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TELSTRA CORPORATION LIMITED (ABN 33 051 775 556) | FINAL FOR INFORMATION|
TELSTRA INTERNAL || ABS ECONOMIC DATA REVIEW: GD...
TELSTRA CORPORATION LIMITED (ABN 33 051 775 556) | FINAL FOR INFORMATION|
TELSTRA INTERNAL || ABS ECONOMIC DATA REVIEW: GD...
TELSTRA CORPORATION LIMITED (ABN 33 051 775 556) | FINAL FOR INFORMATION|
TELSTRA INTERNAL || ABS ECONOMIC DATA REVIEW: GD...
TELSTRA CORPORATION LIMITED (ABN 33 051 775 556) | FINAL FOR INFORMATION|
TELSTRA INTERNAL || ABS ECONOMIC DATA REVIEW: GD...
TELSTRA CORPORATION LIMITED (ABN 33 051 775 556) | FINAL FOR INFORMATION|
TELSTRA INTERNAL || ABS ECONOMIC DATA REVIEW: GD...
TELSTRA CORPORATION LIMITED (ABN 33 051 775 556) | FINAL FOR INFORMATION|
TELSTRA INTERNAL || ABS ECONOMIC DATA REVIEW: GD...
TELSTRA CORPORATION LIMITED (ABN 33 051 775 556) | FINAL FOR INFORMATION|
TELSTRA INTERNAL || ABS ECONOMIC DATA REVIEW: GD...
TELSTRA CORPORATION LIMITED (ABN 33 051 775 556) | FINAL FOR INFORMATION|
TELSTRA INTERNAL || ABS ECONOMIC DATA REVIEW: GD...
TELSTRA CORPORATION LIMITED (ABN 33 051 775 556) | FINAL FOR INFORMATION|
TELSTRA INTERNAL || ABS ECONOMIC DATA REVIEW: GD...
TELSTRA CORPORATION LIMITED (ABN 33 051 775 556) | FINAL FOR INFORMATION|
TELSTRA INTERNAL || ABS ECONOMIC DATA REVIEW: GD...
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GDP & Comms (Mar Qtr 2016) - June 2016

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GDP & Comms (Mar Qtr 2016) - June 2016

  1. 1. TELSTRA CORPORATION LIMITED (ABN 33 051 775 556) | FINAL FOR INFORMATION| TELSTRA INTERNAL || ABS ECONOMIC DATA REVIEW: GDP Q1 2016 PAGE 1/10 ABS Economic Data Review GDP & COMMUNICATIONS: MARCH QUARTER 2016 What GDP data informs about the telecommunications sector  The March quarter saw stronger-than-expected GDP growth (up 1.1% q/q and 3.1% y/y), on the back of downwardly revised annual growth in the December quarter 2015 (annual growth in calendar 2015 averaged 2.5% relative to its long-term average of 3.2% - though recent Treasury and RBA analysis suggests potential growth may be lower going forward at around 2.8%-3.0%).  While the economy still faces challenges in the task of rebalancing growth drivers, recent favourable momentum in growth especially among key market-based services sectors suggests increased traction from the RBA’s accommodative policy settings. But ultra-easy monetary policy continues to threaten asset market and financial stability.  With the global economy less supportive of growth in Australia, the significance of the latest national accounts is that it continues to show the economy in a transitionary phase with growth driven by consumer spending, dwelling investment and net exports. It is important to note that favourable headline GDP growth in recent years largely reflects solid mining export performance and thus tends to mask underlying softness in domestic demand. Along with surprisingly low inflation, this is a key factor vindicating the RBA’s easing bias and its willingness to provide additional stimulus to support demand.  On an annual basis, recent growth in the Information, Media and Telecoms (IMT) sector (in volume or real terms) continues to outperform economy-wide growth, as technological developments drive consumer and business demand for data across fixed and mobile networks. Solid volume growth also partly reflects protracted telco price deflation. Macro-economic overview Despite the significant decline in mining investment and the slower than anticipated pick up in non-mining activity, output of the Australian economy expanded at a commendable pace in early 2016. As has been the case for some time, headline GDP growth in the March quarter (up 1.1% q/q and 3.1% y/y) was driven largely by net exports which continues to mask softness in domestic demand. That the headline numbers were stronger than the detail confirms that economic rebalancing remains patchy and subject to ongoing challenges. The dividend from the multi-year expansion in mining investment capacity is the substantial rise in commodity export volumes such as iron ore and coal (though prices have failed to keep pace given resultant over-supply and tepid global demand conditions) at a time when the domestic economy remains soft. It is this softness in domestic economic activity that has contributed to inflation undershooting the RBA target range. With the economy still facing challenges, the RBA is expected to maintain its easing bias for some time. The outlook for low inflation thus means that another rate cut in the second half of this year cannot be ruled out. Data source: ABS; charts produced by economics@telstra. -1% 0% 1% 2% 3% 4% 5% Mar-2009 Mar-2010 Mar-2011 Mar-2012 Mar-2013 Mar-2014 Mar-2015 Mar-2016 Australian Gross Domestic Product (GDP) (Real, Seasonally Adjusted) Quarterly Growth Annual Growth Long-term average (y/y) Natural disasters in summer 2011 20+ years of uninterrupted annual GDP growth. -1% 0% 1% 2% 3% 4% 5% 6% 7% 8% Mar-1996 Mar-2000 Mar-2004 Mar-2008 Mar-2012 Mar-2016 Domestic Demand & GDP - Annual Growth Domestic Demand GDP Persistently weak growth in domestic demand since 2013 despite extensive monetary stimulus.
