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Global circumstances
 US, UK and Europe, Japan in recession
 Contracting output in Korea, Hong Kong, Singapore, Taiwan
 Slower growth in China
 Global growth slows to 0.5% (IMF)
 Though real economy indicators such as employment, foreign
trade, consumption and industrial production are very bad global
some financial pressures are abating. This is apparent in
contracting spread between US treasuries and Eurodollars, spread
between Libor and cash rates, and corporate debt issuance and
spreads
 Big response by governments (TARP, Obama package, bailouts,
guarantees, lower cash rates etc)
 Q4 2008 was a deep dislocating shock but some straws in wind
suggest Q1 2009 less traumatic (US and China manufacturing
ISMs, China lending, spreads)
1
China GDP growth
2
3
The Australian story to the September quarter before Lehman collapse
 Australian GDP slowing because high interest rates, high
petrol prices, constrained household consumption, home
construction
 Neutral fiscal policy
 Appreciating Australian dollar to mid 2008
 High commodity prices but volume response of exports not
strong until a year or so ago
4
GDP slowed from September 07 – well before
global growth slowdown
GDP growth
% change
5
5
4
4
3
3
2
2
1
1
0
Sep-2003
Sep-2004
Quarterly GDP growth
5
Sep-2005
Sep-2006
Sep-2007
Through the y ear GDP growth
0
Sep-2008
Slowdown led by household spending, housing –
high interest rates
GDP components
% change
20
20
15
15
10
10
5
5
0
0
-5
-5
-10
Sep-2006
Household consumption
Dwelling construction
6
Sep-2007
Exports
Business inv estment
-10
Sep-2008
Australian vulnerability to financial crisis
 Open financial system
 Large current account deficit financed by bank borrowing
offshore
 High external indebtedness
 High household debt
 Business investment has accounted for half of output
growth in recent years – one third in mining
 High commodity prices have boosted profits, tax revenue
7
Australia in the Global
Crisis
Moir Group
Sydney
February 18 2009
John Edwards
HSBC Chief Economist Australia & New Zealand
[email protected]
High household debt to household disposable
income
Household finances: Ratio: Debt to disp incom e: Total
%
sa
160
140
120
100
80
60
40
20
Sep-1978
9
Sep-1983
Sep-1988
Sep-1993
Sep-1998
Sep-2003
Sep-2008
Global plunge in equity prices, inc Au – down 40%
over year
Share price indices
% change
30
20
10
0
-10
-20
-30
-40
-50
Jun-2007
Dec-2007
Jun-2008
Japan: TOPIX
Dow Jones Euro: STOXX 300
United Kingdom: FTSE 100
Australia: S&P/ASX 200
United States: S&P 500
10
Dec-2008
Household wealth has fallen sharply – about $400bn since
mid 2007
Household net w orth
$m
5000
4500
4000
3500
3000
2500
2000
1500
1000
500
Sep-1990
11
Sep-1993
Sep-1996
Sep-1999
Sep-2002
Sep-2005
Sep-2008
The Australian financial system
 The Australian financial system has survived the crisis
reasonably well
 Sub prime lending around 1% of mortgages versus 15% in
US
 Delinquencies 0.6% of mortgages versus around 6% in the
US
 Banks are still making good profits and have high ratings
 Banks have been able to acquire additional liabilities,
especially domestic deposits and medium-term offshore
funding (now under guarantee)
 Credit growth has slowed, but still reasonably firm
12
Exports down in Nov. Dec – iron ore, then coal
Exports
$m sa
28000
26000
24000
22000
20000
18000
16000
14000
12000
Jun-2005
13
Dec-2005
Jun-2006
Dec-2006
Jun-2007
Dec-2007
Jun-2008
Dec-2008
The 16% gain in export prices Q4 changes 7% gain in
export values to 9% fall in export volumes.
