alan oster - group chief economist
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Australian Outlook – where to now post the floods. Alan Oster - Group Chief Economist. Key issues. International Some encouraging news re the USA and large Europeans But Japan still struggling and UK hit by new weakness (weather / policy) - PowerPoint PPT PresentationTRANSCRIPT
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Alan Oster - Group Chief Economist
Australian Outlook
– where to now post the floods
2
Key issues
International Some encouraging news re the USA and large Europeans But Japan still struggling and UK hit by new weakness (weather / policy) And sovereign risk still a concern in Europe China India and Non Japan Asia still powering growth New focus on rising inflation – especially food
Australia What damage has floods etc done What is the growth path from here – timing and speed of recovery process Implications for dual speed economy , capacity shortages Inflation and rates
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But even the disruption effects can be very large
NAB has run a special floods survey
Suggests across Australia in January revenue and output loses were around 5% and 6% respectively. In excess of 10% in Qld
On duration around 80% expected to be back to pre - flood activity within 4 weeks
Together means output loss of 2.7% in Q1 in the market economy (78% of the total economy). Or around 2% in the total economy
Then need to add back govt assistance and other private sector responses. Overall indicates a deduction from recorded GDP of around 1½% relative to pre flood expectations.
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And are some issues that complicate assessments. Which will affect peoples balance sheets and attitudes to spending etc
There are tails to the length of disruption And insurance cover not 22% beyond 4 weeks great
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
60.0%
Already at preflood activity
Less than 1week
1-2 Weeks 2-4 weeks 1-3 months 3-6 months More than 6months
Never
How long before back to pre flood activity levels
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
30.0%
35.0%
40.0%
None at all 1-25% 26-50% 51-75% 76-100 Don’t know
Extent that your losses will be covered by Insurance
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That said we expect around + ¾% points additional growth in GDP coming into the rest of 2011
Reconstruction:- About $3¼ bn reconstruction spend- And private sector rebuild and restocking
Recovery in mine production (rebuilding stocks)
Agriculture gains (water allocations & subsoil moisture)
Growth to accelerate to around 4% per annum from mid 2011
So story really about timing of growth – albeit during calendar year 2011 down ½ % on pre-flood expectations.
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Business Confidence eroded in mid 2010 but fell significantly in Dec– especially in Qld. January rebound saying things are past their worse and will improve after a temporary hit to activity.
-40
-20
0
20
Jan-09 Jul-09 Jan-10 Jul-10 Jan-11
Australia Queensland
Business confidence(s.a. net balance
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And the expected hit to activity arrived. Not just Qld – but clearly worse there.
Business conditions(s.a. net balance)
-40
-20
0
20
Jan-09 Jul-09 Jan-10 Jul-10 Jan-11
Australia Queensland
74
76
78
80
82
84
Jan-09 Jul-09 Jan-10 Jul-10 Jan-11
Australia Queensland
Capacity utilisation(n.s.a. per cent)
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Overall Survey indicative of demand slowing to around 1½% at an annualised rate in 6 months to March. And GDP a touch less (probably a flat Q1 outcome).
Business Conditions (Change & Level) as an Indicator of Domestic Demand - 6 Mthly Annualised % in Demand
-4
-2
0
2
4
6
8
10
Ma
r-0
7
Jun
-07
Se
p-0
7
De
c-0
7
Ma
r-0
8
Jun
-08
Se
p-0
8
De
c-0
8
Ma
r-0
9
Jun
-09
Se
p-0
9
De
c-0
9
Ma
r-1
0
Jun
-10
Se
p-1
0
De
c-1
0
Ma
r-1
1
DOMESTIC DEMAND
Based on NAB Conditions
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Need to remember that the multi speed economy still there. With retail / wholesale the worse. Mining (coal) heavily impacted. Services much less so.
-10
0
10
20
30
40Dec-10 Jan-11
Business conditions (trend)(net balance)
-10
0
10
20
30
40Dec-10 Jan-11
Business conditions (trend) (net balance)
Source: NAB business survey
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Consumers are more cautious in recent past. Will be impacted by floods.Don’t expect caution to ease much
■ Consumers are still wary and de-leveraging. Saving ratio has moved up significantly
■ We don’t see this caution as changing significantly over the next year or so.
■ But recovery and increased income and lower unemployment should help. -4
-2
0
2
4
6
8
10
12
14
Sep-98 Sep-00 Sep-02 Sep-04 Sep-06 Sep-08 Sep-10
Trend Seasonally adjusted
Household saving ratio(% of household income)
Source: ABS
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On retail. Clothing footwear and household goods very very poor. Supermarkets, car repairs & food better. Mixed on pharmacies.Patterns broadly similar to late 2010 – except clothing / household
-70-60-50-40-30-20-10
01020
Su
perm
ark
ets
/gro
ceri
es
Sp
ecia
lised
fo
od
Takeaw
ay f
oo
d
Co
nven
ien
ce s
tore
s
Dep
art
men
t sto
res
Clo
thin
g/f
oo
twear
Ho
useh
old
go
od
s
To
ys a
nd
sp
ort
ing
Vid
eo
/mu
sic
sto
res
New
sag
en
ts
Ph
arm
acie
s
Petr
ol
Sta
tio
ns
Car
reta
ilin
g
Car
rep
air
NSW VIC QLD SA
WA Other AUS Nov 2010 Aust
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Consumer caution also evident in housing marketsThere has been a significant drop back in house price expectations
Qld was already a problem prior to floods – because of over supply
Melbourne a hot market cooling
But not expecting a crunch in housing prices
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On house prices we see a flat period ahead – up 1½% but growth only to start again in H2 2011. Consumption to be moderate in 2011 – dipping on flood but back to moderate growth by late 2011.