  2. 2. TELSTRA CORPORATION LIMITED (ABN 33 051 775 556) | FINAL FOR INFORMATION| TELSTRA INTERNAL || ABS ECONOMIC DATA REVIEW: GDP Q1 2016 PAGE 2/10 Key components of GDP The significance of the latest national accounts is that it continues to show the economy in a transitionary phase with growth driven by net exports, consumer spending and dwelling investment. While headline growth appears favourable, the bulk of domestic economic activity (outside housing) remains sluggish. Growth in the domestic economy was meagre at 0.1% q/q and up only 0.9% y/y. Sustained sluggish growth in demand is due to headwinds such as soft labour market conditions, weak wage growth, subdued consumer confidence and the sharp decline in mining investment. Data source: ABS; charts produced by economics@telstra.  Consumer spending (up 0.7% q/q and 3.0% y/y, contributing 0.4% points to quarterly growth) was favourable in the March quarter with the growth contribution in line with the average observed over recent years. Spending continues to be more broadly in line with income growth as subdued confidence and an elevated household savings ratio supports more sustainable growth outcomes going forward. The outlook for consumer spending remains cautious reflecting headwinds from weak wage growth and limited gains in full-time employment, as well as moderation in house prices dampening the ‘wealth effect’. Data source: ABS; charts produced by economics@telstra.  The confluence of low mortgage rates, improved housing affordability and favourable demographics continues to underpin resilience in dwelling investment (up 1.4% q/q and 7.0% y/y, contributing 0.1% point to quarterly growth). After an extended period of solid growth, housing market activity is now moderating especially along the nation’s east coast. But the pipeline of construction activity should ensure housing provides a solid contribution to economic growth in the coming year. 1.1% 0.4% 0.2% 0.1% 0.0% 0.6% 1.3% 0.0% 0.2% 0.4% 0.6% 0.8% 1.0% 1.2% 1.4% 1.6% 1.8% 2.0% Net exports Consumer spending Public demand Housing Change in Inventories Business capex GDP (E) Q1 2016: Main Contributors to Quarterly GDP Growth (Real, Seasonally Adjusted, % points) NOTE:Main GDP (Expenditure) components do not sum to total GDP (E) due to statistical discrepancy and exclusion of dwelling ownership transfer costs. -2.0% -1.5% -1.0% -0.5% 0.0% 0.5% 1.0% 1.5% 2.0% Mar Qtr 2013 Sept Qtr 2013 Mar Qtr 2014 Sept Qtr 2014 Mar Qtr 2015 Sept Qtr 2015 Mar Qtr 2016 Points Key Drivers of Quarterly GDP Growth (Percentage point contribution) Net exports Private demand Public demand GDP 0.0% 0.2% 0.4% 0.6% 0.8% 1.0% 1.2% 1.4% 1.6% 1.8% 2.0% 2.2% 2.4% Mar Qtr 2011 Mar Qtr 2012 Mar Qtr 2013 Mar Qtr 2014 Mar Qtr 2015 Mar Qtr 2016 Points Consumer Spending Contribution to Annual GDP Growth Consumerspending contributed 1.7% points to annualGDP growth (3.1%) -1% 0% 1% 2% 3% 4% 5% 6% 7% 8% -1% 0% 1% 2% 3% 4% 5% 6% 7% 8% Mar-2000 Mar-2002 Mar-2004 Mar-2006 Mar-2008 Mar-2010 Mar-2012 Mar-2014 Mar-2016 Australia's Growth Momentum Improves Households Remain Key Growth Driver. But Domestic Demand Subdued. Consumer spending (annual %) GDP (annual %) Domestic demand (annual %) (All data are real, seasonallyadjusted)
  3. 3. TELSTRA CORPORATION LIMITED (ABN 33 051 775 556) | FINAL FOR INFORMATION| TELSTRA INTERNAL || ABS ECONOMIC DATA REVIEW: GDP Q1 2016 PAGE 3/10 Data source: ABS; charts produced by economics@telstra.  Business capex (down 4.2% q/q and 13.0% y/y, detracting 0.6% points from quarterly growth) continues to decline on an annual basis as the mining investment cycle transforms into a production/export phase. While the sharp decline in mining investment with limited offset coming from key non-mining sectors is expected to remain a drag on growth in 2016, the ramp up in production and commodity exports should continue to contribute to growth outcomes over this period (see next dot point). Data source: ABS; charts produced by economics@telstra.  