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Quarterly Economic Outlook Global and Australian Forecasts KPMG Economics — March 2017 Contents Executive summary 3 Global outlook 5 Global forecasts 11 Australian outlook 13 Australian forecasts 22 KPMG Economics contacts 24 Executive summary Global economy Australian economy • The world economy slowed in 2016 to record the lowest rate of economic growth since 2009. • Geopolitical uncertainty remains high, with concerns about political leanings towards ‘closing borders’ and increased protectionism. • Inflationary expectations have been re-rated over the past few months, with previous concerns about the emergence of global deflation now abated. • The US has seen increased employment, leading to wages growth and a closing in the output gap. The FoMC increased the FFR by 25 bp, and the ‘dot plot’ contained in the latest minutes shows members expect three more 25 bp rises in each of 2018 and 2019. • Long run interest rates are rising across the globe, with 10 year yields increasing 90 bp in Australia, 60 bp in the Euro Area, Canada, and China, and 50 bp in the US since October 2016. • Oil prices have risen by US$7/bbl since October 2016 to now be around US$55/bbl. • India has experienced a significant self-inflicted economic disruption due to currency demonetisation reforms. • There is a growing level of frustration in business and the wider community with the political economy in Australia, with all sides of politics seemingly focused more on short term ‘gotchas’ than implementing growth enhancing policy. • The Australian economy experienced mixed outcomes in the second half of 2016, achieving growth of -0.5% in 2016Q3, but then bouncing back with strong growth of 1.1% in 2016Q4. This growth was underpinned by higher household consumption activity, strong growth in exports, and a significant uplift in public sector capital expenditure. • The winter crop has achieved a ‘bumper’ harvest, up nearly 50% over 2015 levels. • LNG exports are forecast to increase from about 37MT in FY16 to 54 MT in FY17 and then to 67MT in FY18, generating an additional $20 billion in export revenues. • Australia’s Terms of Trade has lifted 9.1% over the December quarter, and 15.6% since the beginning of 2016. Australian forecasts © 2017 KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International. Liability limited by a scheme approved under Professional Standards Legislation. 3 Global outlook Global outlook Marcus Aurelius, one of Machiavelli’s five good emperors, would have said of 2016, Chart 1 Global Economic Policy Uncertainty Index “Annus inferius mediocris oeconomia1”. 350 In the year to December 2016 the world economy grew at its slowest annual rate since 2009, hindered by geopolitical uncertainty and concerns about political leanings towards ‘closing borders’ and increasing protectionism. 250 Index Number The main global event since the publication of our November 2016 edition of KPMG Economics Quarterly Economic Outlook has been the inauguration of Donald Trump as the 45th President of the United States of America. After some volatility the reaction of global financial markets to the Trump victory was generally positive, with bond yields increasing, the USD appreciating and stock market values rising. This reaction probably reflects expectations of expansionary fiscal policies, including tax cuts for individuals and businesses, additional spending in infrastructure assets, and deregulation of various government controls. 300 50 0 Source: KPMG Economics, Davis, www.policyuncertainty.com Chart 2 World GDP Growth 10% 8% 6% Annual % change The United Kingdom is still experiencing very subdued growth on the back of insecurity of households and business. Annual growth for 2016 is expected to be about 2% following growth of 0.6% in the final quarter. This relatively better growth for the quarter was achieved through higher consumption activity, although this is likely to be short lived as real incomes are expected to fall over the coming months due to the inflationary effects of currency depreciation. The unemployment rate is also expected to rise to mid-5%’s during 2017 on the back of a slowing economy; with this slack in the labour market also holding down real wage growth. 150 100 The other key change that has occurred over the last few months has been the re-rating of inflationary expectations, with previous concerns regarding the emergence of deflation now abated; although inflation remains well below central bank targets in Europe and Japan. From a key markets perspective the end of 2016 has shown increasing employment within the US, leading to wages growth and a contraction in the output gap. Along with the responses of the financial markets, various economists have suggested that some of the policies being advocated by President Trump will be growth enhancing, at least in the short run. Such a situation is likely to enable the US Federal Reserve to bring monetary policy back to ‘normal’ settings within a shorter period of time. 200 4% 2% 0% -2% -4% 1. Translates to ‘year below the average economy’ -6% Emerging Markets and developing Economies Advanced Economies World Source: KPMG Economics, IMF © 2017 KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International. Liability limited by a scheme approved under Professional Standards Legislation. 5 Global outlook In contrast, the December 2016 meeting of the European Central Bank saw the extension of Asset Purchase Program until the end of 2017, which was previously set to finish in March this year; although the monthly program spend will fall from €80 billion to €60 billion. Since October 2016 various Central Banks have adjusted their benchmark interest rates, with reductions in Argentina, Iceland and New Zealand; while Mexico’s and Turkey’s benchmark rates have risen due to increased currency pressures. Consistent with bond yield movements, Brazil’s benchmark interest rates fell 100 bp over two steps (November 2016 and January 2017) to be 13.0%. Oil prices have risen by about US$7/bbl since October 2016 to now be around $55/bbl. While still about half the price achieved during 2011 to 2013, current oil prices are also more than double the market low price in February 2016 of US$26/bbl. The driver of this price increase has been the adoption of supply constraint agreements by: • OPEC members, which are due to reduce output by 1.2 million b/d for 6 months from January 2017; and • non-OPEC members, including Russia and Mexico, to decrease their output by 0.6 million b/d in parallel with the OPEC countries. 