%: Total supply as a proportion of Mkt cap
60
90
4.6%
60
2.9%
50
50
3.8%
2.8%
5.1%
40
6.7%
8.2% 6.7%
30
3.9%
5.0%
4.0%
40
30
3.0%
20
10
7.8%
9.7% 7.9%
6.0%
11.2%
6.3%
8.1%
0
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
(F) (F)
*Equity market demand = Inflows from superannuation, dividends, buybacks
** Based on year to date data therefore a higher degree of certainty exists for this forecast
20
10
0
11
1.4 – Corporate Australia Re-Capitalised
Australian Major Banks’ Net Profit (yearly).
$b
$b
16
16
12
12
8
8
4
4
0
0
-4
1984
1969
1994
1999
2004
-4
2009
12
1.5 – Exchange Rates
Historic exchange rates – The Australian dollar versus the USD and Euro.
$1.20
AUD/USD
AUD/EUR
$1.00
$0.80
$0.60
$0.40
1980
1983
1986
1989
1992
1995
1998
2001
2004
2007
2010
13
1.6 – Consumer Confidence
Leading indicators point to an ongoing recovery. PMIs in strongly
expansionary territory; confidence also recovering.
Index
70
Index
70
EU
65
Consumer Confidence
PM I M anuf act uring
UK
US
China
JP
65
expansion
deviationsfrom trend
3
UK
US
AU
deviationsfrom trend
3
Euro Zone
2
2
1
1
60
60
55
55
50
50
0
0
45
45
-1
-1
-2
-2
-3
-3
40
40
contraction
35
35
30
30
25
2002
25
2004
2005
2007
Monthly
2008
2010
-4
2000
2002
2004
2006
Monthly
2008
-4
2010
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Item 2.
Where Are We Now?
2.1
2.2
2.3
2.4
2.5
Consumer Price Inflation
Interest Rates
Consumer Spending Patterns
Wages
Credit Growth
15
2.1 – Consumer Price Inflation
Consumer Price Inflation
%
%
%
5
55
4
44
Year-ended
3
33
2
22
1
11
0
00
Quarterly
-1
-1
-1
1997
2000
2003
2006
2009
16
2.2 – Interest Rates
The RBA is one of the few to raise rates. Policy elsewhere remains highly
accommodative.
%
Policy Rat es
%
10
10
US
UK
JP
Aus
EU
(f)
8
8
6
6
4
4
2
2
0
1995
0
1998
2000
2002
Monthly
2005
2007
2010
(f): Forecasts
17
2.3 – Consumer Spending Patterns
Household Consumption and Income Growth (Year-ended).
%
%
Real household
consumption
6
6
3
3
0
0
Real household
disposable income
-3
-3
1997
2000
2003
2006
2009
18
2.3 – Consumer Spending Patterns
Retail sales by Industry (March quarter).
Index
Index
300
300
Household goods
250
250
Clothing, footwear
& accessories
200
Total motor
vehicles
Other
150
200
150
Food
100
50
Department
stores
Cafes, restaurants and
takeaway services
1997 2000 2003 2006 2009
100
50
2000 2003 2006 2009
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2.4 – Wages
Percentage Change.
%
%
Average earnings
6
Year-ended
6
4
4
Wage price index
Year-ended
2
2
0
0
Average earnings
Wage price index
quarterly
quarterly
-2
-2
1997
2000
2003
2006
2009
20
2.5 – Credit Growth
Credit by Sector (Year-ended percentage change)
%
%
Housing
20
20
Personal
10
10
Business
0
0
-10
-10
1998
2002
2006
2010
21
Item 3.
What Is It Looking Like Going Forward?
22
3 – Going Forward
Strong fundamentals boosted consumer confidence, recovering back to precrisis levels.
23
3 – Going Forward
It’s a similar picture for business confidence, which is back above pre-crisis
levels.
24
3 – Going Forward
Recovery is now fuelled by business investment, whereas initially driven by
the building construction.
YoY%
Capit al expendit ure
Advanced Project s
30
YoY%
30
25
25
80
80
20
70
70
15
15
60
60
10
10
50
50
5
5
40
40
30
30
20
20
10
10
0
0
20
0
E1
E1
E2 E3 E4
0
-5
-5
-10
-10
-15
-15
00/01 02/03 04/05 06/07 08/09 09/10 09/10
A$b
90
A$b
90
Energyprojects
Mining projects Mineralsprocessing
10/11
* Changes in 09/10 spending derived by comparing estimates on a PCP basis
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3 – Going Forward
The global outlook is a positive backdrop, but not without risks.
• Global growth recovery forecasts remain robust
– Despite market nervousness over tightening liquidity and sovereign credit
– Pattern remains Asia leading and Europe lagging
– UK PMI at 15 year high, Euro area at 3.5 year high, Germany at 10 year high
• Global trade recovered 65% of volumes lost during GFC (emerging markets
~90%)
• Australia and China are intertwined
– Current spot prices for iron ore and coal could boost GDP by 1%
• Interest rates and GDP growth should surprise on the upside
• AUD to weaken in 2H 2010; range trade 86-94 US cents
26
Item 4.
BRICs and PIGs
27
4 – BRICs
28
4 – Economic Activity in the BRICs
Industrial production accelerated in
China in Jan-Feb to the highest level
since the start of the data series in
2005.
In India, WPI inflation was 9.9%yoy
in February, higher than expected.
In China, inflation also picked up to
2.7%yoy in February.
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4 – BRICs
The Iron Ore outlook. Australia can expect significant upside to its trade
accounts.
Iron Ore Price
USc/mtu
200
A$b
16
forecast
Exportsof minerals and metal ores
14
Fine iron ore price
180
160
12
140
10
120
8
100
80
6
60
4
2
Mar 98
40
20
Mar 00
Mar 02
Mar 04
Mar 06
Mar 08
Mar 10
Quarterly
30
4 – PIGs
Relative size of the different Euro Area countries.
31
4 – PIGs Sovereign Debt Crisis
32
Item 5.
Close and Questions
33