W1 - Economic update

Craig James

Chief Equities Economist

CommSec

Economy 2010: “May you find what you are looking for”

Craig JamesChief Economist, CommSec, April 2010

media.merchantcircle.com

Important information

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 Limited ABN 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.

Australia & the World

� Global healing process

� Two speed global economy

� Asia’s decade

� Two-speed domestic economyeconomy

� China & population

� World focus is on debt

� Australia’s focus is on sustainable prosperity.

The Big Picture

Drivers of world economyContribution to growth 2010

percentage points

0.85China0.76United States

0.19India0.17Japan0.15Newly indust.Asia 0.15Newly indust.Asia

0.15Brazil0.12ASEAN 5

0.08Russia0.07Germany0.07France

0.07Canada0.06Mexico

1.46Other countries

4.2WORLD

Source: IMF, CommSec

* Newly industrialised Asia - Hong Kong, Taiwan

Singapore and South Korea

ASEAN 5 - Indonesia, Malaysia, Thailand

Phillipines, Vietnam

World in recovery

� US economy recovers…but major hopes rest with China… www.flixsnips.com/hong-kong-advertisment-skyline/

China awakes

� Land of 1.3 billion people industrialises…Major resource demands…

www.novinite.com

China on industrialisation path

� Same path, different sizes of population.

www.thenewmans.id.au

Australia in 2010 and beyond

� No recession

� China, population & construction

� Managing prosperity

� Two-speed?� Two-speed?

� Housing shortage

� Tightening job market

� Policy challenges.

New commodity boom

Population & Construction

� Population growth…opportunities & challenges…Construction pipeline is full…

Two speed economy

� Western Australia & Queensland:65% of exports; 50% of investment…

Housing issues

� High prices?…demand & supply…but is housing really unaffordable?

So What?

Home prices to rise 5-8% in 2010

Business & Consumers

� Confidence rebounds to near record highs……but reluctant to spend & borrow…

WHAT WE SPENT IN 2009selected, percent change on year ago

39.1BOATS, CARAVANS, BICYCLES

17.7WATER & SEWERAGE CHARGES 17.7WATER & SEWERAGE CHARGES

16.9SPORTING & RECREATIONAL SERVICES

13.8TAKE-AWAY FOOD

13.6MEDICINES MEDICAL AIDS

13.3LIQUOR STORES

-4.3PURCHASE OF VEHICLES

-11.4JEWELLERY, WATCHES, CLOCKS

-12.9MOTORING FUEL

-13.2NEWSPAPERS & BOOKS

Source: CommSec, based on ABS data

Looking ahead

Winners

� Housing-dependent industries & retailers

� Large retailers

� Consumers� Consumers

� Imports

Losers/Challenges

� Tourist operators/regions

� Small retailers

� ‘Old economy’.

Outlook for jobs

� Firms didn’t fire, didn’t hire…Flexible work practices to continue…

So What?

Skilled staff in demand; wage costs to rise

Outlook for interest rates

� RBA near normal…where do we go from here? Savers are key winners…

So What?

More rate hikes in 2010; Fix vs. Variable

Aussie dollar & shares

� Shares to rise in line with stronger economies…Aussie may ease, but still above-average…

So What?

Competition for funds;Budgeting, exports

Global Wall of Worry

� Debt, debt and debt

� Stimulus to be withdrawn

� Double-dip recession?

� US mortgage foreclosures

World's largest economies% total2009, US$ billion

24.6$14,256United States18.7$5,068Japan28.5$4,909China35.8$3,353Germany44.6$2,676France5

foreclosures

� Commercial property

� Dubai, Greece, Spain

� China boom, yuan.

3.8$2,184United Kingdom63.7$2,118Italy72.7$1,574Brazil82.5$1,464Spain92.3$1,336Canada102.1$1,236India112.1$1,229Russia121.7$997Australia13

0.6$331Greece28

Source: IMF, CommSec

Budgets & Debt

CommSec forecasts

FORECASTS

1.70% in 2009Economic growth3.25% in 20102.50% mid-2010Inflation2.75% end-20105.25% mid-2010Unemployment 5.25% mid-2010Unemployment4.75% end-20104.50% mid-2010Cash rate4.75-5.00% end-2010

5,150 by June 2010Sharemarket

5,600 by December 2010US95c in June 2010Australian dollarUS90c in December 2010

www.despair.com

Disclaimer: This paper represents the opinion of the author(s) and not necessarily those of the Institute of Chartered Accountants in Australia (the Institute) or its members.The contents are for general information only. They are not intended as professional advice - for that you should consult a Chartered Accountant or other suitably qualified professional.The Institute expressly disclaims all liability for any loss or damage arising from reliance upon any information The Institute expressly disclaims all liability for any loss or damage arising from reliance upon any information in these papers.