6% % difference between Actual and Potential GDP Throughout most of 2016 the direction of monetary policy has been finely balanced with much focus on the ‘when-will-they’ deliberations of the FoMC of the US Federal Reserve. Finally, in the last FoMC meeting on 14 December 2016 the US Fed raised its target rate range for the Federal Funds Rate by 25 bp from 0.50% to 0.75%. The latest ‘dot plot’ indicates three additional 25 bp increase are expected during 2017, with a further three 25 bp increases in each of 2018 and 2019 in response to stronger economic activity in the US. Chart 3 Output Gap by Country 4% 2% 0% -2% -4% -6% -8% US Japan Germany UK Australia Source: KPMG Economics, The Conference Board Chart 4 Total Factor Productivity by Country 5% 4% 3% Annual % change As mentioned previously, since the election of President Trump, long run interest rates in the US has been progressively rising. This phenomenon has also been occurring in other jurisdictions, with 10 year sovereign yields rising by about 90 bp in Australia, 60 bp in the Euro area, Canada and China, 30 bp in Germany and 15 bp in India between the beginning of October 2016 and 23 February 2017. However, not every jurisdiction has experienced rising bond yields; Brazil’s 10-year bond rates have fallen by 110 bp, yields on Russian Government bonds rose since October 2016, but they have since retreated to be flat at the end of February 2017. 2% 1% 0% -1% -2% -3% There have also been significant price increases in other commodities on global markets, particularly metals. -4% -5% US Japan Germany UK Australia Source: KPMG Economics, The Conference Board © 2017 KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International. Liability limited by a scheme approved under Professional Standards Legislation. 6 Global outlook Chart 5 Official Interest Rates 8.0 7.0 6.0 5.0 4.0 % The United States experienced strong economic growth during the second half of 2016, following a relatively weak performance during the previous three quarters. During 2016Q3 output grew at an annualized rate of 3.5% per annum, with exports, household consumption and inventory accumulation being the primary drivers of this growth. Private sector investment remains subdued. The labour market has been strengthening (with unemployment being 4.7% in December 2016) with the US now approaching its NAIRU. We are seeing this in wages growth, with average private sector hourly earnings increasing 2.9% in December 2016, the largest increase since June 2009. However, consumer price inflation in US still remains below the Fed’s long run target of 2%. The increase in inflation from 0.9% mid-year to 1.4% at the end of the year was driven mainly by rising energy prices. 3.0 2.0 Europe has managed to stablise its growth at about mid-1%, which is modest but it is slowly chipping away at the unemployment rate. At the end of December 2016 there were about 15.5 million unemployed persons in Europe (EA-19), which translates into a 9.6% unemployment rate for the region. Youth unemployment remains problematic, with unemployment still near 21%; but this problem is chronic in countries like Greece, Spain and Italy, where youth unemployment is in excess of 40%; levels which have the potential to cause generational poverty, social disorder and fiscal pressure for decades to come. Germany remains the ‘powerhouse’ of Europe; although output growth slowed to 0.2% in 2016Q3 from 0.4% recorded in 2016Q2. Consumption activities, by both household and government, were the primary contributors to this growth, with net exports and investment activity recording negative and flat contributions respectively for the quarter. Despite net exports having little impact on growth, Germany has the largest current account surplus in the world2 at 9.1% of GDP. Wages growth remains subdued despite unemployment now being sub-4%. The unemployment rate is likely to rise once the 500,000 refugees that flowed into Germany last year enter the workforce. It has been noted that many of these refugees have poor German language skills, and lack formal (or recognised) qualifications, suggesting their assimilation within the labour market might be challenging. 2. Relative to GDP 0.0 -1.0 Japan US Euro UK Australia Source: KPMG Economics, RBA Chart 6 Yield Curve-10 year bond less 3 Month T-Bill yield 2.5 2 % GDP growth in Europe is uneven across member countries. 2016Q3 saw economic growth of 0.3%, primarily due to improvements in consumer spending, while net exports contributed nothing to this growth. The European Commission has argued there is enough ‘headroom’ for the introduction of some fiscal expansion – up to 0.5% of GDP for 2017 – to help boost economic activity for the region. However, this recommendation has been rejected by EuroArea Finance Ministers who have maintained a ‘neutral’ stance on fiscal policy for the coming 12 months. 1.0 1.5 1 0.5 0 AUS GER UK © 2017 KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International. Liability limited by a scheme approved under Professional Standards Legislation. US Source: KPMG Economics, RBA 7 Global outlook There continues to be instability within the Italian banking sector, even though bad debts have stabilsed post the introduction of the Atlante Fund to about 12.5% of total bank loans, and despite the Italian government approving the creation of a €20 billion recapitalisation fund to help ‘bail-out’ problem banks. This instability increased following the failure of the Monte dei Paschi di Siena (MPS) to raise €5 billion in private capital in order for it to comply with the EU regulations. MPS instead was required to seek €6.5 billion from the recapitalisation fund. The Italian budget has also been approved in December 2016 for the coming 12 months. Included in this fiscal plan is a reduction in company income tax rates from 27.5% to 24%, and the achievement of a budget deficit of 2.3% of GDP. The budget also confirms that the banking sector recapitalisation fund will add about 1% to Italy’s debt-to-GDP ratio, which is already at abut 135% of GDP as at the end of 2016Q3. From being recognised as one of the ‘PIGS’ post-GFC, Spain is now one of the fastest growing economies within the European region. In 2016Q3 economic growth was estimated to be 0.7%, slightly down from the 0.8% recorded in the previous 3-quarters. While economic activity is improving, unemployment remains high at 18.3% at the end of December 2016 – only Greece recorded a higher rate of unemployment in the EA-19 region (although in absolute terms Spain has nearly 4 times as many unemployed people as Greece). The new Spanish government under Prime Minister Rajoy provided budgets to the European Commission, with deficits of 3.1% and 2.2% targeted for 2017 and 2018 respectively. To help achieve this the government has announced plans to freeze public sector expenditure at 2016 levels. 