Australian House Prices - 12 Mth %
-15
-10
-5
0
5
10
15
20
25
30
35
40
45
50
Sep-8
7Se
p-88
Sep-8
9Se
p-90
Sep-9
1Se
p-92
Sep-9
3Se
p-94
Sep-9
5Se
p-96
Sep-9
7Se
p-98
Sep-9
9Se
p-00
Sep-0
1Se
p-02
Sep-0
3Se
p-04
Sep-0
5Se
p-06
Sep-0
7Se
p-08
Sep-0
9Se
p-10
Sep-1
1Se
p-12
% oy
a
-15%
-10%
-5%
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
50%
Actual
Model
Real Consumption - Annual Growth
-4.0
-2.0
0.0
2.0
4.0
6.0
Dec-8
8
Jun-9
0
Dec-9
1
Jun-9
3
Dec-9
4
Jun-9
6
Dec-9
7
Jun-9
9
Dec-0
0
Jun-0
2
Dec-0
3
Jun-0
5
Dec-0
6
Jun-0
8
Dec-0
9
Jun-1
1
Dec-1
2
-4%
-2%
0%
2%
4%
6%
Model Actual plus f
Forecasts
Model
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Going forward, as well as the rebuild process, Australian economy will still be boosted by strong terms of trade and hence incomes. Also strong trading partner growth and no large output gaps.
0
100
200
300
Dec-03 Dec-06 Dec-09
Oil Thermal coal
Iron ore Metal coal
Energy & iron ore prices $USIndex Sep qtr 2007 = 100.0
Sources: Datastream, NAB forecasts
0.6
0.8
1.0
1.2
Dec-03 Dec-06 Dec-09 Dec-12
Terms of trade
Source: ABS, NAB forecasts
1985-2000 average
15
AUD often thought of as proxy for global (and especially Chinese) growth. Our model says AUD good value around USD 95c (+/- 5c). We see AUD rising to 1.05 by mid 2011 then back to 90c by late 2012.
Model driven by: Commodities;
USD / EURO – as a measure of USD weakness
Long & short run rates;
Relative unemployment;
Relative Equity Mkts
Model AUD and Forecasts v Actuals
0.4
0.5
0.6
0.7
0.8
0.9
1
1.1
Feb-
85
Feb-
86
Feb-
87
Feb-
88
Feb-
89
Feb-
90
Feb-
91
Feb-
92
Feb-
93
Feb-
94
Feb-
95
Feb-
96
Feb-
97
Feb-
98
Feb-
99
Feb-
00
Feb-
01
Feb-
02
Feb-
03
Feb-
04
Feb-
05
Feb-
06
Feb-
07
Feb-
08
Feb-
09
Feb-
10
Feb-
11
Feb-
12
ACTUAL
Plus 1 std error
Less 1 std error
NASDAQ BUBBLE
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Mining project pipeline now exceeds all other engineering Almost 2½ years mining construction at current rates
0
10
20
30
Mar-04 Mar-07 Mar-10
Minerals Transport
Utilities Other
Engineering construction work yet to be done (months)
0
20
40
60
80
Sep-04 Sep-07 Sep-10
Minerals Transport Utilities Other
Engineering construction work yet to be done ($ billion)
Source: ABS
17
For 2011 we see growth of around 2½% - was 3.2% pre floodStory very much around accelerating growth in H2 as recovery kicks in and income and mining accelerates. GDP at 4% in 2012.
Real Output/Expenditure (GDP) - Quarterly
-1.0%
0.0%
1.0%
2.0%
Jun-01 Jun-03 Jun-05 Jun-07 Jun-09 Jun-11
Quarterly GDP 4 per. Mov. Avg.
18
Prices still low with discounting continuing. That together with high currency has been important in explaining lower core inflation. Floods will see headline pick up. But RBA will look through initially
-1
0
1
2
3
4
5
6
Dec-07 Aug-08 Apr-09 Dec-09 Aug-10
NAB retail prices
NAB retail price inflation (s.a.a.r.)
Source: NAB Business Survey
1
2
3
4
5
Dec-04 Dec-06 Dec-08 Dec-10 Dec-12
Headline CPI Underlying CPI
CPI inflation (% p.a.)
Source: ABS, RBA
19
Australian Forecasts in summary
* At end of period
** Increase in year to Dec
2010-11 2011-12 2010 2011 2012
GDP 2.1 3.6 2.6 2.4 3.9
Employment 2.7 1.7 2.5 2.0 2.1
Unemployment rate* 5.0 4.7 5.1 4.9 4.6
Average earnings** 3.6 4.3 4.9 4.6 4.1
CPI underlying ** 2.5 2.6 2.2 2.9 2.6
RBA cash rate* 5.0 5.25 4.75 5.25 5.25
$US/$A* 1.05 0.96 1.02 0.98 0.94
2010-11 2011-12 2010 2011 2012
GDP 2.1 3.6 2.6 2.4 3.9
Employment 2.7 1.7 2.5 2.0 2.1
Unemployment rate* 5.0 4.7 5.1 4.9 4.6
Average earnings** 3.6 4.3 4.9 4.6 4.1
CPI underlying ** 2.5 2.6 2.2 2.9 2.6
RBA cash rate* 5.0 5.25 4.75 5.25 5.25
$US/$A* 1.05 0.96 1.02 0.98 0.94