Net exports contributed a solid 1.1% points to quarterly GDP growth as commodity export volumes increased sharply and import volumes fell. Exports (up 4.4% q/q and 6.6% y/y) are forecast to continue to grow at a resilient pace over coming years as additional mining productive capacity comes on-stream. The composition of net exports in the March quarter saw gains in iron ore as well as non-monetary gold. Encouragingly, services exports such as tourism and education continue to strengthen boosted by the lower exchange rate and favourable demand conditions as the Asian middle-class expands. Data source: ABS; charts produced by economics@telstra. -50% -30% -10% 10% 30% 50% -50% -40% -30% -20% -10% 0% 10% 20% 30% 40% 50% Mar-2000 Mar-2002 Mar-2004 Mar-2006 Mar-2008 Mar-2010 Mar-2012 Mar-2014 Mar-2016 Dwelling Investment & Non-Dwelling Construction Non-Dwelling Construction - Annual Growth Dwelling Investment - Annual growth -20% -10% 0% 10% 20% Mar-2006 Mar-2008 Mar-2010 Mar-2012 Mar-2014 Mar-2016 Housing Construction v. Alterations & Additions (Annual Growth) Housing construction Alterations & additions Annual house price growth -2.0% -1.5% -1.0% -0.5% 0.0% 0.5% 1.0% 1.5% 2.0% 2.5% 3.0% 3.5% 4.0% Mar Qtr 2011 Mar Qtr 2012 Mar Qtr 2013 Mar Qtr 2014 Mar Qtr 2015 Mar Qtr 2016 Points Business Investment Contribution to Annual GDP Growth Businesscapexdetracted 1.9% points from annual GDP growth (3.1%) 0 2,000 4,000 6,000 8,000 10,000 12,000 14,000 16,000 18,000 20,000 22,000 24,000 26,000 28,000 Mar-1995 Mar-1998 Mar-2001 Mar-2004 Mar-2007 Mar-2010 Mar-2013 Mar-2016 $ million Business Capital Expenditure (Real, Seasonally Adjusted) Plant & Equipment Engineering Infrastructure Non-Dwelling Construction -3.0% -2.5% -2.0% -1.5% -1.0% -0.5% 0.0% 0.5% 1.0% 1.5% 2.0% 2.5% Mar Qtr 2011 Mar Qtr 2012 Mar Qtr 2013 Mar Qtr 2014 Mar Qtr 2015 Mar Qtr 2016 Points Net Exports Contribution to Annual GDP Growth Net exports contributed 1.9% point to annualGDP growth (3.1%) -10,000 -7,500 -5,000 -2,500 - 2,500 5,000 7,500 10,000 12,500 -20% -15% -10% -5% 0% 5% 10% 15% 20% 25% Mar-2000 Mar-2002 Mar-2004 Mar-2006 Mar-2008 Mar-2010 Mar-2012 Mar-2014 Mar-2016 AUD$m External Sector (Real, Seasonally Adjusted) Ann. chg in net exports (levels, $m) (RHS) Exports (ann %) (LHS) Imports (ann %) (LHS)
  4. 4. TELSTRA CORPORATION LIMITED (ABN 33 051 775 556) | FINAL FOR INFORMATION| TELSTRA INTERNAL || ABS ECONOMIC DATA REVIEW: GDP Q1 2016 PAGE 4/10  The external sector more than offset sluggish domestic demand (up only 0.1% q/q and 0.9% y/y) with softness in private demand (especially business investment) overlayed by a marginal contribution to growth from public spending despite imperatives around fiscal consolidation. Data source: ABS; charts produced by economics@telstra. The IMT sector v. economy While recent growth in the IMT sector (in volume or real terms) has outperformed growth in the overall economy, this partly reflects extensive and protracted price deflation.  With quarterly growth averaging 2.3% in 2015, some moderation was expected in early 2016. The March quarter saw IMT sector output expand at a much slower rate (up only 0.2%, down from a revised 2.7% increase in the December quarter) pushing annual growth lower to 5.5%. Annual growth has recently stabilised at a level well above its 10-year average of 3.7%.  With yearly growth of 5.5% cf. 3.1% for GDP, the IMT sector continues to out-perform the economy overall evidenced by its higher share of real GDP (currently at 3.01% cf. a recent 10-year average of 2.84%) remaining on a modest uptrend since March 2014.  Technological developments continue to fuel household and business demand for data across both fixed and mobile networks. The need for fast and reliable Internet connections with greater download capabilities should ensure that industry investment in network capacity remains a priority. This should sustain output growth going forward.  