350 300 250 Index Number Government and the banking sector in Italy have both separately experienced a blow in recent months. A referendum for constitutional change was held in early December 2016 with the Italian Prime Minister Renzi staking his future on a successful outcome. Unlike the Brexit vote in the UK, this referendum was unsuccessful, but like the Brexit vote the outcome resulted in the resignation of the PM. Chart 7 Index of Selected Commodites 200 150 100 50 0 Crude Oil Iron Ore Corn Source: KPMG Economics, RBA, FRED Chart 8 World Inflation 10% 9% 8% 7% % per annum France is due to hold the 2nd round of Presidential elections in May 2017, which means the direction of fiscal policy is likely to remain uncertain for the next few months. 6% 5% 4% 3% 2% 1% 0% Emerging Markets and developing Economies Advanced Economies World Source: KPMG Economics, IMF © 2017 KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International. Liability limited by a scheme approved under Professional Standards Legislation. 8 Global outlook Japan has just adopted the United Nations 2008 System of National Accounts as its reporting framework. This change has revealed that GDP was slightly stronger than first thought for the period 2013 to 2016; with consumption and housing investment greater than initially estimated. The Chinese economy grew by 6.7% in 2016, marginally lower than the 6.9% growth recorded in 2015. This growth was underpinned by fiscal stimulus policies promoted by the Chinese Government, as well as the maintenance of accommodative monetary policy. There remains concerns that this strong growth is obscuring a number of structural problems within the Chinese economy, including very high debt-to-GDP levels and overcapacity within various heavy industries, particularly due to the loss making state-owned enterprises operating within the sectors. The renminbi is continuing to depreciate against the USD, although it has remained generally stable against its official basket of currencies – suggesting this movement is USD driven, not the other way around (despite the calls of China being a currency manipulator by the new Trump Administration). Foreign exchange reserves in China continue to run down, although there are a number of causes of this including: • an appreciation in the USD; • sales by the Central Bank of foreign currency assets to arrest the fall in the renminbi; • expectations of Chinese nationals with regard to a slowing in the local economy; • repayment of foreign debt by local companies; • expectations of higher interest rates in the US; and • desire of the Chinese private sector to diversify their portfolios through the purchase of foreign assets. Chart 9 Exchange Rates (USD) 2.5 160 140 2.0 120 100 1.5 80 1.0 60 Yen Per USD Currency Per USD Japan has made some progress in improving its economic performance; and has now experienced three consecutive quarters of positive economic growth in 2016. Further, housing investment has recorded growth of +2.6%; net exports are positively contributing to GDP, with exports up by 1.6% due to a depreciation of the Yen (-4% on a trade weighted index basis over 2016Q4). Business investment remains stable, although the BoJ Tankan Survey for December shows an improvement in sentiment by large manufacturers, suggesting 2017 may see an increase in capital spending. The stagnation of Japanese nominal wages remain a concern, increasing on average by only 0.1% per annum since 2010 despite the economy being close to full employment (unemployment was 3.1% in November 2016, the lowest level in more than 20 years). The December BoJ meeting on monetary policy resolved to keep benchmark rates unchanged at -0.1% and maintain a target for long term interest rates at 0%. 40 0.5 20 0 0.0 Euro (LHS) Pounds (LHS) AUD (LHS) Yen (RHS) Source: KPMG Economics, RBA Chart 10 Unemployment rate 30.0% 25.0% 25.0% 20.0% 20.0% 15.0% 15.0% 10.0% 10.0% 5.0% 5.0% 0.0% 0.0% Dec-16 Jun-16 © 2017 KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International. Liability limited by a scheme approved under Professional Standards Legislation. Source: KPMG Economics, ABS, Bloomberg 9 Global outlook Prior to this exercise in economic disruption the Indian economy had been growing very strongly, recording growth of about 7.3% in the 12 months to the end of 2016Q3. Government consumption had risen by more than 15% over that time frame, and this was also further supported by household consumption growth of nearly 8% and a positive net exports result (due to falling imports and flat exports). On the downside however, business investment fell by 6%. Brazil remains in a deep recession, with GDP contracting by nearly 1% in 2016Q3; the seventh quarterly contraction since late 2015. There was also no positive beacon in this contraction, with all components of domestic demand falling; private sector investment notably falling by more than 3% in the quarter. In this mix of poor news, inflation has fallen by just under 5% to be in the low6%s at the end of 2016. This has resulted in the benchmark Selic rate being cut by Brazil’s central bank from 14.25% in October 2016 to 13% by the end of December 2016. Brazil’s budget position remains challenging, recording a deficit of 9.3% of GDP over the year, with interest payments on government debt accounting for more than two-thirds of the deficit. $4.5 $4.0 $3.5 US$ Trillion India introduced a range of measures on 16 November 2016 aimed at reducing tax evasion and fighting corruption, although the outcome of these reforms has been a significant disruption to economic activity. In essence the government took