This document provides an economic outlook and key financial indicators for 2015. It summarizes that global and US economic growth is expected to improve slightly in 2015, while the transition in China continues. Australia's growth is forecast in the 2.75-3.25% range. Interest rates are expected to remain low in the first half of 2015. The sharemarket is tipped to end 2015 higher, supported by valuations and balance sheets. Housing price growth is projected to moderate to 4-7% due to increased supply. Risks include oil-producing economies and deflation in developed nations.

1. Craig James,
Chief Economist, @CommSec
Savanth Sebastian,
Economist, @CommSec

2. This presentation has been prepared without taking account of the objectives,
financial situation or needs of any particular individual. Before acting on the
information in this seminar, you should consider its appropriateness to your
circumstances and, if necessary, seek appropriate professional advice.
Commonwealth Securities LimitedABN 60 067 254 399
AFSL 238814 (CommSec) is a wholly owned but non-guaranteed subsidiary of
Commonwealth Bank of Australia ABN 48 123 123 124 and a Participant of the ASX
Group.
Examples used in this presentation are for illustrative purposes only.

3.  It is probably best to describe 2014 as another year of disappointment. In
January, the International Monetary Fund projected 3.7% growth for the global
economy. Now it expects growth closer to 3.3%. Still, while growth was a little
below the long-term average, it won’t be much different to 2013.
 The US economy is performing well; China is managing the transition from
production to consumption; Europe is weak; and the falling oil price is
stemming growth of energy producers.
 In February, the Reserve Bank tipped average growth in 2014 at 2 ¼ - 3 1/4 %;
in November the forecast was exactly the same. In other words, a little below
average.The net effect has been to cause unemployment to drift higher from
5.9% to 6.3% but keep inflation under control between 2-3%.The economy
continued its transition from growth driven by mining investment to one driven
by home building and mining exports.

4.  Home prices rose by around 8.5% in 2014 after lifting 9.8 per cent in 2013.
 Returns on residential property outperformed government bonds, shares and
cash in 2014.
 The Aussie dollar drifted higher from the late US80c area to the low US90c in
the first half of 2014 but finally succumbed to lower commodity prices –
particularly the slump in oil prices from September.The Aussie dollar lost US7.5
cents against the greenback over 2014 and fell against the $NZ dollar, but rose
against the Euro and Japanese yen.
 The Reserve Bank left the cash rate at 2.50% over 2014.
 Bond yields ended 2014 lower in response to lower inflation risks.
 The ASX 200 rose by just 1.1% in 2014 after being up 5.7% in September.
 The World sharemarket (MSCI less Australia) rose by 3.3% in 2014.

6. Key financial indicators 2015: At a Glance
Dec 31 2013 High Low Dec 31 2014 % change
ASX 200 5,352.2 5,679.5 5,052.2 5,411.0 +1.1%
US Dow Jones 16,576.7 18,103.5 15,340.7 17,823.1 +7.5%
AUD/USD, US cents 89.48 95.04 80.89 82.02 -8.3%
90 day bank bills 2.64% 2.79% 2.58% 2.77% -
10 year bond yields 4.23% 4.34% 2.82% 2.82% -
Oil, US$ per barrel 98.42 107.26 52.70 53.27 -45.9%
Gold, US$ per ounce 1202.30 1379.00 1142.60 1183.20 -1.6%

16. HOME PRICES
November 2014 6.0%
1.7%
8.3%
5.2%
2.8%
1.4%
1.4%
13.2%
Annual % change
Source: CoreLogic RP Data, CommSec

24. Influences on ASX 200 index in 2014
(ASX 200 rose by 60 points or 1.1%)
Index points change Index points change

34.  Global Economy: Over the past 40 years, world economic growth has averaged
3.5%. Growth in 2013 was estimated at 3.3%.The IMF expects 3.8% growth in
2015. Emerging & developing nations in Asia are the key engines of growth.
 United States:The US economy is effectively back to “normal” with growth in
2014 likely to be 2.6%; above the 2.5% long-term average.The US Federal
Reserve is expected to lift official interest rates around mid year but only when
it believes that inflation is set to rise.
 China: The transition from production to consumption is still evolving. The
economy will likely grow between 7.0-7.5% over 2015 and it will still contribute
around a quarter of global economic growth.
 Europe:The “sick man” of the global economy will struggle over 2015 but
weaker oil prices and stronger US economic growth will support recovery.

35.  Australia: We expect economic growth in a 2.75-3.25% range in 2015,
suggesting near “normal” economic growth. Inflation should hold between
2.0-3.0%. Unemployment should improve to between 5.50-6.00 % in the
second half of 2015 as economic growth picks up pace.
 Australian dollar: Over the past 20 years, the Aussie dollar has, on average,
tracked in a US13.7 cent range. If normal volatility persists in 2015 then a range
of US71-85c could be assumed. In 2014 we said “businesses must work on the
premise that the Aussie dollar is likely to come under pressure” and downside
risks still remain with the US Federal Reserve poised to lift rates.
 Interest rates: Over 2014, the cash rate has averaged 2.50 per cent – the lowest
calendar year average since 1959. A weaker oil price and lower Aussie dollar
will stay the Reserve Bank hands from lifting rates further.

36.  The Reserve Bank is likely to remain on the interest rate sidelines over the first
half of 2015. While we expect the “normalisation” of rates to start in the
second half of the year, if inflation remains under control then rates will be
lower for longer. A likely range for cash rates in 2013 is 2.25-3.00 per cent.
 Sharemarket: Last year we expected the ASX 200 to be between 5,400-5,700
by end 2014. But weakness in the resources sector restrained the sharemarket
late in the year. After under-performing in 2014, we tip the ASX 200 to end
2015 between 5,900-6,200 with total returns around 15%. As a result 10-year
and 15-year average returns on shares will be around 10%.
 The sharemarket will be supported by favourable valuations, strong corporate
balance sheets, solid US economic growth, a switch of investor affections from
property to shares and on-going maturation of the Chinese economy.

37.  In 2015 we don’t expect the sharemarket to face the same sort of headwinds it
felt from lower iron ore and oil prices in 2014.
 The key risks for Australian investors in 2015 are the health of oil-producing
economies following the fall of oil prices; deflationary tendencies in developed
economies; health of the European economies; and the US correctly picking
the timing of the start of rate hikes.
 Housing: Growth of home prices will ease to the 4-7% range over 2015 as more
homes are built and add to market supply. Slower population growth and
increased supply will be balanced by low interest rates.