Export volum es - quarterly
% change
6
4
2
0
-2
-4
-6
-8
-10
Dec-2003
14
Dec-2004
Dec-2005
Dec-2006
Dec-2007
Dec-2008
Home construction approvals continue to decline
Dw elling units approved
Num ber sa
15000
14000
13000
12000
11000
10000
9000
8000
7000
6000
Jun-2005
Dec-2005
Jun-2006
Dec-2006
Total: Total
15
Jun-2007
Houses: Priv ate
Dec-2007
Jun-2008
Dec-2008
Business investment has driven Australian GDP in
last five years
Vom um e of private business capital expenditure
$m 2006/07 sa
24000
22000
20000
18000
16000
14000
12000
10000
8000
6000
4000
Sep-1987
16
Sep-1990
Sep-1993
Sep-1996
Sep-1999
Sep-2002
Sep-2005
Sep-2008
In September businesses expected to continue
increasing investment in second half of 08/09.
Will they?
Expected investm ent for second half of financial year
$m
55000
50000
45000
40000
35000
30000
25000
20000
15000
10000
5000
1988/89
17
1993/94
1998/99
2003/04
2008/09
Capital goods imports up 9% (nominal) in
December quarter
Capital goods imports
sa, quarterly
14000
14000
13000
13000
12000
12000
11000
11000
10000
10000
9000
9000
8000
8000
7000
7000
6000
Dec-2003
18
Dec-2004
Dec-2005
Dec-2006
Dec-2007
6000
Dec-2008
– but capital goods import deflator up 23% so
volumes down 14%
Capital goods im ports - volum es
% change
20
15
10
5
0
-5
-10
-15
Dec-2003
19
Dec-2004
Dec-2005
Dec-2006
Dec-2007
Dec-2008
Lending to business declined in December
Business credit grow th
per cent change, m onthly
3.0
2.5
2.0
1.5
1.0
0.5
0.0
-0.5
-1.0
-1.5
Mar-2007
20
Jun-2007
Sep-2007
Dec-2007
Mar-2008
Jun-2008
Sep-2008
Dec-2008
Housing lending reasonably firm
Housing lending
%pm , %pa
14
12
10
8
6
4
2
0
Jun-2007
Dec-2007
Monthly
21
Jun-2008
12-month ended
Dec-2008
Retail turnover up 3.8% December with govt cash
payments.
Retail turnover
$m sa
19500
19000
18500
18000
17500
17000
16500
16000
15500
15000
Jun-2005
22
Dec-2005
Jun-2006
Dec-2006
Jun-2007
Dec-2007
Jun-2008
Dec-2008
Jobs steady overall, but full time jobs falling
Em ploym ent
'000 sa
10800
7750
10750
7700
10700
7650
10650
10600
7600
10550
7550
10500
7500
10450
7450
10400
10350
Apr-2007
Jul-2007
Oct-2007
Total
23
Jan-2008
Apr-2008
Full-time (rhs)
Jul-2008
Oct-2008
7400
Jan-2009
Response to the crisis since mid September
 Government guarantee on bank liabilities
 Completed 400 basis points cash rate easing
 $10.7bn package announced October
 New spending passed through Plt plus fall in expected tax revenue
mean fiscal position has switched from surplus of 2% of GDP last
June to deficit of 2% of GDP this coming June
 New $42bn spending package focused on timely, labour intensive
measures
 Australian dollar has depreciated by one third (since July)
 Major infrastructure projects yet to be announced (ports, roads,
rail, water, energy) will add more spending
24
One third depreciation of AUD from July 08
Exchange rates: United States dollar
USD/AUD
1.00
0.95
0.90
0.85
0.80
0.75
0.70
0.65
0.60
7-Mar-2007
25
25-Jul-2007
12-Dec-2007
30-Apr-2008
17-Sep-2008
4-Feb-2009
Weaker AUD has offset most commodity price
decline so far
RBA index of com m odity prices: All item s
2001/02=100
350
300
250
200
150
100
50
Jan-2001
Jan-2002
Jan-2003
Jan-2004
A$
26
Jan-2005
US$
Jan-2006
Jan-2007
Jan-2008
Jan-2009
Cash rate is lowest since 1963
