Transcript Slide 1
An Economic and Business Outlook
Presented by Dr Chris Caton
October 2011
US Housing starts are bumping along the bottom
2
2.4
(Millions) Permits 2 1.6
Starts 1.2
0.8
0.4
96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 Source: Datastream
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Government debt (% of GDP)
4
2011 Growth Forecasts (%) Month of Forecast J-11 F-11 M-11 A-11 M-11 Australia New Zealand US Japan 3.1
2.9
3.2
1.2
2.9
2.7
3.2
1.5
2.9
1.1
3.1
1.4
China 9.2
9.3
9.4
Germany 2.5
2.5
2.6
UK 2.1
1.9
“World” 3.4
3.5
Source: Consensus Economics 1.9
3.5
2.7
1.1
2.9
0.3
9.3
2.7
1.8
3.3
2.7
1.2
2.7
0.0
9.3
2.8
1.6
3.2
J-11 2.0
1.2
J-11 A-11 S-11 1.9
1.4
1.7
2.1
1.8
2.1
2.5
-0.7
9.2
3.3
1.6
3.2
2.5
-0.7
9.2
3.4
1.5
3.2
1.8
-0.7
9.2
3.4
1.3
3.1
1.6
-0.5
9.1
2.9
1.2
3.0
2012 Growth Forecasts (%) Month of Forecast J-11 F-11 M-11 A-11 M-11 J-11 Australia New Zealand US 3.5
2.9
3.7
3.1
3.7
3.8
3.3
3.3
3.3
Japan China 2.0
8.9
2.0
8.9
2.1
9.0
Germany 1.8
1.8
1.9
UK “World” 2.1
3.6
2.2
3.6
Source: Consensus Economics 2.1
3.6
3.8
3.9
3.3
2.7
8.9
1.9
2.2
3.7
3.8
3.9
3.2
2.8
8.9
1.9
2.2
3.6
4.0
3.9
3.1
3.2
8.8
2.0
2.1
3.6
J-11 4.0
3.9
A-11 3.8
3.9
S-11 3.7
3.7
3.0
3.1
8.8
1.9
2.2
3.6
2.4
3.1
8.8
1.9
2.0
3.5
2.1
2.4
8.6
1.3
1.8
3.2
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Real GDP growth in Australia and the US
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Year to % change 10.0
7.5
5.0
2.5
0.0
-2.5
US Australia -5.0
80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 Source: Datastream
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It’s the developing world, stupid
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What goes up...
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The Labour market has done well but employment growth has slowed dramatically 000’s 12000 11400 10800 10200 9600 9000 8400 Employment (LHS)
%
12.0
11.0
10.0
9.0
8.0
7.0
6.0
7800 Unemployment Rate (RHS) 7200 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 5.0
4.0
Source: ABS
Retail spending has slowed
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And here’s one reason..household saving has risen
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Australian Inflation
%
3 2 5 4 7 6 9 8 Headline CPI Underlying inflation GST Effect BT Forecasts 1 0 -1 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13
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Source: ABS
Interest rate changes do make a difference!
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House Prices - Australia v Melbourne 650 Index (1987 = 100) 600 550 500 450 400 350 Melbourne Australia 300 250 200 150 100 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 Source: ABS
House Prices - Australia v Brisbane 700 650 Index (1987 = 100) 600 550 500 450 400 350 300 Brisbane Australia 250 200 150 100 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 Source: ABS
Prices have fallen everywhere
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Gross Domestic Product
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% 8 7 6 5 0 -1 -2 -3 4 3 2 1 Qtly growth Year-to growth Non-farm year-to growth GST Effect BT Forecasts 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 Source: ABS
Coal exports are recovering but still have a way to go
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Mining investment (share of GDP)
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Global Medium-Term Economic Growth and Inflation Prospects (2011-2021) Australia Norway United States New Zealand Canada Sweden United Kingdom Spain Switzerland Netherlands Germany France Eurozone Japan Italy GDP 3.2
2.9
2.8
2.8
2.5
2.4
2.2
2.1
2.0
1.8
1.7
1.7
1.6
1.3
1.1
Inflation 2.7
2.3
2.2
2.6
2.1
2.1
2.6
2.1
1.4
1.6
1.8
2.0
2.1
0.9
2.0
Source: Consensus Economics
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Asia-Pacific Medium-Term Economic Growth and Inflation Prospects (2011-2021) India China Indonesia Malaysia Philippines Thailand Singapore Taiwan South Korea Hong Kong Australia New Zealand Japan Source: Consensus Economics GDP 8.5
7.8
6.2
5.1
5.0
4.8
4.6
4.4
4.0
3.8
3.2
2.8
1.3
Consumer Prices 6.1
3.5
5.5
3.1
4.7
3.4
2.8
2.3
3.1
3.3
2.7
2.6
0.9
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Financial Market Forecasts AUD/USD Official cash rate (%) 10 Year Bond yield (%) ASX 200 Now (4 Oct) 0.952
4.75
4.09
3872 End-Dec 2011 0.91
4.50
4.40
4250 End-June 2012 0.88
4.50
4.80
4750
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The Australian Dollar and US Trade Weighted Index
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180 Index AUD/USD 1.12
AUD/USD (RHS) 161 142 122 US TWI inverted (LHS) 103 84 64 99 00 01 02 03 04 05 06 07 08 09 10 11 1.00
0.88
0.76
0.64
0.52
0.40
Source: Datastream
Australian Sharemarket Performance – ASX200 7000 6500 6000 5500 5000 4500 4000 3500 3000 2500 2000 1500 1000 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11
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Source: Bloomberg
Shares are cheap here and elsewhere
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All sectors are looking cheap
24 X 20
Major Sector PE Ratios on 12 Month Forward Consensus Earnings Resources Banks Industrials ex banks
03-07 Average
Market
X 24 20 15.9
16 12 8 13.3
10.0
12.7
9.0
11.2
14.8
16 12 10.2
8 4 05 07 09 11 05 07 09 11
Source: IBES, MSCI, Datastream, Citi Investment Research and Analysis
05 07 09 11 05 07 09 11 4 26
It makes a difference when you buy
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Summary
The threat of a double-dip recession in the US is exaggerated. Eurozone debt is a serious issue, but unlikely to be a game-changer.
The Australian economy should resume strong growth, led by mining investment.
The cash rate is likely to be cut next month.
The exchange rate is still above fair value. The rest of the world is on sale for Australians.
Share markets are cheap.
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