The increased use of ICT services by the business sector in an effort to compete more effectively both domestically and offshore also driving strong recent performance in the IMT sector. Data source: ABS; charts produced by economics@telstra. 1.8% 1.5% 0.5% 0.7% 0.7% 1.4% 1.1% 1.1% 0.9% 2.1% 1.1% 1.7% 2.0% 0.9% 0.7% 1.5% 0.8% 1.9% 3.0% 2.7% 2.6% 2.3% 2.3% 2.1% 2.7% 2.9% 3.1% 0.0% 0.5% 1.0% 1.5% 2.0% 2.5% 3.0% 3.5% 4.0% Mar Qtr 2014 Sept Qtr 2014 Mar Qtr 2015 Sept Qtr 2015 Mar Qtr 2016 (Points) Domestic Demand & Net Exports Domestic demand Net exports Real GDP growth % Point Cont. to Annual GDP Growth Since 2013,net exports (due to mining) has been a major contributor to GDP growth. But growth in domestic demand softdespite low interest rates. -2% -1% 0% 1% 2% 3% 4% 5% 6% 7% 8% -2% -1% 0% 1% 2% 3% 4% 5% 6% 7% 8% Mar-2000 Mar-2002 Mar-2004 Mar-2006 Mar-2008 Mar-2010 Mar-2012 Mar-2014 Mar-2016 Australia's Growth Momentum Improves Exports Key Growth Driver with Domestic Demand Subdued Net exports (% pt cont. to qtrly GDP) GDP (annual % chg) Domestic demand (annual % chg) (All data are real, seasonallyadjusted) 96 98 100 102 104 106 108 110 112 114 116 118 120 122 124 126 Mar-2010 Mar-2011 Mar-2012 Mar-2013 Mar-2014 Mar-2015 Mar-2016 Real GDP: IMT Sector & Australian Economy (Indexed Output Growth: Mar. Qtr 2010=100) Real GDP IMT Output IMT sector output growth remains on firm uptrend after extended period of sluggish growth. Consistent with broader improvement in services sector activity which tends to have high comms intensity. Mar-2016, 5.5% -2% 0% 2% 4% 6% 8% 10% 12% Mar-2006 Mar-2008 Mar-2010 Mar-2012 Mar-2014 Mar-2016 Industry GVA* - Info, Media & Telecoms v. GDP (Annual Growth) Real GDP Real IMT Output * GVA is 'Gross Value Added' = Output
  5. 5. TELSTRA CORPORATION LIMITED (ABN 33 051 775 556) | FINAL FOR INFORMATION| TELSTRA INTERNAL || ABS ECONOMIC DATA REVIEW: GDP Q1 2016 PAGE 5/10  The IMT/GDP growth multiple (in annual terms) fell from 3.25x in the December quarter to 1.75x in the first quarter of 2016. The current (deteriorated) growth multiple remains above its recent 20-year average of 1.4x. Data source: ABS; charts produced by economics@telstra. Consumer spending on communications including ‘share of wallet’ analysis High levels of household indebtedness, limited gains in full-time employment and weak wage growth are limiting overall spending capacity and making it difficult for households to increase their spending on telco products and services.  Aggregate consumer spending proved surprisingly resilient during the March quarter (up 0.7% q/q and 3.0% y/y in real terms), suggesting that lower interest rates and a modest housing wealth effect were effective in supporting spending. This is despite constrained full-time employment growth and weak wage growth limiting spending propensity and capacity.  Evidence of the wealth effect is also reflected in resilient household income growth which has enabled gains in spending and higher savings with the household savings ratio rising to 8.1% in the March quarter (cf. 7.5% in the December quarter and a post-GFC average of 9.8%). Data source: ABS; charts produced by economics@telstra.  In seasonally adjusted terms (March quarter is typically a weak quarter) nominal consumer spending on communications fell by 0.2% during the first three months of 2016, with annual growth weak at -1.1% largely due to falling prices. Since the beginning of 2014, annual telephony price deflation has averaged negative 3.4% compared with an average 1.0% annual growth in nominal communications spending. This compares with aggregate nominal consumer spending which increased by 0.6% in the March quarter, to be up 4.2% across the year (down from a peak of 9.5% at December 2007). -6% -5% -4% -3% -2% -1% 0% 1% 2% 3% 4% 5% 6% 7% 8% 9% 10% 11% 12% 13% -2.5x -2.0x -1.5x -1.0x -0.5x 0.0x 0.5x 1.0x 1.5x 2.0x 2.5x 3.0x 3.5x 4.0x 4.5x 5.0x 5.5x Mar.2006 Jun.2007 Sep.2008 Dec.2009 Mar.2011 Jun.2012 Sep.2013 Dec.2014 Mar.2016 Points IMT/GDP Growth Multiple & Deviation from GDP Growth* (Real, Annual Growth) Deviation