Transcript Slide 1

Asian Economics
The challenges of managing
Australia’s mining boom
November 2011
Paul Bloxham
Chief Economist (Australia and New Zealand)
HSBC Bank Australia Limited
+61 (2) 435 966 522
[email protected]
Disclosures and Disclaimer This report must be read with the disclosures and the analyst certifications in the Disclosure appendix, and
with the Disclaimer, which forms part of it
ABC
Global Research
The world’s economic centre of gravity is moving east
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Source: Quah (2010)
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Transition from west to east has accelerated
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Relative economic performance
Real GDP (s.a.) index, June 2007 = 100
150
150
China
140
140
130
130
120
120
Korea
110
110
Australia
100
US
Europe
90
100
90
80
80
Jun-07
Mar-08
Dec-08
Sep-09
Jun-10
Mar-11
Dec-11
Source: CEIC, RBA, & HSBC estimates
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Euro area has substantial divergence across nations
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United States faces big challenges
%
66
US - Employment to Population Ratio
%
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66
64
64
62
62
60
60
58
58
56
56
54
54
1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010
Source: Bloomberg
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But global growth is now driven by the emerging economies
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Asia needs a lot more commodities in order to develop
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Source: RBA
7
Australia’s export prices relative to import prices at very high levels
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Terms of Trade
140
Annual, 2007/08=100
120
100
80
60
40
1910
1870
1890
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Source:
ABS;grid
RBA, HSBC
1930
1950
1970
1990
2010
8
Australia’s mining investment boom is the biggest ever, by a long way
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Mining Investment *
%
10
8
6
4
2
0
1860
1880
1900
1920
1940
1960
1980
2000
*Per cent of nominal GDP
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Source: ABS;
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Australian dollar around highest during post-float, but not highest ever
Nominal Exchange Rate
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3.00
Float
2.50
USD per AUD
2.00
1.50
1.00
0.50
UK£ per AUD
0.00
1901 1910 1919 1928 1937 1946 1955 1964 1973 1982 1991 2000 2009
Source: Butlin (1977); RBA; HSBC
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Not all good news … some sectors have to shrink to make way …
%
100
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Non-mining Share of Nominal GDP*
Non-mining (including public sector)
90
80
Non-mining private sector
70
60
50
1860
1880
1900
1920
1940
1960
1980
2000
Source: ABS, Butlin (1977); RBA; HSBC estimates
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… already seeing that some are weak and some are strong
60
Business Conditions
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60
Mining
40
40
20
20
0
0
Other
-20
-20
-40
-40
-60
-60
Q3 1989 Q3 1992 Q3 1995 Q3 1998 Q3 2001 Q3 2004 Q3 2007 Q3 2010
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High AUD has put manufacturers under pressure
$m, vol
12000
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Manufactured Exports and the Aussie dollar
Low AUD
30
10000
40
8000
50
6000
60
4000
70
2000
80
High AUD
0
90
1984
1987
1990
1993
1996
1999
Trade-weighted exchange rate (RHS, inverted)
2002
2005
2008
2011
Manufactured exports (LHS)
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Source: ABS; RBA
13
Big swing in tourist numbers partly reflects high AUD
'000s
200
Tourism and the Aussie Dollar
Low AUD
Net Inbound
Index
35
40
150
45
100
50
50
55
0
60
-50
65
70
-100
75
-150
-200
1984
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Net Outbound
1987
1990
80
High AUD
1993
1996
Net flow of short term visitors (LHS)
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1999
2002
2005
2008
85
2011
Trade-weighted exchange rate (RHS)
14
Retail sales have been weak … although household consumption is stronger
Household consumption and retail sales
$b
184
$b
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67
2.9%
y-o-y
180
65
176
63
Household
Consumption
(LHS)
172
61
168
0.2%
y-o-y
164
59
57
Retail Sales (RHS)
160
55
2007
2008
2009
2010
2011
Source: ABS and HSBC
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House prices have declined modestly, and mostly at the top end
Levels, $'000
600
Dwelling Prices in Capital Cities
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Top (-7%)
550
Middle (-3%)
500
Bottom (-2%)
450
400
2008
2009
*y-o-y rates in brackets
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2010
2011
Source: RP Data
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There is divergence in jobs growth across industries
Employment across selected industries
120
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180
HH Services
Mining (RHS)
115
160
Public admin
Utilities
110
140
Business services
105
120
Retail
100
100
95
Manufacturing
90
80
60
2007
2008
2009
2010
2011
2012
2013
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Source: ABS; HSBC
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But, so far, the weak sectors have been offset by the stronger ones …
Persons, '000s
Employment
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11500
11400
11300
11200
11100
11000
10900
10800
Jan- Apr- Jul- Oct- Jan- Apr- Jul- Oct- Jan- Apr- Jul- Oct2009 2009 2009 2009 2010 2010 2010 2010 2011 2011 2011 2011
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Source: ABS
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Unemployment rate is low, though it has ticked up…
%
Unemployment Rate
%
12
12
10
10
8
8
6
6
4
4
2
2
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1980 1983 1986 1989 1992 1995 1998 2001 2004 2007 2010
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Source: ABS
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The divergence across the states is less than average
%
4
