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Australia's Economy after Floods/Earthquakes
Australia's Economy after Floods/Earthquakes
Australia's Economy after Floods/Earthquakes
Australia's Economy after Floods/Earthquakes
Australia's Economy after Floods/Earthquakes
Australia's Economy after Floods/Earthquakes
Australia's Economy after Floods/Earthquakes
Australia's Economy after Floods/Earthquakes
Australia's Economy after Floods/Earthquakes
Australia's Economy after Floods/Earthquakes
Australia's Economy after Floods/Earthquakes
Australia's Economy after Floods/Earthquakes
Australia's Economy after Floods/Earthquakes
Australia's Economy after Floods/Earthquakes
Australia's Economy after Floods/Earthquakes
Australia's Economy after Floods/Earthquakes
Australia's Economy after Floods/Earthquakes
Australia's Economy after Floods/Earthquakes
Australia's Economy after Floods/Earthquakes
Australia's Economy after Floods/Earthquakes
Australia's Economy after Floods/Earthquakes
Australia's Economy after Floods/Earthquakes
Australia's Economy after Floods/Earthquakes
Australia's Economy after Floods/Earthquakes
Australia's Economy after Floods/Earthquakes
Australia's Economy after Floods/Earthquakes
Australia's Economy after Floods/Earthquakes
Australia's Economy after Floods/Earthquakes
Australia's Economy after Floods/Earthquakes
Australia's Economy after Floods/Earthquakes
Australia's Economy after Floods/Earthquakes
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Australia's Economy after Floods/Earthquakes

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Slides from NAB Global Economic Forecast 2012 seminar.

Slides from NAB Global Economic Forecast 2012 seminar.

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  • 1. Australia after the floods Spiros Papadopoulos Senior Economist, Global Markets Research 18 March 20111
  • 2. Global economy strengthening, but risks remain ● Middle-East tensions raising oil and gold prices ● Global inflation rising ● ECB and BoE preparing for rate hikes ● China still strong, and still tightening policy ● US economy improving ● Devastating earthquakes in Japan and NZ ● Australian growth affected by floods in short-term, but medium term outlook remains strong and wage/price pressures trending higher2
  • 3. Floods to inflict heavy growth damage this quarter in Australia GDP forecasts q/q%, pre/ post floods 1.4 Risk of a Source: NAB Global Markets Research 1.2 Old Post floods negative print 1.0 Actual Q4, 0.8 0.7% 0.6 0.4 0.2 0.0 Dec-10 Mar-11 Jun-11 Sep-11 Dec-11 Mar-12 Jun-12 CPI Headline inflation q/q% forecasts, pre/ post floods 1.6 Source: NAB Global Markets Research 1.4 Old Post floods 1.2 Food prices 1.0 hit 0.8 0.6 0.4 0.2 0.0 -0.2 -0.4 Dec-10 Mar-11 Jun-11 Sep-11 Dec-11 Mar-12 Jun-123
  • 4. QLD growth was already soft - weak property mkt and high AUD State Final Demand 17.5 17.5 15.0 15.0 12.5 12.5 10.0 10.0 7.5 7.5 Percent Percent 5.0 5.0 2.5 2.5 0.0 0.0 -2.5 -2.5 -5.0 -5.0 -7.5 -7.5 04 05 06 07 08 09 10 NSW QLD Tasmania VIC WA SA Source: Reuters EcoWin4
  • 5. QLD economy has underperformed since the GFC NAB Business Conditions, Queensland vs Rest of Australia 20 3 month average 15 Australia, ex Qld 10 5 0 -5 -10 -15 -20 3m average QLD -25 Source: NAB Survey, NAB Economics Actual -30 Feb-08 Aug-08 Feb-09 Aug-09 Feb-10 Aug-10 Feb-115
  • 6. QLD economy has underperformed since the GFC Domestic Demand: Australia vs Queensland 15.0 15.0 12.5 12.5 10.0 10.0 7.5 7.5 Percent Percent 5.0 5.0 2.5 2.5 0.0 0.0 -2.5 -2.5 -5.0 -5.0 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 Australia (Domestic Final Demand) Queensland (State Final Demand) Source: Reuters EcoWin6
  • 7. Australian economy had been softening before the floods.Households cautious and retail sector subdued in 2010 Retail sales, QLD & Australia Annual % change, $ sales 15.0 15.0 12.5 12.5 10.0 10.0 7.5 7.5 Percent 5.0 5.0 2.5 2.5 0.0 0.0 -2.5 -2.5 02 03 04 05 06 07 08 09 10 11 Australia Queensland Source: Reuters EcoWin7