from GDP A% (RHS) Comms/GDP multiple (LHS) Comms/GDP multiple, 20-yr avg (LHS) Positive territory: IMT sectorout- performing economy in annual growth terms Negative territory: IMT sector under- performing economy in annual growth terms 1.25% 1.50% 1.75% 2.00% 2.25% 2.50% 2.75% 3.00% 3.25% Mar-1989 Mar-1992 Mar-1995 Mar-1998 Mar-2001 Mar-2004 Mar-2007 Mar-2010 Mar-2013 Mar-2016 Info, Media & Telecoms Sector Share of GDP -2% 0% 2% 4% 6% 8% 10% 12% 14% Mar-2006 Mar-2008 Mar-2010 Mar-2012 Mar-2014 Mar-2016 Consumer Spending, Household Income and Savings (Annual % Change) Savings (% HDI) Real Consumer Spending Household Disposable Income -2% -1% 0% 1% 2% 3% 4% 5% 6% 7% Mar-1996 Mar-2000 Mar-2004 Mar-2008 Mar-2012 Mar-2016 Real Consumer Spending & GDP Consumer spending (Quarterly growth) Consumer spending (Annual growth) GDP (Annual growth)
  6. 6. TELSTRA CORPORATION LIMITED (ABN 33 051 775 556) | FINAL FOR INFORMATION| TELSTRA INTERNAL || ABS ECONOMIC DATA REVIEW: GDP Q1 2016 PAGE 6/10 Data source: ABS; charts produced by economics@telstra.  Recent trends in household disposable income (HDI) growth reflects resilient (albeit softer) employment outcomes and subdued wage growth. In the March quarter, HDI growth was up 1.2% (cf. 0.2% in the previous quarter), pushing annual growth higher to 3.8% - though remains below its recent 5-year average of 4.6%. Low interest rates remain a dominant factor boosting (post-mortgage) discretionary incomes. Data source: ABS; charts produced by economics@telstra.  Annual growth in consumer spending on communications continued to fall (down 1.1% nominal) and not keeping pace with household incomes (up 3.8%), with consequent ongoing falls in the communications ‘share of wallet’ (now 1.80% compared with a recent cycle peak of 2.0% at June 2013). Most other expenditure categories grew faster than communications in nominal terms. This mainly reflects price deflation in the telco sector. Data source: ABS; charts produced by economics@telstra. 2.0% 2.1% 2.2% 2.3% 2.4% 2.5% 2.6% 2.7% 2.8% 2.9% 3.0% -2% 0% 2% 4% 6% 8% 10% 12% Mar-06 Mar-07 Mar-08 Mar-09 Mar-10 Mar-11 Mar-12 Mar-13 Mar-14 Mar-15 Mar-16 Consumer Spending on Communications Comms share of total spending (RHS) Total consumer spending y/y% (LHS) Consumer spending on comms y/y% (LHS) All data are in nominal, seasonally adjusted terms. 40% 41% 42% 43% 44% 45% 46% 47% 48% 49% 1.75% 2.00% 2.25% 2.50% 2.75% 3.00% Mar-06 Mar-07 Mar-08 Mar-09 Mar-10 Mar-11 Mar-12 Mar-13 Mar-14 Mar-15 Mar-16 Consumer Spending in Real & Nominal Terms Nominal comms share of total spending (LHS) Real comms share of total spending (LHS) Real essentials spend % total spend (RHS) Nominal essentials spend % total spend (RHS) Essentials spend = food, rent, utilities, transport, health & education Telco price disinflation limiting gains in nominal comms spending -4% -2% 0% 2% 4% 6% 8% 10% 12% 14% Mar-1996 Sep-1998 Mar-2001 Sep-2003 Mar-2006 Sep-2008 Mar-2011 Sep-2013 Mar-2016 Household Disposable Income Quarterly growth Annual growth 0% 1% 2% 3% 4% 5% 6% 7% 8% 9% 10% 11% 12% 13% Mar-2002 Mar-2004 Mar-2006 Mar-2008 Mar-2010 Mar-2012 Mar-2014 Mar-2016 Household Disposable Income & Employment (Annual Growth) Wage growth Employment growth HDI Mar.2016, 1.802% 0.50% 0.75% 1.00% 1.25% 1.50% 1.75% 2.00% 2.25% 2.50% 2.75% 3.00% Mar.1988 Sep.1991 Mar.1995 Sep.1998 Mar.2002 Sep.2005 Mar.2009 Sep.2012 Mar.2016 Consumer Spending on Communications (Data are in nominal terms, seasonally adjusted) Share of total spending Share of HDI -0.6% -0.5% -0.4% -0.3% -0.2% -0.1% 0.0% 0.1% 0.2% 0.3% 0.4% 0.5% Mar-96 Mar-98 Mar-00 Mar-02 Mar-04 Mar-06 Mar-08 Mar-10 Mar-12 Mar-14 Mar-16 Communications "Share-of-Wallet": Deviation from 20-Year Average (Data are in nominal terms, seasonally adjusted) % point deviation Recent downtrend in comms 'share-of- wallet' partly reflects the cyclical impact of the growth slowdown; resilient HDI growth; telco price deflation; and the structural impact of telco productmarket saturation.