action to demonetise two of the most commonly used currency notes in terms of value of transactions within the Indian economy. The announcement meant that those notes would no longer be legal tender from midnight of that day, but existing currency could be exchanged or banked until the end of December 2016. While the objective of this extreme policy measure was laudable, its implementation was poor – cash shortages occurred, consumer panic led to queuing outside of banks, and newly minted bank notes were incompatible with existing ATMs. By the end of December R14 trillion from the estimated R15.5 trillion demonetised notes had been taken out of circulation; a much higher proportion than had been estimated, suggesting the government’s view on the amount of cash held by criminals’ had been greatly exaggerated. Chart 11 China's Foreign Exchange Reserves, US$ Trillion $3.0 $2.5 $2.0 $1.5 $1.0 $0.5 $0.0 Source: KPMG Economics, PBOC Chart 12 Share Price Indices 800 700 600 Index Value This acceleration in the flight of cash out of China has resulted in government authorities tightening the rules, including adopting new measures, around various forex transactions. For example: • in late November 2016 Chinese banks were informed that official approval was now required for foreign payment transactions valued at US$5 million or more, down from the previous threshold of US$50 million; • in December 2016 there was a tightening in the reporting requirements surrounding Chinese nationals wishing to use their annual forex quota of US$50,000. 500 400 300 200 100 0 US Japan UK NZ Taiwan South Korea China Australia Source: KPMG Economics, ABS © 2017 KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International. Liability limited by a scheme approved under Professional Standards Legislation. 10 Global outlook Growth in Real GDP Year End December Annual Inflation 2016 2017 2018 2019 2020 2021 2022 1.7% 1.8% 1.8% 1.9% 1.9% 1.8% 1.8% Brazil -3.5% -1.3% 0.7% 1.8% 2.2% 2.3% 2.5% Brazil 7.1% 5.6% 5.6% 5.7% 4.9% 4.2% 4.2% Canada 1.4% 1.7% 2.1% 1.8% 1.5% 1.3% 1.3% Canada 1.0% 1.7% 1.2% 1.3% 1.4% 1.6% 1.7% OECD Americas Year End December OECD 2016 2017 2018 2019 2020 2021 2022 1.4% 2.0% 1.9% 1.8% 1.8% 1.9% 1.9% Americas Latin America 2.0% 2.2% 2.6% 3.1% 3.1% 2.9% 2.7% Latin America 5.3% 2.7% 0.9% 2.5% 3.5% 3.9% 4.1% Mexico 2.0% 2.2% 2.3% 2.5% 2.7% 3.0% 3.2% Mexico 3.2% 5.9% 3.5% 2.0% 1.8% 2.2% 2.7% USA 1.7% 2.1% 2.1% 2.2% 2.3% 2.3% 2.2% USA 1.5% 1.5% 1.7% 1.7% 1.8% 1.9% 2.0% EMU 1.7% 1.5% 1.4% 1.3% 1.2% 1.2% 1.2% EMU 0.8% 1.2% 1.3% 1.3% 1.3% 1.3% 1.3% France 1.1% 1.1% 1.1% 1.2% 1.2% 1.2% 1.2% France 0.3% 1.0% 1.1% 1.2% 1.2% 1.2% 1.2% Germany 1.8% 1.7% 1.2% 0.8% 0.7% 0.6% 0.7% Germany 1.2% 1.0% 1.3% 1.3% 1.3% 1.3% 1.3% Greece -0.1% 0.1% 2.4% 2.2% 2.4% 2.6% 2.7% Greece 0.3% -0.7% 0.5% 0.9% 1.1% 1.3% 1.3% Ireland 4.3% 3.4% 2.2% 1.9% 1.6% 1.4% 1.4% Ireland 0.9% 1.0% 1.1% 1.2% 1.2% 1.2% 1.2% Europe Europe Italy 0.9% 1.0% 1.2% 1.4% 1.5% 1.5% 1.4% Italy 0.4% 2.1% 1.7% 1.6% 1.5% 1.4% 1.4% Russian Federation -0.5% 0.2% 1.0% 2.0% 1.6% 1.5% 1.6% Russian Federation 5.5% 4.5% 5.2% 5.0% 4.9% 4.7% 4.5% UK 2.0% 1.1% 1.5% 1.6% 1.8% 1.9% 1.9% UK 0.7% 2.4% 2.7% 2.5% 2.1% 1.8% 1.8% 1.9% 2.4% 3.1% 3.5% 3.6% 3.7% 4.0% South Africa 0.7% 2.2% 1.3% 1.6% 2.3% 3.0% 3.5% 2.4% 2.9% 3.2% 2.9% 3.0% 3.1% 3.1% China 6.7% 5.9% 5.8% 5.5% 5.4% 5.4% 5.5% China 2.2% 2.2% 1.7% 2.0% 2.1% 2.4% 2.8% East Asia 4.0% 4.3% 4.4% 4.5% 4.5% 4.4% 4.4% East Asia 2.3% 1.8% 2.7% 2.7% 2.7% 2.7% 2.8% Hong Kong 1.6% 2.3% 1.8% 1.7% 1.7% 1.7% 1.8% Hong Kong 2.3% 1.9% 1.6% 1.7% 1.8% 2.0% 2.3% Indonesia 5.1% 4.8% 5.3% 5.4% 5.2% 4.9% 4.6% Indonesia 3.8% 4.7% 4.6% 4.5% 4.3% 4.2% 4.1% Africa Middle East Asia South Africa Middle East 13.9% 5.2% 5.5% 5.3% 4.9% 4.5% 4.2% 6.2% 6.5% 5.0% 2.5% 1.4% 1.4% 2.0% 7.1% 6.5% 4.4% 3.7% 3.3% 2.9% 2.4% Asia India 7.2% 6.0% 7.8% 6.5% 6.3% 6.2% 6.2% India 4.0% 1.4% 4.9% 4.9% 4.4% 4.1% 3.9% Japan 1.0% 0.7% 0.7% 0.5% 0.4% 0.2% 0.1% Japan -0.6% 0.8% 0.8% 0.9% 0.8% 0.8% 0.8% Singapore 1.7% 1.3% 4.0% 3.0% 2.9% 3.0% 3.2% Singapore 0.3% -0.1% 1.8% 2.0% 2.3% 2.7% 2.9% South Korea 2.8% 1.9% 2.8% 3.2% 3.5% 3.6% 3.8% South Korea 1.3% 1.5% 1.7% 1.8% 1.9% 1.9% 1.9% Taiwan 1.1% 1.5% 1.8% 1.9% 2.2% 2.5% 2.9% Taiwan 0.8% 0.5% 1.1% 0.8% 0.8% 0.9% 1.0% Vietnam 7.6% 2.5% 5.5% 5.2% 4.7% 4.2% 3.8% Vietnam 3.9% 3.4% 5.2% 5.5% 5.6% 5.5% 5.6% New Zealand 4.1% 2.7% 3.2% 3.3% 2.8% 2.6% 2.6% New Zealand 0.0% 1.6% 2.1% 2.1% 2.0% 2.1% 2.3% 3.0% 3.0% 3.4% 3.3% 3.3% 3.3% 3.4% Oceania World Africa Oceania © 2017 KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International. Liability limited by a scheme approved under Professional Standards Legislation. 11 © 2017 KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International. Liability limited by a scheme approved under Professional Standards Legislation. 12 Australian outlook Australian outlook There is a growing level of frustration within the business community and general population that our political leaders, across all levels of government and both sides of politics, are channeling Nero by ‘fiddling while Rome burns’. This blunt assessment of our political leadership, and the problems associated with achieving meaningful reforms for the Australian community and economy, is no better illustrated than in the recent speech given by Dr Ken Henry. In this speech to CEDA Dr Henry reaffirms four key challenges facing Australia, including budget repair; a growing, but ageing, population; climate change mitigation and energy security; and capturing the benefits of the ‘Asian century’. Sadly, Dr Henry opines he has no confidence in the current Parliament’s ability to achieve urgent and essential reforms; rather he believes that politicians are more interested in passing insults rather than achieving meaningful reforms for the betterment of all Australians3. The 2016Q3 national accounts revealed economic growth of -0.5% q/q on a seasonally adjusted basis, although the rolling 12-month growth was still positive at 2.5%. The primary driver of this decline was a reduction in government consumption and investment expenditure. Public sector non-defence consumption expenditure declined by more than $0.5 billion in 2016Q3, while public sector investment expenditure fell about $2.2 billion. Real GDP in the December quarter 2016 grew at a strong 1.1%, driven by increased household consumption (0.9% q/q) and