  • 8. House price growth has eased after interest rate increases House Prices - Quarterly Growth 7 7 Dec Qtr Annual 6 6 % Change % YoY Sydney 1.6 7.4 5 5 Melbourne 1.3 10.8 Brisbane 0.7 0.7 4 4 Adelaide 1.1 3.5 3 3 Perth 3.2 -2.0 Hobart 1.1 1.0 2 2 Darwin 0 1.7Percent Percent Canberra 1.9 6.5 1 1 Australia 0.7 5.8 0 0 Source: ABS 6416.0 -1 -1 Australia -2 -2 Brisbane -3 -3 -4 -4 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 05 06 07 08 09 10 Source: Reuters EcoWin 8
  • 9. Business confidence bounces; Consumer confidence softer Australian Confidence 130 30 Consumer Confidence (LHS) 125 20 120 115 10 110 0 Net balance Net balance 105 100 -10 95 Business Confidence (RHS) -20 90 85 -30 80 75 -40 01 02 03 04 05 06 07 08 09 10 11 Source: Reuters EcoWin, NAB Business Survey9
  • 10. Consumers cautious: Want to pay down debt or put in the bank Consumer Sentiment: Wisest Place for Savings 50 50 Real estate 40 40 Banks 30 30 Percent 20 20 10 10 Shares Pay off debt/ home mortgage 0 0 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 Source: W-MI, NAB Global Markets Research, Reuters EcoWin10
  • 11. Household savings have risen strongly Household Saving % of Household Disposable Income 17.5 17.5 15.0 15.0 12.5 12.5 10.0 10.0 Percent Percent 7.5 7.5 5.0 5.0 2.5 2.5 0.0 0.0 -2.5 -2.5 84 86 88 90 92 94 96 98 00 02 04 06 08 10 Source: NAB Global Markets Research, Reuters EcoWin11
  • 12. RBA has been on hold since November, but rises ahead RBA Cash Rate 7.5 7.5 7.0 7.0 6.5 6.5 6.0 6.0 5.5 5.5 (f) Percent Percent 5.0 5.0 4.5 4.5 4.0 4.0 3.5 3.5 3.0 3.0 92 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 Source: Reuters EcoWin12
  • 13. Global activity continues to strengthen Ann Avg GDP 2008 2009 2010 (f) 2011 (f) 2012 (f) Australia 2.6 1.3 2.7 2.5 3.7 US 0.0 -2.6 2.8 3.2 3.3 Japan -1.2 -6.3 4.0 1.7 2.3 UK 0.0 -5.0 1.4 2.1 2.2 Eurozone 0.3 -4.0 1.7 1.5 1.8 India 7.3 6.8 9.0 8.4 7.4 China 9.6 9.1 10.3 9.1 8.0 World 2.9 -0.7 4.9 4.5 4.213
  • 14. Chinese and Indian growth strong despite policy tightenings14
  • 15. US recovery continuing, labour market improving (slowly) US GDP US Payrolls and Unemployment Rate 0.50 11 6 4 10 0.25 2 9 0.00 0 Person (millions) 8 PercentPercent -2 -0.25 7 -4 -0.50 6 -6 -0.75 5 -8 -10 -1.00 4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 05 06 07 08 09 10 11 08 09 10 Q/Q Annualised Rate Annual % Monthly change in Nonfarm payrolls Unemployment Rate Source: NAB Capital Research, Reuters EcoWin Source: Reuters EcoWin 15
  • 16. Global manufacturing strong Manufacturing PMIs Index Index 65 65 60 60 55 55 50 50 45 China 45 US 40 40 Europe 35 35 UK 30 30 Mar-06 Sep-06 Mar-07 Sep-07 Mar-08 Sep-08 Mar-09 Sep-09 Mar-10 Sep-1016
  • 17. Japanese earthquake – Key issues for Australia● Japan accounts for 20% of metallurgical coal, 18% of thermal coal and 10% of iron Nikkei 225 Index ore demand 19000 19000● Areas heavily affected by the earthquake 18000 18000 17000 17000 represent 8% of Japanese GDP 16000 16000● Japan is 15% of Australia’s trade (China 15000 15000 22.5%), 19% of exports and 9% of 14000 14000 imports. Main exports are coal, iron ore, Index 13000 13000 beef, aluminium, LNG, nickel, sugar 12000 12000● In short term, commodity demand will fall 11000 11000 10000 10000 as. large manufacturing plants closed 9000 9000● Medium term, demand from 8000 8000 reconstruction projects and from coal and 7000 7000 gas fired electricity power stations will 07 08 09 10 11 exert upward pressure on commodities Source: Reuters EcoWin● BoJ injected ¥15 trn into banking system to ensure plenty of liquidity17