  7. 7. TELSTRA CORPORATION LIMITED (ABN 33 051 775 556) | FINAL FOR INFORMATION| TELSTRA INTERNAL || ABS ECONOMIC DATA REVIEW: GDP Q1 2016 PAGE 7/10 Data source: ABS; charts produced by economics@telstra.  Communications ‘share of wallet’ over the past 3 years has averaged around 1.91%. With annual growth in nominal communications spend and HDI averaging 2.0% and 3.9%, respectively over this period, communications continues to lose ‘share of wallet’ in a period where HDI growth remains resilient.  In real terms (excluding price effects), annual growth in communications spend remains favourable increasing by 5.7% (up from a 5.4% annual pace at December 2015) and outperforming growth in total spending (up 3.0%). Again, telco price deflation is likely flattering spending growth in real terms.  Going forward, slack in the labour market will continue to constrain wage income growth in turn likely limiting further gains in spending at a macro level (unless households draw down on their savings to partly fund spending). This is despite extensive monetary stimulus currently flowing through the economy. Telephony price deflation Given the current environment of intense price competition in the telco market, the focus on optimising network performance becomes all the more important in the context of product/service differentiation. Historic 1%-2% telco price inflation fell sharply to an average -5.8% in H2 2015 and Q1 2016, with some analysts expecting telco prices to continue to fall by around 2%-3% in the coming year.  According to the ABS, consumer prices for telecommunications continued to decline in the March quarter (down 1.7% q/q and 6.7% y/y), with telephony prices having fallen by a cumulative 11.6% since mid-2014. Intense price competition reflects, inter alia, limited scope for organic market growth and customer focus on ‘value for money’. Deflation risks likely to persist in our sector for some time but sustainability remains a key issue.  Annual price deflation in the telco sector remains well below annual overall price inflation (as measured by the CPI) which increased by 1.3% over the same 12-month period (down from 1.7% at December 2015 and 2.9% at March 2014). Relative to its long-term average, telco price inflation remains very low. Data source: ABS; charts produced by economics@telstra. -0.15% -0.10% -0.05% 0.00% 0.05% 0.10% 0.15% 0.20% 0.25% Gain or Loss in Share of HDI Mar. 2015 to Mar. 2016 Communications, -1.1% -2% 0% 2% 4% 6% 8% Growth in Nominal Consumer Spend Categories Growth over last 12 months to Mar. 2016 Totalnominal spending HDI -8% -6% -4% -2% 0% 2% 4% 6% 8% 10% Mar-1996 Mar-2000 Mar-2004 Mar-2008 Mar-2012 Mar-2016 Annual Price Inflation - Telecommunications v. CPI All Groups CPI Telecommunications Q1 2016 Overall CPI: +1.3% y/y Q1 2016 Telco inflation: -6.7% y/y -7.00% -6.50% -6.00% -5.50% -5.00% -4.50% -4.00% -3.50% -3.00% -2.50% -2.00% -1.50% -1.00% -0.50% 0.00% 0.50% 1.00% 1.50% 2.00% 2.50% Mar-06 Mar-07 Mar-08 Mar-09 Mar-10 Mar-11 Mar-12 Mar-13 Mar-14 Mar-15 Mar-16 % Points CPI Telco Inflation - Annual % Change (Deviation from long-term (20-year) average) Telco Overall CPI CPI 20-yr avg. y/y% = +2.5% Telco CPI 20-yr avg. y/y% = -0.1%
  8. 8. TELSTRA CORPORATION LIMITED (ABN 33 051 775 556) | FINAL FOR INFORMATION| TELSTRA INTERNAL || ABS ECONOMIC DATA REVIEW: GDP Q1 2016 PAGE 8/10  From a macro perspective, the latest CPI data for the March quarter (down 0.2% q/q but up 1.3% y/y) reaffirmed the absence of inflationary pressures in the Australian economy allowing the RBA to maintain (and potentially expand) monetary stimulus. While domestic economic growth appears resilient, low inflation allows the RBA scope to provide additional stimulus if the balance of risks to growth deteriorates. Data source: ABS; charts produced by economics@telstra.  Subdued trends in telco price inflation contrasts sharply with other selected goods and services which have seen sharp price rises over recent years due to a combination of structural and cyclical factors.  