exports (2.2% q/q). In contrast to the September quarter, public sector spending on gross fixed capital increased markedly, with Tasmania standing out recording 21% quarterly growth, while South Australia (14%), Queensland (13%) and Victoria (12%) also achieved substantial increases. Non-dwelling construction activity recorded positive growth in 2016Q4, its first positive quarter since the middle of 2014. New non-residential buildings and engineering construction activity both recorded positive growth, and while ‘one swallow does not a summer make’4, it is a encouraging sign that these sectors may have bottomed and are now turning up from an economic contribution perspective. Expenditure on dwelling investment was marginally positive, albeit weak; further suggesting the non-housing residential sector is likely to experience a slowing of activity in the short term. Consumer price inflation increased by 0.5% in the December quarter 2016, resulting in annual inflation of 1.5% for the calendar year; still below the Reserve Bank’s 2% to 3% target band. It is expected that inflation will rise over the coming 12 months; we have already seen a jump in domestic producer prices of 0.7% in final quarter of 2016. Chart13 GDP Growth by Component 4.0% 4.0% 3.0% 3.0% 2.0% 2.0% 1.0% 1.0% 0.0% 0.0% -1.0% -1.0% -2.0% -2.0% C I G NX SD GDP-Qtr GDP-Annualised Source: KPMG Economics, ABS Chart 14 Annual Rate of Inflation by CPI Group Year ended December 2016 Insurance and financial services Education Recreation and culture Communication Transport Health Furnishings, household equipment and services Housing Clothing and footwear Alcohol and tobacco Food and non-alcoholic beverages All groups CPI 3. 4. http://news.nab.com.au/nab-chairman-ken-henrys-speech-at-ceda/ Aristotle, 384 BCE – 322 BCE © 2017 KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International. Liability limited by a scheme approved under Professional Standards Legislation. Source: KPMG Economics, ABS 14 Production Iron ore production continues to ramp up; a total of 220 million tonnes was produced in 2016Q3. The Department of Industry, Innovation and Science (DIIS) anticipate production of 880 million tonnes and 923 million tonnes in FY17 and FY18 respectively. This increase in output is also being supported by productivity improvements that were driven in the sector when market prices collapsed. This increase in domestic production is bound for export markets making Australia, which accounts for around 54% of the seaborne iron ore market, the dominant global iron ore supplier. Similar to iron ore, Australia has the dominant supplier position in the world market for metallurgical coal, even though the sector produced about 11% less in 2016Q3 than in 2016Q2 as a consequence of several factors, including industrial relations disputes and adverse weather conditions. The December quarter 2016 also saw challenging conditions negatively impact production, including the temporary closure of the Illawarra Coal Appin mine due to high levels of methane gas detected at the site. 12% 10% Proportion of Total GVA ABARES latest crop report (February 2017) indicates that the summer crop is likely to be reduced due to drier and warmer climatic conditions which occurred over the previous 3 months. Dryland crops have been most affected, although due to good supplies of irrigation water, cotton and rice crops are not anticipated to be too negatively impacted by adverse seasonal conditions. While the summer crop outlook appears challenging, harvesting of the winter crop is nearly finished, with every mainland state seeming to have achieved record production. Total winter production is estimated to have increased by nearly 50% to about 59 million tonnes, of which wheat production has grown by 45%, barley production 56%, canola production 41% and chickpea production 40%. Chart 15 Proportion of Gross Value added by Industry, Australia, 2016 8% 6% 4% 2% 0% Source: KPMG Economics, ABS Chart 16 Change In Gross Value Added by Industry, Australia, 2016 Percentage Change fromPrevious Year Production of goods and services as a proportion of total GDP remained just over 84% in the December quarter 2016, a level that is slightly higher than recent averages. In terms of industries, Finance and Insurance Services, Construction and Mining remain the three largest sectors within the Australian economy, accounting for nearly 28% of industry GVA (IGVA). Manufacturing continues to decline as a proportion of domestic production activity across the economy, now representing 6.8% of IGVA. A small decline in the production of machinery and equipment collectively drove the latest fall in relative importance of the manufacturing sector. 10% 8% 6% 4% 2% 0% -2% -4% -6% Profits before tax grew an incredible 470% in the mining industry in the final quarter of 2016, again as a direct result of the improvements in the global price of iron ore and coal. The profitability of the remaining sectors in the Australian economy also grew a substantial 20% over the quarter. Source: KPMG Economics, ABS © 2017 KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International. Liability limited by a scheme approved under Professional Standards Legislation. 15 Consumption Chart 17 Motor Vehicle Sales and Retail Trade Turnover Just under 100,000 motor vehicles were sold in Australia during January 2017, an increase of 0.6% (or about 600 vehicles) over sales in in the previous month. A total of 1.17 motor vehicles have been sold in Australia over the 12-months to the end of January 2017, an increase of 1.4% over the same previous 12-month period. The trend towards SUV vehicles continues, with 38% of all vehicles sold coming from this class; up from 35% 12 months ago. This growth in SUV sales is coming at the expense of passenger vehicles, which have fallen as a percentage of total sales from 44% for the 12-months to January 2016 to 41% over the past 12-months. Consumer sentiment, as measured by the Westpac-Melbourne Institute Index, declined in the last two months of 2016 and also stayed low in January 2017. Latest survey results show consumer sentiment has increased in February 2017, but remains just below the index value of 100, which reflects a balance of optimists and pessimists within the 1,200 survey respondents. While the current index value suggests a neutral position on consumer sentiment, there continues to be an overall upward trend in values since late 2015 - early 2016. Sales of New Motor Vehicles Household goods retailing saw the strongest quarterly growth of the six expenditure categories contained in the ABS Survey of Retail Trade, up 2.0%; followed by food retailing which grew 1.1%. Surprisingly cafes, restaurants and take-away food services grew by only 0.6% for the quarter, although this is coming off the back of 2.7% growth over 2016Q3, 1.5% growth over 2016Q2, and 4.1% on a rolling year-on-year basis. 