  • 18. Commodity prices driving ‘terms of trade’ & real incomes higher Aus: Terms of Trade and RBA commodity prices 140 1.4 130 1.3 120 1.2 110 RBA commodity price 1.1 100 index (SDR terms, left) 90 1.0 Index Index 80 0.9 Terms of trade (right) 70 0.8 60 0.7 50 0.6 40 30 0.5 60 62 64 66 68 70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 Source: NAB Global Markets Research, Reuters EcoWin18
  • 19. Resource projects ‘committed’ or ‘under construction’:$A133bn, 10% of GDP Source: Minerals and Energy, Major development projects – October 2010 listing, Michael Lampard et al, ABARE, November 201019
  • 20. Domestic Demand Longer term activity outlook remains positive, helped by the rebuilding after the floods and strong business investment Australian GDP 5 5 4 4 Annual 3 3 Percent Percent 2 2 (f) 1 1 0 0 Quarterly GDP Growth -1 -1 00 01 02 03 04 05 06 07 08 09 10 11 12 Source: Reuters EcoWin20
  • 21. Little spare capacity - unemployment rate is falling Unemployment Rate 12 12 11 11 10 10 9 9 8 8 Percent Percent 7 7 6 6 5 5 (f) 4 4 3 3 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 Australia Queensland Source: Reuters EcoWin21
  • 22. Wage pressures rising, and skilled labour shortages after floods Wage Price Index 4.50 2.0 1.9 4.25 1.8 Quarterly Growth (RHS) 1.7 Annual Growth (LHS) 4.00 1.6 1.5 3.75 1.4 1.3 3.50 1.2 1.1 Percent Percent 3.25 1.0 0.9 3.00 0.8 0.7 2.75 0.6 0.5 2.50 0.4 0.3 2.25 0.2 0.1 2.00 0.0 97 98 99 00 01 02 03 04 05 06 07 08 09 10 Source: Reuters EcoWin22
  • 23. Underlying inflationary pressures rising Australian Inflation 7 7 6 6 5 5 4 4 %YoY %YoY 3 3 2 2 (f) 1 1 0 0 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 Headline CPI Average Underlying CPI Source: Reuters EcoWin23
  • 24. AUD has been solid against the major currencies AUD/USD AUD Crosses 1.05 1.05 0.80 110 AUD/EUR (LHS) 1.00 1.00 0.75 100 0.95 0.95 0.70 0.90 0.90 0.65 90 0.85 0.85 0.60AUD/USD 0.80 0.80 80 0.55 0.75 0.75 0.50 AUD/JPY 70 0.70 0.70 (RHS) AUD/GBP (LHS) 0.65 0.65 0.45 60 0.60 0.60 0.40 0.55 0.55 0.35 50 03 04 05 06 07 08 09 10 11 04 05 06 07 08 09 10 11 Source: Reuters EcoWin Source: Reuters EcoWin 24
  • 25. A higher average for the AUD over the next decade? Australian Dollar 1.1 1.1 1.0 1.0 Post commodity-boom average? 0.9 0.9 Average 2004 to 2011: 81c 0.8 0.8 AUD/USD AUD/USD 0.7 0.7 0.6 Pre commodity-boom 0.6 average: 70c 0.5 0.5 0.4 0.4 86 88 90 92 94 96 98 00 02 04 06 08 10 Source: Reuters EcoWin25
  • 26. Key financial market forecasts Interest Rate Forecasts 15-Mar Jun-11 Sep-11 Dec-11 Jun-12 Dec-12 Australia RBA Cash rate 4.75 4.75 5.00 5.25 5.25 5.25 Offshore Policy Rates US Fed funds 0.25 0.25 0.25 0.50 1.00 2.00 ECB refi rate 1.00 1.25 1.50 1.50 2.00 2.50 BoE repo rate 0.50 0.75 1.00 1.50 2.00 2.50 Exchange Rate Forecasts Majors 15-Mar Jun-11 Sep-11 Dec-11 Jun-12 Dec-12 AUD/USD 0.9958 1.05 1.01 0.98 0.96 0.94 NZD/USD 0.7318 0.74 0.72 0.73 0.75 0.77 USD/JPY 81.57 86 87 88 92 92 EUR/USD 1.3919 1.38 1.35 1.36 1.38 1.40 GBP/USD 1.6110 1.59 1.58 1.59 1.61 1.65 USD/CNY 6.5714 6.30 6.20 6.15 5.95 5.75 Australian Cross Rates AUD/JPY 81.23 90 88 86 88 86 AUD/EUR 0.7154 0.76 0.75 0.72 0.70 0.67 AUD/GBP 0.6181 0.66 0.64 0.62 0.60 0.57 AUD/NZD 1.3608 1.43 1.40 1.34 1.28 1.22 AUD/CNY 6.5438 6.62 6.26 6.03 5.71 5.4126
  • 27. Oil and Gold prices rise as Middle-East tensions escalate Oil and Gold Prices $US 140 1500 130 1400 120 1300 110 1200 100 1100 90 1000 USD/Barrel 80 900 USD/Oz 70 800 60 700 50 600 40 500 30 400 20 300 10 200 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 WTI Crude Oil, Spot Gold, Spot Source: NAB Global Markets Research, Reuters EcoWin
  • 28. Some upside potential for the ASX 200? S&P/ASX 200 (RHS) ASX 200 vs Company Profits 8000 32 S&P/ASX 200 (RHS) 4000 16 Profits, Monthly (billions) 2000 ASX 200 8 1000 Gross Operating Surplus (LHS) 4 500 2 250 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 Source: Reuters EcoWin28