On a real (inflation-adjusted) basis, telecommunications consumer price inflation remains low with prices falling by 15.6% over the past 5 years implying enhanced consumer welfare. IMT sector employment and wage growth Generally soft demand conditions are constraining IMT and economy-wide employment growth especially in full- time positions. This is a key factor limiting wage growth and keeping wage inflation at a low level by historical comparison.  Employment in the IMT services sector fell by 13,500 persons in the March quarter to 209,900 persons (down 6.0% q/q and 2.6% y/y). The March quarter represents a level of IMT sector employment slightly above it recent 3-year average. The IMT sector was one of eight sectors to report declining employment across the year to March. Data source: ABS; charts produced by economics@telstra.  Relatively stronger growth in IMT sector output (up 0.2% q/q) than labour input (down 6.0% q/q) has resulted in a sharp increase in output per worker in the March quarter (up 6.7%). This outcome contrasts with weaker labour productivity across the macro economy which has experienced resilient employment gains.  Growth in output per worker in the IMT sector (up 8.2% across the year to March) continues to out- perform economy-wide productivity (up 1.1% across the year). The recent 3-year average labour 0% 1% 2% 3% 4% 5% 6% Mar-06 Mar-08 Mar-10 Mar-12 Mar-14 Mar-16 Australian GDP & CPI Inflation (Year-on-Year Growth) Real GDP Headline CPI Inflation RBA Underlying CPI Inflation -1.75% -1.50% -1.25% -1.00% -0.75% -0.50% -0.25% 0.00% 0.25% 0.50% Mar-12 Sep-12 Mar-13 Sep-13 Mar-14 Sep-14 Mar-15 Sep-15 Mar-16 % Points CPI Inflation - Annual Growth (Deviation from long-term average) Underlying CPI Headline CPI Inflation -0.5% 0.0% 0.5% 1.0% 1.5% 2.0% 2.5% 3.0% 3.5% 4.0% 4.5% 5.0% -16% -14% -12% -10% -8% -6% -4% -2% 0% 2% 4% 6% 8% 10% 12% 14% 16% 18% 20% 22% Mar.1998 Jun.2000 Sep.2002 Dec.2004 Mar.2007 Jun.2009 Sep.2011 Dec.2013 Mar.2016 Employment: Annual % Change (Information, Media & Telecoms Sector v. Total Industry) IMT sector (LHS) Economy-wide (RHS) -40 -30 -20 -10 0 10 20 30 40 50 60 70 Retail Health care Transport, postal & warehousing Admin & support Prof. scientific & tech. Construction Finance & insurance Public admin. & safety Rental, hiring & real estate Mining Agriculture Utilities Arts & recreation Education Information, media & telecoms Accommodation Manufacturing Other services Wholesale Employment Growth by Sector (Year to February 2016, '000's - Mid-point of Quarter) Aggregate employment increase = 234,700 Sectors withgrowing employment Sectors withcyclically & structurallydeclining employment
  9. 9. TELSTRA CORPORATION LIMITED (ABN 33 051 775 556) | FINAL FOR INFORMATION| TELSTRA INTERNAL || ABS ECONOMIC DATA REVIEW: GDP Q1 2016 PAGE 9/10 productivity performance in the IMT sector (7.7% in annual terms) has comfortably outpaced that for the economy overall (1.1%). Data source: ABS; charts produced by economics@telstra.  The pace of annual wage inflation across all industries continues to slow including in the IMT sector consistent with low price inflation, constrained full-time employment growth and sluggish growth in domestic demand. Across the year to the March quarter, IMT sector wages increased by 2.2% (down slightly from the 2.3% annual rate in the December quarter) compared with a relatively softer industry-wide increase of 2.1% (the same rate as in the previous quarter). Data source: ABS; charts produced by economics@telstra.  