27,000 100,000 25,000 95,000 23,000 90,000 85,000 21,000 80,000 19,000 75,000 17,000 70,000 15,000 65,000 Motor Vehicle Sales (LHS) Retail Trade Turnover (RHS) Source KPMG Economics, ABS Chart 18 Consumer Confidence 130.0 120.0 Consumer Sentiment Index Retail sales shows quarterly growth of 1.1% on a current dollar, seasonally adjusted basis, during the final quarter of 2016. New South Wales recorded much stronger growth (1.2%) in 2016Q4 compared to the 0.4% achieved in 2016Q3. The Northern Territory recorded the strongest growth of all states and territories in 2016Q4 at 1.8%, which is impressive given that negative growth of 0.3% was recorded in 2016Q3. 105,000 Retail Sales Household consumption expenditure grew 0.9% in seasonally adjusted terms in 2016Q4, and 2.7% on a rolling 12-month basis. Victoria recorded the highest quarterly household consumption growth of all the states and territories, up 1.3% over 2016Q3 and 3.1% on a rolling 12-month basis. Western Australia recorded growth of -0.1% in the quarter, but 1.6% for the year. 110.0 100.0 90.0 80.0 70.0 Source: KPMG EConomics, ABS © 2017 KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International. Liability limited by a scheme approved under Professional Standards Legislation. 16 Investment Gross fixed capital formation grew by 2.6% during 2016Q4, with both private and public sectors recording positive investment activity in the December quarter (up 1.5% and 7.7% respectively). Chart 19 Private Capital Expenditure By Industry Sector 30000 The increase in private sector gross capital formation was most pronounced within the construction sector, with non-dwelling investment in new buildings up 5.0%, while engineering construction grew at 1.3%. Spending on machinery and equipment (1.0%) and intellectual property (1.5%) grew over the quarter. 20000 $ Millions Public corporations, especially ones associated with the Commonwealth Government, recorded strong growth in gross fixed capital formation, up 9.0% in 2016Q4. This solid growth was supported by general government gross fixed capital expenditure, which grew by slightly more than 7% in the December quarter. Defence related capital expenditure accounted for about two-thirds of this increase – some $640 million. 25000 10000 5000 While the national accounts show private sector investment activity improving – at least when compared to the September quarter 2016 – there still appears to be an expectation that private sector investment activity will fall during 2017. Interestingly, the 2016Q4 ABS Survey of Private New Capital Expenditure revealed a decline in private sector capex spend of nearly $600 million (in real, seasonally adjusted terms) compared to the September quarter 2016. Investment expenditure in building and structures fell $650 million in the quarter, while plant and equipment achieved growth of $50 million. The survey also showed investment spending was mixed across jurisdictions, with Victoria, Northern Territory, Tasmania and the ACT recording positive growth, while New South Wales, Queensland, Western Australia and South Australia all recording falls. 0 Mining Manufacturing Other Selected Industries Source: KPMG Economics, ABS Chart 20 Value of Residential and Non-Residential Approvals 120,000 100,000 80,000 $ Millions The ABS Private New Capital Expenditure survey showed that Queensland and Western Australia combined recorded nearly $1 billion less in capital expenditure on building and structures in 2016Q4 relative to 2016Q3. This decline is consistent with survey respondents expected expenditure for the remainder of FY17 and FY18. Latest forward estimates indicate total spend on new capital of about $112 billion and $81 billion in FY17 and FY18 respectively, which compares to $127.6 billion for FY16. However, if average realisation ratios are applied to these estimates, FY17 is still likely to achieve current estimates of about $112 billion in total new private capital expenditure, but FY18 may see capex spend increase to something like $102 billion. 15000 60,000 40,000 20,000 - Residential Non-Residential © 2017 KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International. Liability limited by a scheme approved under Professional Standards Legislation. Source: KPMG Economics, ABS 17 Labour market Chart 21 Unemployment and Participation Rates The size of Australia’s labour force is now 12 million employed persons, about 103,400 more workers than the number employed at the beginning of 2016. However, this increase in employment has come at the expense of full time positions, which shrank by about 56,000 over the 12 months to January 2017. In contrast, part time employment grew by nearly 160,000 positions. There remains about 720,000 Australians looking for employment, which translates into an unemployment rate of 5.7% (in seasonally adjusted terms). The two largest states of New South Wales and Victoria account for nearly 55% of total unemployment, while the mining states of Queensland and Western Australia have about 157,000 and 93,000 persons unemployed. 65.5 5.5 4.5 64.5 4.0 64.0 3.5 63.5 3.0 Hidden unemployment, recognised as ‘underemployment’, is an increasing problem for many in the labour force. Those wishing to work more hours represent nearly 9% of total people employed, although this increases to nearly 11% for female workers. Unemployment rate Participation rate Source: KPMG Economics Chart 22 Private Sector - Public Sector Wage Growth The ANZ Job Advertisements Series showed a 4% increase in the number of job ads in January 2017 over December 2016, and a 7% increase on a year-on-year basis, suggesting the labour market in Australia is improving sufficiently enough to pull down the unemployment rate gradually over the coming 12 months. 