Download A global economic and market outlook

A global
economic and
market outlook
Dr Chris Caton
May 2014
Australia simply doesn’t have a government debt problem (general govt
net debt as a proportion of GDP)
1
And here’s a longer-term perspective on our public debt (% of GDP)
2
The path back to balance is gradual (deficit as a % of GDP)
3
For those who would like more detail
4
The economic forecasts behind the Budget appear reasonable
5
The Budget’s implication for debt; still no problem
6
QE matters– the Fed buys bonds, investors buy stocks
7 Source: Minack Advisors
Euro-area government bond spreads (to German bonds)
8
The two that matter continue to improve(long-term bond yields
(%))
9
Emerging markets have massively underperformed
1800
Developed Index
Asian Emerging Markets Index
1700
600
567
1600
533
World Developed Index (LHS)
1500
500
1400
467
1300
433
1200
400
1100
Asian Emerging Markets Index
(RHS)
1000
900
333
300
12
Source: Datastream
10
367
13
14
Emerging markets tend to reflect commodity prices
11
2014 Growth Forecasts (%)
Month of Forecast
M-13
J-13
J-13
A-13
S-13
O-13
N-13
D-13
J-14
F-14
M-14
A-14
Australia
3.0
2.8
2.7
2.6
2.6
2.6
2.7
2.7
2.7
2.7
2.8
2.8
New
Zealand
3.0
3.1
3.1
3.1
3.1
3.1
3.1
3.1
3.2
3.3
3.5
3.5
US
2.7
2.7
2.7
2.6
2.7
2.6
2.6
2.6
2.8
2.9
2.8
2.7
Japan
1.5
1.5
1.5
1.5
1.7
1.7
1.6
1.6
1.7
1.6
1.4
1.3
China
7.9
7.8
7.6
7.5
7.4
7.4
7.5
7.5
7.5
7.5
7.4
7.3
Germany
1.6
1.6
1.6
1.7
1.7
1.7
1.7
1.8
1.8
1.8
1.8
1.9
UK
1.6
1.7
1.7
1.9
2.1
2.2
2.3
2.5
2.6
2.7
2.7
2.8
“World”
3.2
3.2
3.1
3.1
3.1
3.1
3.1
3.0
3.1
3.1
3.0
2.9
Source: Consensus Economics
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Financial Market Forecasts
Now
(13 May)
End-Jun
2014
End-Dec
2014
0.934
0.89
0.84
Official cash rate (%)
2.50
2.50
2.75
10 Year Bond yield (%)
3.83
4.00
4.40
ASX 200
5498
5500
5700
AUD/USD
13
The Australian Dollar and US Trade Weighted Index
Index
AUD/USD
180
1.12
AUD/USD (RHS)
161
1.00
142
0.88
122
0.76
US TWI inverted (LHS)
103
0.64
84
0.52
64
0.40
99
00
Source: Datastream
14
01
02
03
04
05
06
07
08
09
10
11
12
13
14
The volatility of the currency has fallen significantly
15
Australian Share market Performance – ASX200
7000
6500
6000
5500
5000
4500
4000
3500
3000
2500
2000
1500
1000
93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14
Source: Bloomberg
16
The Australian market is now close to fair value
17
The p/e by sector. Resources the best value?
18
There’s no sign of a bubble in global markets
19 Source Minack Advisors
We are in almost perfect sync with the United States market
20 Source :Minack Advisors
Real GDP growth in Australia and the US
Year to % change
10
US
Australia
7.5
5
2.5
0
-2.5
-5
80
82
Source: Datastream
21
84
86
88
90
92
94
96
98
00
02
04
06
08
10
12
14
The terms of trade should continue to decline
22
Unemployment has risen significantly..but has it peaked?
000’s
%
12000
7.5
11500
7.0
Employment (LHS)
11000
6.5
10500
6.0
10000
5.5
9500
5.0
9000
4.5
Unemployment Rate
(RHS)
8500
00
Source: ABS
23
01
02
03
04
05
06
07
08
09
10
11
12
13
4.0
14
Two speeds or not two speeds, that is the question
24
Australian Inflation has risen
%
7
Headline CPI
BT Forecasts
Underlying inflation
6
5
GST Effect
4
3
2
1
0
00
01
Source: ABS
25
02
03
04
05
06
07
08
09
10
11
12
13
14
15
16
Household financial ratios
26
House Prices - Australia v Sydney
700 Index (1987 = 100)
650
Sydney
Australia
03
07
600
550
500
450
400
350
300
250
200
150
100
87
Source: ABS
89
91
93
95
97
99
01
05
09
11
13
We are very expensive compared with the United States
28
But not otherwise!
29
House prices are rising everywhere, particularly in Sydney and
Melbourne
30
Prices have been rising rapidly in just two cities in the past year (%
increase year to April 2014)
31 Source :RPData
Where’s the bubble? Average house price increase in the past ten years
32
Gross Domestic Product
%
8
Qtly growth
7
Year-to growth
Non-farm year-to growth
BT Forecasts
6
GST Effect
5
4
3
2
1
0
-1
-2
-3
90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15
Source: ABS
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Global Medium-Term Economic Growth and Inflation Prospects (20142024)
GDP
Inflation
Australia
2.9
2.6
New Zealand
United States
Norway
Sweden
Canada
United Kingdom
Spain
Switzerland
Netherlands
Germany
France
Eurozone
Japan
Italy
2.7
2.6
2.4
2.3
2.2
2.2
1.9
1.8
1.6
1.6
1.5
1.5
1.2
1.0
2.2
2.2
2.0
1.6
1.9
2.4
1.7
1.1
1.8
1.9
1.6
1.7
1.8
1.7
34
Source: Consensus Economics
Asia-Pacific Medium-Term Economic Growth and Inflation Prospects
(2014-2024)
GDP
Consumer Prices
India
6.8
5.9
China
6.5
3.0
Indonesia
5.6
5.3
Philippines
5.6
4.1
Malaysia
5.0
3.0
Thailand
4.1
3.1
Singapore
3.9
2.3
Taiwan
3.4
1.8
Hong Kong
3.2
3.1
South Korea
3.2
2.5
Australia
2.9
2.6
New Zealand
2.7
2.2
Japan
1.2
1.8
Source: Consensus Economics
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Summary

Tapering of quantitative easing in the US has added to market volatility.

Eurozone debt is still a serious issue; it will drag on for a long time but is
unlikely to end in catastrophe.

We will always worry about China.

The Australian economy should continue to experience only moderate
growth. The mining investment boom has ended but the downside may not
be too steep.

The cash rate’s next move is up.

The exchange rate may eventually fall again.

The Australian share market is close to fair value.
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Disclaimer
This presentation has been prepared by BT Financial Group Limited (ABN 63 002 916 458) ‘BT’ and is for
general information only. Every effort has been made to ensure that it is accurate, however it is not
intended to be a complete description of the matters described. The presentation has been prepared
without taking into account any personal objectives, financial situation or needs. It does not contain and is
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the source of all charts; and all performance figures are calculated using exit to exit prices and assume
reinvestment of income, take into account all fees and charges but exclude the entry fee. It is important to
note that past performance is not a reliable indicator of future performance.
This document was accompanied by an oral presentation, and is not a complete record of the discussion
held.
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