  • 29. But not keeping up with US equity market ASX 200 vs Dow Jones Industrials 7000 15000 6800 6600 ASX 200 (RHS) 6400 14000 6200 6000 13000 5800 5600 12000 5400 5200 11000 5000 Index Index 4800 10000 4600 4400 4200 9000 4000 US Dow Jones (LHS) 3800 8000 3600 3400 7000 3200 3000 6000 2800 Jan May Sep Jan May Sep Jan May Sep Jan May Sep Jan May Sep Jan 06 07 08 09 10 11 Australia ASX 200 US Dow Jones Industrial Index Source: Reuters EcoWin29
  • 30. Summary: Risks remain, but interest rates higher in 2011 ● Global economy is improving and Chinese growth remains strong ● Commodity demand will see strong resource investment in Australia ● Household caution is keeping RBA on hold, for now ● Labour market is strong, and unemployment falling ● RBA cash rate to rise further to contain wage and price pressures30
  • 31. Spiros Papadopoulos Senior Economist, Markets +(61 3) 8641 0978 Richard Grace Senior Economist, Markets +(61 2) 9237 1180 Kristina Jawerth Economist, Markets +(61 2) 9237 1180 Stephen Toplis (NZ) Head of BNZ Market Economics +(64 4) 474 6905 Disclaimer Craig Ebert (NZ) Senior Markets Economist +(64 4) 474 6799 Dean Ford (NZ) Market Economist +(64 4) 474 6923 Tom Vosa (UK) Market Economist +(4420) 7710 1573 Kris Bernie (UK) Dollar Bloc +(44 20) 7710 2910 Important Notices ANALYST CERTIFICATION: The person or persons named as the author(s) of this report hereby certify that the views expressed in the research report accurately reflect their personal views about the subject securities and issuers and other subject matters discussed. No part of their compensation was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed in the research report. Research analysts responsible for this report receive compensation based upon, among other factors, the overall profitability of the Markets Division which is part of the Institutional Markets & Services division of National Australia Bank Limited, a member of the National Australia Bank Group (the “National”). The views of the author(s) do not necessarily reflect the views of the National and are subject to change without notice. The National may receive fees for banking services provided to an issuer of securities mentioned in this report. The National, its affiliates and their respective officers, and employees, including persons involved in the preparation or issuance of this report (subject to the policies of the National), may also from time to time maintain a long or short position in, or purchase or sell a position in, hold or act as advisors, brokers or commercial bankers in relation to the securitie s (or related securities and financial instruments), of companies mentioned in this report. The National or its affiliates may engage in these transactions in a manner that is inconsistent with or contrary to any recommendations made in this report. AUSTRALIAN DISCLAIMER: So far as the law allows, National Australia Bank Limited ABN 12 004 044 937 ("the National") disclaims any warranty or representations as to the accuracy or reliability of the information and statements in this document. The National exp ressly advises that, to the extent permitted by the law of Victoria, Australia, by which law use and all other matters relating to this document are governed, it shall not be liable in any way whatsoever (whether in negligence or otherwise) for any loss or damage which may be suffered by any person relying upon such information or any opinion, recommendations or conclusions contained in this document or otherwise arising in connection with the contents of or any omission from this document where the liabili ty is made non-excludable by legislation. This document has been prepared for dissemination to professional investors. The opinions expressed herein are those of the author and not necessarily those of the National. The information on which those opinions are based has been gleaned from public sources or provided by the subject on a non -confidential basis. 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