1.2% 1.0% 0.8% q/q % The modest growth in employment during 2016 did not pressure labour markets and as a result growth in wages has been anemic. While the labour market might tighten during the remainder of 2017, wage growth is expected to remain modest. Nominal ordinary time hourly rates of pay (excluding bonuses) grew, on average, by 2.0% during the year to December 2016, the lowest rate of growth since the series commenced nearly 20 years ago. However, there is a notable difference between public and private sector wages growth; with the public sector recording average growth of 2.3% compared to 1.8% for the private sector. The healthcare and education sectors recorded the highest wages growth of all private sector industries at 2.4%, while mining achieved the lowest wage growth of 1.0%. 65.0 5.0 Participating Persons (%) The labour market participation rate is sitting marginally higher than the average for the past 20 years, although there has been a declining trend in participation since the middle of 2015. 66.0 6.0 Unemployed Persons (%) From a gender perspective, the additional workers have been predominately female, although female workers bore a much higher proportion of the full time job losses (35,000), but they also captured the majority of the part time positions (117,000). 6.5 0.6% 0.4% 0.2% 0.0% Private Sector Wage price Index Public Sector Wage price Index Source: KPMG Economics, ABS © 2017 KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International. Liability limited by a scheme approved under Professional Standards Legislation. 18 Government Australia’s net debt position is expected to deteriorate, rising to $317 billion this year, and progressively increasing to be approximately $364 billion by the end of FY20. A consequence of this increase in net debt is a rise in net interest payments made by the government, up from $12.3 billion in FY17 to $14.7 billion in FY20. Spending remains relatively high as a percentage of GDP. In the MYEFO government spending as a proportion of GDP is projected to be 25.2% in FY17 (down from the 25.8% projected in the PEFO) and to stay at this level for the remainder of the forward estimates period. The 2016Q4 Government Finance Statistics reveal a near 18% lift in taxation receipts over 2016Q3, although when compared to 2015Q4 they are about 4% higher. While tax receipts are higher, general government expenses in 2016Q4 are more than $6.5 billion higher than the same period in 2015, of which labour costs represent $1.5 billion. State governments have incurred nearly 90% of this increase in general government labour costs. 0.0% 0 -5,000 Underlying Cash Balance ($M) -0.5% -10,000 -1.0% -15,000 -20,000 -1.5% -25,000 -2.0% -30,000 % of GDP (Nom) Despite this poor fiscal outlook the Treasurer is still predicting the budget will return to surplus in FY21; a prospect KPMG believes is unlikely without significant reforms to government receipts, expenditures or both. The Treasurer also conceded in the MYEFO statement that forward estimates for tax receipts was overly optimistic, and revised these down by nearly $31 billion over the coming four years. This deterioration in the budget outlook is being driven by lower forecasts of personal income tax revenue, driven by weak growth in wages. Despite a substantial increase in commodity prices, particularly in thermal coal (up from US$55/MT at May 2016 to US$90/MT in January 2017) and iron ore (US$56/MT to US$80/MT), corporate income tax receipts are unlikely to experience a material uplift due to utilisation of accumulated net operating losses within the mining sector. Chart 23 Commonwealth Budget Balance -35,000 -2.5% -40,000 -3.0% -45,000 FY15 FY16 FY17 FY18 FY19 FY20 Underlying Cash Balance - Treasury Underlying Cash Balance - KPMG Deficit as % of GDP - Treasury Deficit as % of GDP - KPMG Source: Commonwealth Treasury, KPMG Economics Chart 24 Government expenditure as % of GDP $ real, seasonally adjusted 26% 25% 24% % of GDP The Treasurer presented the Commonwealth Government’s Mid-Year Economic and Fiscal Outlook on 16 December 2016. The primary messages contained in this statement include a marginal improvement in the expected budget deficit for FY17 from $37.1 billion to $36.5 billion; although aggregate deficits in the forward estimates period are expected to increase by about $11 billion to nearly $95 billion. 23% 22% 21% 20% Source: KPMG Economics, ABS © 2017 KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International. Liability limited by a scheme approved under Professional Standards Legislation. 19 Net exports Australia’s exports of services is continuing to grow, reaching $71.5 billion n 2016, with education services ($21.7 billion) continuing to grow on the back of stronger economic growth in target overseas countries, like China, Singapore and Malaysia. This growth is also being supported by a more competitive exchange rate (as compared to FX rates of 2011 to 2013). Chart 25 Merchandise Exports by Type, (FOB Value, Original) 30,000 25,000 $ Millions, Original The improvement in commodity prices, especially iron ore and coal, is having a significant positive impact on Australia’s trade balance. In November and December 2016 the trade balance recorded a surplus (in seasonally adjusted terms) of $2 billion and $3.5 billion respectively. Total exports of goods and services in 2016Q4 were some $10 billion higher than in 2016Q3. While the sustainability of commodity price increases is uncertain, Australia’s production of commodities for export are anticipated to continue to ramp up, at least into the medium term, helping improve the current account as a consequence. 