This outcome confirms underlying slack in the labour market (i.e., an elevated full-time unemployment rate) which is underscoring the low inflation environment in Australia as well as the RBA’s willingness to provide additional monetary stimulus in order to support demand. ***************************************************************************************************************************** 15 20 25 30 35 40 45 50 55 60 65 Mar.1998 Mar.2000 Mar.2002 Mar.2004 Mar.2006 Mar.2008 Mar.2010 Mar.2012 Mar.2014 Mar.2016 $'000's per employee Partial Labour Productivity (RealOutput per Employee) IMT sector Economy-wide -18% -16% -14% -12% -10% -8% -6% -4% -2% 0% 2% 4% 6% 8% 10% 12% 14% 16% 18% 20% 22% Mar.2006 Mar.2008 Mar.2010 Mar.2012 Mar.2014 Mar.2016 IMT Sector Annual 'GDP' Growth Composition (GDP proxied by Real Industry Gross Value-Added) Employment Productivity IMT output growth 0.0% 0.5% 1.0% 1.5% 2.0% 2.5% 3.0% 3.5% 4.0% 4.5% Mar-06 Mar-07 Mar-08 Mar-09 Mar-10 Mar-11 Mar-12 Mar-13 Mar-14 Mar-15 Mar-16 IMT Sector Wage Inflation (Data in Original terms) IMT quarterly wage growth IMT annual wage growth Economy-wide annual wage growth 1.0% 1.5% 2.0% 2.5% 3.0% 3.5% 4.0% Wage Price Index by Selected Industry (Original Data, Annual Growth to March 2016) Economy-wide wage growth Headling CPI inflation RBA Core CPI inflation Recent 5-yr avg. wage growth
  10. 10. TELSTRA CORPORATION LIMITED (ABN 33 051 775 556) | FINAL FOR INFORMATION| TELSTRA INTERNAL || ABS ECONOMIC DATA REVIEW: GDP Q1 2016 PAGE 10/10 Key Economic Statistics All (non-TLS) data are ABS sourced and seasonally adjusted. * Industry wage data are in original terms. Data in this table are ABS sourced and seasonally adjusted. National Accounts Q1 2016 Q4 2015 q/q% Q1 2015 y/y% Real GDP 2013-14$m 420,023 415,605 1.1% 407,316 3.1% Consumer Spending 2013-14$m 233,040 231,494 0.7% 226,203 3.0% Housing Investment 2013-14$m 22,635 22,316 1.4% 21,151 7.0% Plant & Equipment Investment 2013-14$m 16,943 17,266 -1.9% 18,354 -7.7% Non-Dwelling Investment 2013-14$m 25,034 27,115 -7.7% 31,141 -19.6% Public Spending 2013-14$m 91,923 91,161 0.8% 89,185 3.1% Domestic demand 2013-14$m 405,844 405,325 0.1% 402,331 0.9% IMT Output 2013-14$m 12,653 12,627 0.2% 11,999 5.5% Nominal GDP $m 412,425 410,447 0.5% 404,137 2.1% Communications spending Q1 2016 Q4 2015 q/q% Q1 2015 y/y% Real consumer 2013-14$m 5,840 5,768 1.2% 5,527 5.7% Nominal consumer $m 5,129 5,138 -0.2% 5,185 -1.1% Telstra consumer $m 2,889 3,054 -5.4% 2,982 -3.1% Household disposable income $m 284,641 281,323 1.2% 274,111 3.8% 'share-of-wallet' 1.80% 1.83% - 1.89% - Prices & Wages Q1 2016 Q4 2015 q/q% Q1 2015 y/y% Overall Consumer Price Index 2011-12=100 108.2 108.4 -0.2% 106.8 1.3% Telephony CPI Index 2011-12=100 92.0 93.6 -1.7% 98.6 -6.7% Overall Wage Price Index* 2008-09=100 123.2 122.7 0.4% 120.7 2.1% IMT Wage Price Index* 2008-09=100 120.8 120.7 0.1% 118.2 2.2% Employment Q1 2016 Q4 2015 q/q% Q1 2015 y/y% Economy-wide 000's 11,879.8 11,883.0 0.0% 11,642.6 2.0% IMT sector 000's 209.9 223.4 -6.0% 215.4 -2.6% CONSUMER SPENDING Nominal growth Real growth Mar. Quarter 2016 Qtrly % Annual % 3-yr CAGR 10-yr CAGR Share of HDI Qtrly % Annual % 3-yr CAGR 10-yr CAGR Food 0.7% 3.9% 3.5% 4.9% 8.25% 0.8% 4.8% 2.4% 2.8% Tobacco -1.4% -0.3% 2.6% 4.3% 1.42% -2.8% -11.3% -8.7% -4.6% Alcohol 1.1% 2.4% 4.5% 4.3% 1.43% 0.8% 0.7% 2.2% 1.7% Clothing & Footwear 1.6% 6.9% 4.9% 3.5% 2.70% 1.4% 6.8% 5.1% 4.0% Rent 0.7% 3.8% 4.9% 7.0% 18.03% 0.6% 2.3% 2.3% 2.6% Electricity & Gas 1.6% 6.1% 4.4% 8.4% 2.15% 1.8% 7.4% 3.6% 1.3% Furniture etc 1.2% 5.5% 5.0% 3.9% 3.57% 0.4% 2.5% 4.1% 3.7% Health 0.1% 6.4% 5.5% 7.0% 5.39% 0.7% 4.0% 3.4% 4.8% Purchase of Vehicles -0.1% -0.6% 2.0% 0.8% 1.68% -0.4% -1.7% 2.3% 3.0% Operation of Vehicles -3.1% 3.1% -0.9% 3.1% 3.96% 0.5% 4.4% 1.5% 1.8% Transport Services 1.7% 2.6% 3.3% 6.1% 2.64% 2.5% 1.5% -1.7% 3.7% Communications -0.2% -1.1% 0.6% 2.3% 1.80% 1.2% 5.7% 8.6% 5.0% Recreation & Culture 0.3% 6.0% 5.0% 4.0% 8.42% 0.0% 4.4% 3.6% 3.1% Education Services -0.3% 4.9% 6.4% 8.3% 3.93% 0.4% 1.5% 1.6% 2.9% Hotels & Restaurants 0.5% 1.4% 5.0% 4.3% 5.57% 0.1% -0.7% 3.0% 2.1% Financial Services 1.9% 6.8% 8.1% 6.3% 7.82% 1.6% 4.8% 6.3% 2.9% Other 1.1% 4.2% 4.4% 5.2% 5.45% 0.7% 3.0% 2.3% 3.3% Total spending* 0.6% 4.2% 4.6% 5.3% 84.21% 0.7% 3.0% 2.9% 2.8% Essentials** 0.6% 4.3% 4.7% 6.7% 40.39% 0.8% 3.2% 2.2% 2.9% Discretionary 0.5% 4.2% 4.4% 4.2% 43.83% 0.5% 2.9% 3.5% 2.8% H/hold Disp. Income (HDI) 1.2% 3.8% 3.7% 6.0% - - - - - Q1 2016 Q4 2015 Q3 2015 Q2 2015 Q1 2015 H/hold Savings Ratio 8.1% 7.5% 8.5% 9.0% 8.6%

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