Range of unemployment rates across states
%
4
3
3
2
2
1
1
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Averages
0
1978
0
1982
1986
1990
1994
1998
2002
2006
2010
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Source: ABS
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But more divergence can be expected … particularly in investment …
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Source: ABS; RBA
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… and profitability
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Mining Profits
0.35
Per cent of total
0.30
0.25
0.20
0.15
0.10
0.05
0.00
1995
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Source:
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2000
2005
2010
22
Population growth has slowed
% ye
% ye
Population Growth*
2.5
2.5
2.0
2.0
1.5
1.5
1.0
1.0
0.5
0.5
0.0
0.0
1989
1992
1995
1998
2001
2004
2007
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2010
*working age
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Source: ABS
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… and productivity growth is very weak
GDP per hour worked*
Index (log)
5.1
160
5.05
2000-05
1.9% pa
5
4.95
4.8
2005-11
0.5% pa
1990-95
1.7% pa
4.9
130
4.85
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1980-85
1.6%
1995-00
2.6% pa
4.75
110
4.7
1985-90
0.9%
4.65
100
4.6
1980
1983
1986
1989
1992
1995
1998
2001
2004
2007
2010
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Source: ABS
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Wages have risen ahead of productivity, driving up unit labour costs…
%
10
Nominal Unit Labour Costs
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8
6
4
2
0
-2
-4
1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010
Year-ended
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Source: ABS
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… but the high exchange rate has kept inflation contained
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Underlying inflation was low in Q3, after being high in H1
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Underlying inflation
Average of trimmed mean and weighted median
1.4%
1.4%
RBA's target
1.2%
1.2%
band
1.0%
1.0%
0.8%
0.8%
0.6%
0.6%
0.4%
0.4%
0.2%
0.2%
0.0%
0.0%
2001
2003
2005
2007
2009
2011
Source: A B S, RB A & HSBC
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RBA’s inflation forecasts have been lowered significantly
%
Underlying Inflation Forecasts
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6
RBA's last
forecasts
(August)
5
4
3
2
RBA's current
forecasts
(November)*
1
0
2001
2003
2005
2007
2009
2011
2013
*Mid-point w here applicable
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Source: ABS; RBA
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But some inflation will persist due to lack of infrastructure
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Utilities Inflation
%
16
Year-ended change
%
16
Water &
Sewerage
12
12
8
8
Electricity
4
4
0
0
Mar-04 Mar-05 Mar-06 Mar-07 Mar-08 Mar-09 Mar-10 Mar-11 Mar-12
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Key global risks include bank offshore funding …
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… weaker business confidence …
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NAB Business Survey
105
30
Conditions
90
15
75
0
60
-15
45
-30
30
-45
Confidence
15
-60
0
-75
-15
-90
-30
-105
-45
-120
1997
2000
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2003
2006
2009
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… low consumer confidence …
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Consumer Survey Questions
Long run average = 100
150
150
Consumer
sentiment
125
125
100
100
75
75
Good time to buy a
household item
50
2000
50
2002
2004
2006
2008
2010
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… as well as declining commodity prices
Australia's Commodity Prices
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2008/09 = 100
180
160
140
120
In USD
100
80
60
In AUD
40
20
0
1982 1985
1988
1991 1994
1997 2000
2003 2006
2009
2012
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Source: RBA
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Disclosure appendix
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Analyst Certification
The following analyst(s), economist(s), and/or strategist(s) who is(are) primarily responsible for this report, certifies(y) that the opinion(s) on the subject
security(ies) or issuer(s) and/or any other views or forecasts expressed herein accurately reflect their personal view(s) and that no part of their compensation
was, is or will be directly or indirectly related to the specific recommendation(s) or views contained in this research report: Paul Bloxham
Important Disclosures
This document has been prepared and is being distributed by the Research Department of HSBC and is intended solely for the clients of HSBC and is not for
publication to other persons, whether through the press or by other means.
This document is for information purposes only and it should not be regarded as an offer to sell or as a solicitation of an offer to buy the securities or other
investment products mentioned in it and/or to participate in any trading strategy. Advice in this document is general and should not be construed as personal
advice, given it has been prepared without taking account of the objectives, financial situation or needs of any particular investor. Accordingly, investors
should, before acting on the advice, consider the appropriateness of the advice, having regard to their objectives, financial situation and needs. If necessary,
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originally invested. Certain high-volatility investments can be subject to sudden and large falls in value that could equal or exceed the amount invested.
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Additional disclosures
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This report is dated as at 07 November 2011.
All market data included in this report are dated as at close 04 November 2011, unless otherwise indicated in the report.
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