20,000 15,000 10,000 5,000 - Australia’s net export position is projected to improve through the significant ramp up in LNG exports. DIIS anticipate LNG exports to increase from nearly 37MT in FY16 to 54MT in FY17 and then 67MT in FY18, generating some $20 billion in additional export revenues. Australia’s Terms of Trade (ToT) has lifted significantly as a consequence of the rise in commodity prices, up 9.1% over the December quarter, and 15.6% since the beginning of 2016. KPMG expects a further increase in 2017, however, this growth will be moderate, and more generally we believe the strength in the ToT is likely to be short lived, with an anticipated steady decline in its outlook. The Australian dollar appreciated over the final quarter of 2016, and is currently trading at USD 0.768c. Further increases in the US FFR, combined with the likely maintenance of the current cash rate by the Reserve Bank, suggest that the AUD will come under pressure over the remainder of 2017. KPMG’s forecasts have the AUD/USD exchange rate settling around the USD 0.74c level for the immediate future. Food and live animals Coal and coke Gas Machinery and transport Total Metalliferous ores Petroleum and related materials Manufacturing Gold (non-monetary) Source: KPMG Economics, ABS Chart 26 Terms of Trade, Australia 160 140 120 Index Number December quarter 2016’s Balance of Payments showed the Current Account had narrowed to -3.8 billion (in seasonally adjusted, current dollar terms), an improvement of $6.3 billion over 2016Q3. This is the ‘best’ quarterly result since the September quarter 2001. This improvement was driven by revenue from net exports growing by nearly $8.3 billion; although net primary income deficit worsened by about $1.8 billion to be just over $8 billion for the quarter. 100 80 60 40 20 0 Terms of Trade Long-Term Average © 2017 KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International. Liability limited by a scheme approved under Professional Standards Legislation. Source: KPMG Economics, ABS 20 Forecast assumptions Changes in key assumptions impacting KPMG’s Economics forecasts since November 2016 include: Global • a rise in 10-year bond yields in most jurisdictions through 2017; • a tightening in the spread between sovereign bonds and corporate bonds, suggesting the margin for corporate borrowing compresses; • oil prices stablising to trade in a tight range of US$54/bbl to $58/bbl until the end of 2018; • equity prices to retreat from recent high’s once the ‘sugar hit’ from the commencement of the Trump Administration in the US wear’s off Australia • residential construction activity to soften in 2017 and 2018 due to a moderation in non-housing construction; • non-mining business investment to continue to steadily rise, although the decline in mining investment will continue to swamp aggregate investment such that negative growth remains in FY17; • household consumption activity to be limited by high debt levels, anemic wages growth and moderate employment growth; • limited fiscal reforms in Australia, thereby keeping the effective corporate tax rate and effective personal income tax rate the same as in FY16, with government spending also to be maintained at levels forecast in the recent MYEFO statement. © 2017 KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International. Liability limited by a scheme approved under Professional Standards Legislation. 21 Australian outlook FY16 FY17 FY18 FY19 FY20 FY21 FY22 GDP (Real) 2.7% 1.8% 2.9% 2.9% 3.1% 3.0% 2.8% Private Consumption 2.9% 2.4% 2.7% 2.8% 2.9% 3.0% 2.9% 8.5% 2.1% -2.2% 4.0% 4.2% 1.9% 1.4% -11.0% -4.5% 5.8% 2.4% 2.5% 3.1% 2.5% Consumption 3.7% 2.8% 2.1% 2.0% 2.0% 2.1% 2.2% Investment 2.7% -0.9% -4.6% -1.9% -1.4% 0.8% 1.4% Total domestic demand 1.3% 1.3% 2.3% 2.5% 2.6% 2.7% 2.5% Export volumes 6.7% 5.9% 5.9% 5.1% 5.0% 5.0% 5.1% Import volumes -0.3% 3.7% 3.2% 3.5% 3.6% 4.0% 3.9% Inflation (1) 1.0% 1.5% 1.6% 2.1% 2.3% 2.5% 2.6% Real Personal Disposable Income 1.6% 2.3% 2.8% 2.8% 3.0% 3.0% 2.8% Unemployment, % (1) 5.7% 5.4% 5.4% 5.2% 5.1% 5.2% 5.3% Government Balance as % of GDP -2.3% -2.3% -1.4% -0.9% -0.8% -0.9% -1.0% Govt. debt as % of GDP 44.2% 45.7% 45.8% 45.0% 43.6% 42.2% 40.9% Current account as % of GDP -4.4% -2.1% -1.4% -1.2% -1.1% -0.9% -0.7% $A/US$ (1) 0.746 0.744 0.741 0.740 0.741 0.743 0.745 96.7 97.0 96.2 95.3 95.0 94.6 94.0 Investment Housing Business Government Terms of Trade (1) (1) = Value at end of the year © 2017 KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International. Liability limited by a scheme approved under Professional Standards Legislation. 22 © 2017 KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International. Liability limited by a scheme approved under Professional Standards Legislation. 23 KPMG Economics Contact us Brendan Rynne Melbourne Tel: 03 9288 5780 [email protected] KPMG does not make any statement in this report as to whether any forecasts or projections included in this report will be achieved, or whether the assumptions and data underlying any prospective economic forecasts or projections are accurate, complete or reasonable. KPMG does not warrant or guarantee the achievement of any such forecasts or projections. Any economic projections or forecasts in this report rely on economic inputs that are subject to unavoidable statistical variation. They also rely on economic parameters that are subject to unavoidable statistical variation. While all care has been taken to account for statistical variation, care should be taken whenever considering or using this information. There will usually be differences between forecast or projected and actual results, because events and circumstances frequently do not occur as expected or predicted, and those differences may be material. Any estimates or projections will only take into account information available to KPMG up to the date of this report and so findings may be affected by new information. Events may have occurred since this report was prepared, which may impact on it and its findings. The information contained herein is of a general nature and is not intended to address the specific circumstances of any particular individual or entity. © 2017 KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International. Liability limited by a scheme approved under Professional Standards Legislation. 24 kpmg.com.au © 2017 KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International. Liability limited by a scheme approved under Professional Standards Legislation. The information contained in this document is of a general nature and is not intended to address the objectives, financial situation or needs of any particular individual or entity. It is provided for information purposes only and does not constitute, nor should it be regarded in any manner whatsoever, as advice and is not intended to influence a person in making a decision, including, if applicable, in relation to any financial product or an interest in a financial product. Although we endeavour to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation. 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