Interest rates: Interbank overnight cash rate
%pa
7.5
7.0
6.5
6.0
5.5
5.0
4.5
4.0
3.5
3.0
6-Apr-2005
27
11-Jan-2006
18-Oct-2006
25-Jul-2007
30-Apr-2008
4-Feb-2009
Standard home loan rate cheapest in 40
years
Lending rates: Housing loans: Banks: Variable: Standard
%pa
18
16
14
12
10
8
6
4
Feb-1959
28
Feb-1969
Feb-1979
Feb-1989
Feb-1999
Feb-2009
RBA: effective rate cut here bigger than elsewhere
29
High migration continues
Net m igration
Num ber
350000
300000
250000
200000
150000
100000
50000
0
Nov-1980
Nov-1984
Nov-1988
Nov-1992
Crude but timely measure
30
Nov-1996
Nov-2000
Adjusted measure
Nov-2004
Nov-2008
Home building peaked 5 years ago
Hom e s com ple te d
Num be r s a, ye ar to Se pte m be r quarte r
180000
170000
160000
150000
140000
130000
120000
110000
100000
1987/88
31
1992/93
1997/98
2002/03
2007/08
Thinking about this year and next
 Reasonable chance that because of pipeline sharpest slowdown in
business investment will be in second half of 09 (and thereafter),
by which time government investment will to some extent offset
the decline
 Reasonable chance of a turnaround in home building in second
half
 Given that consumption was so weak to September, reasonable
chance that with lower interest rates, lower petrol prices and only
moderate increase in unemployment household consumption will
be stronger this year than last
 Export prices will fall sharply but export volumes will hold up
better if China recovers to 7.8% end 2009 (as HSBC expects) and
rest of East Asia pulls out of Q4 08 swoon.
 Imports will decline with business investment
 If it all works can still achieve growth of 0.5% to 1% or so through
2009
32
Vic, NSW lead jobs weakness
State variations in em ploym ent change
% change, through the year
6
5
4
3
2
1
0
-1
Mar-2007
Jun-2007
Sep-2007
NSW
33
Dec-2007
Vic
Mar-2008
Qld
Jun-2008
WA
Sep-2008
Dec-2008
Australian em ploym ent
'000 sa
1600
1400
1200
1000
800
600
400
200
0
Dec-2000
Agriculture, f orestry , & f ishing
Electricity , gas & water
Retail trade
Communication serv ices
34
Dec-2002
Dec-2004
Mining
Construction
Accommodation, caf es & restaurants
Finance & insurance
Dec-2006
Dec-2008
Manuf acturing
Wholesale trade
Transport & storage
Property & business serv ices
Jobs weakness in retail trade, manufacturing
Em ploym ent changes by quarter
'000 sa
70
60
50
40
30
20
10
0
-10
-20
-30
-40
Dec-2006
Dec-2007
Agriculture
Mining
Manuf acturing
Construction
Wholesale trade
Retail trade
Accommodation, caf es & restaurants
Finance & insurance
Property & business serv ices
35
Dec-2008
Seas adj: Em ployed persons
% change
40
30
20
10
0
-10
-20
-30
Dec-2003
Agriculture, f orestry , & f ishing: PCTCHG
Electricity , gas & water: PCTCHG
Retail trade: PCTCHG
Communication serv ices: PCTCHG
36
Dec-2004
Dec-2005
Dec-2006
Mining: PCTCHG
Construction: PCTCHG
Accommodation, caf es & restaurants: PCTCHG
Finance & insurance: PCTCHG
Dec-2007
Dec-2008
Manuf acturing: PCTCHG
Wholesale trade: PCTCHG
Transport & storage: PCTCHG
Property & business serv ices: PCTCHG
Labour hoarding in NZ
GDP and em ploym ent in NZ
% change through the year
6
5
4
3
2
1
0
-1
-2
Dec-2004
Dec-2005
GDP(P)
37
Dec-2006
Employ ment
Dec-2007
Dec-2008
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