Download World economic growth slowing but firm

An Economic Outlook:
Glass Half Full?
Christopher Nielson
Corporate Treasury Specialist
14 August, 2009
Besa Deda
Chief Economist
Road Map
•
World economic outlook
•
Domestic economic conditions
•
Interest rate outlook
•
Credit market developments
•
Aussie dollar outlook
Australian Economy Avoids the ‘R’ Word
GDP In Various Economies
(Q4 2008 and Q1 2009)
•
1
0
Australia is sharing in some
of the pain of the world
-1
economic downturn.
•
-2
But growth prospects remain
-3
more favourable in Australia
-4
than in other major
Q4 2008
Q1 2009
economies around the world.
-5
A ustralia
US
UK
Japan
Euro zo ne
Australia – Ahead of the Pack
%pa
2
Consensus GDP Forecasts for
2009
Consensus GDP Forecasts
for 2010
%pa
3
Source: Consensus Economics
0
2
-2
-4
1
-6
Source: Consensus Economics
0
-8
A ust
•
US
Euro zo ne
Japan
UK
A ust
US
Euro zo ne
Japan
Australia will remain ahead of the pack, although next year
the US is expected to pip Australia at the post.
UK
Why?
S&P Credit Ratings of Banks
Terms of Trade
(ratio of export to im port prices)
135
AAA
AAA
AA+
AA+
AA
AA
AA
110
AA
AA
AA
85
A us t ra lia 's B igF o ur B a nk s
AA
AA
AA
AA
60
0
Sep-59
•
A s at 15 July 2009
Sep-69
Sep-79
Sep-89
Sep-99
Sep-09
20
40
60
80
100
M arket Capitalizatio n (US$ bn)
A healthy banking system, strong regulatory system, still high
terms of trade, aggressive stimulus from the RBA & Federal
Government and strong population growth.
120
Consumer Spending – Shifting to a Higher Gear
%
-40
Retail Trade and Petrol
(annual rate, 3-m th m oving avg)
%
Australian Share Market
7,000
7,000
6,000
6,000
5,000
5,000
4,000
4,000
3,000
3,000
2,000
2,000
12
P etro l prices
(inverse axis, lhs)
-20
8
0
4
20
A ustralia retail
trade (rhs)
40
Jan-02
•
•
Jan-04
Jan-06
Jan-08
0
31-M ar-00
31-M ar-03
31-M ar-06
31-M ar-09
Some negatives on the consumer are receding - including lower
petrol prices, improved share markets & lower mortgage rates.
But the prospect of higher unemployment remains.
Consumer Sentiment Does a U Turn
Consumer Sentiment Index
130
130
Lo ng Run
A verage
110
110
90
90
So urce: Westpac-M elbo urne Institute
70
Jan-98
70
Jul-00
Jan-03
Jul-05
Jan-08
•
Consumers are more
optimistic about the future.
Clear & Present Danger
%pa
Labour Market Indicators
60
5
A NZ Jo b
A ds (lhs)
40
Net Job Gains or Losses
%pa
4
300
300
Glo bal Credit Crisis
200
200
Early 1990s Recessio n
20
3
0
2
-20
1
100
100
0
0
-100
-100
-200
-200
-300
-300
Emplo yment (rhs)
-40
0
-60
-1
Jan-00
•
•
Jan-02
Jan-04
Jan-06
Jan-08
Part- Full-Time
Time
Part- Full-Time
Time
The peak in the unemployment rate will occur mid next year. We
expect the peak to be 7.5-8.0% (from 5.8% now).
Rising unemployment could instil caution among consumers.
Housing Lending Revs Up
FIRST-HOME BUYERS
Number of Housing Loans
%pa
40
(to ow ner occupiers)
%pa
40
20
20
0
0
-20
-20
-40
-40
Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09
•
%
(% of total hom e buyers)
%
30
30
25
25
20
20
15
15
10
10
Jan-92
Jan-97
Jan-02
Jan-07
The boost to the First Home Owners grant and rate cuts are
spurring the recovery.
House Price Trends
National House Prices
(annual % change)
30
30
20
20
10
10
0
0
Source: Australian Property M onitor
-10
M ar-88
•
•
-10
M ar-93
M ar-98
M ar-03
M ar-08
Trends in housing lending will flow through to house prices.
The lower end of the market is picking up, reflecting the strong
demand from first-home buyers.
Unsung Hero – Population Growth
'000s
Australian Housing Shortage
%
180
160
Data Source: BIS Schrapnel
Population Growth Rate
%
2.0
2.0
1.5
1.5
1.0
1.0
0.5
0.5
(f)
140
120
100
80
60
40
20
0
-20
1999
•
•
2001
2003
2005
2007
2009
2011
M ar-90
M ar-94
M ar-98
Population growth nationally is at 40-year highs.
It is not purely an immigration story.
M ar-02
M ar-06
Frost Bite in Commercial Property
•
A more pronounced downturn in
the non-residential building sector
is being witnessed. Falls sharper
for large-scale projects. Partly
reflects restricted access to
external financing.
•
Commercial sector closely tied to
state of the labour market.
Business Investment Outlook – Slow Sign Ahead
Business Sector
20
25
10
20
•
Work in the pipeline means
business investment has not
collapsed.
0
15
-10
•
private business investment.
10
NA B B usiness
Co nfidence
3M M A (lhs)
-20
B usiness
Credit %pa (rhs)
-30
M ar-97
5
M ar-03
M ar-06
M ar-09
•
But business investment for this
financial year and next is still set
0
M ar-00
Government injections will assist
to be scaled back further.
Interest Rates – The Race to Zero Is Over?
Cash Rate Expectations
Cash Rates
%
(by end Decem ber 2009)
%
8
8
14
A ustralia
So urce: B lo o mberg survey o f 19
eo no mists o n 13 July.
6
6
4
4
Euro zo ne
2
2
2
2
US
1
0
0
2.00
2.25
Japan
UK
0
•
2.50
2.75
3.00
3.25
Jan-05
0
Jan-06
Jan-07
Jan-08
Jan-09
We think the RBA is done cutting rates. We think the next move
in the cash rate will be up early next year.
How Soon Will the RBA Start Tapping on the Brakes?
Where will the Cash Rate Be
By the End of June 2010?
15
So urce: B lo o mberg survey o f 19
eco no mists o n 31uly 2009
11
10
5
5
3
0
Lo wer
•
Same
Higher
Financial markets are starting to entertain rate hikes within six
months.
US – A Dim Light at the End of the Tunnel?
%pa
'000s
US Housing Statistics
60
100
NA HB Ho using
Sentiment Index,
3M M A (rhs)
30
US Labour Market
400
280
200
347
0
413
50
0
0
No n-Farm
P ayro lls
Change,
3M M A (lhs)
-200
480
-400
-30
-50
Ho using
starts
(lhs)
-600
-60
Jan-85
•
-100
Jan-90
Jan-95
Jan-00
Jan-05
'000s
Jan-10
547
Initial Jo bless
Claims
4-Week M o ving
A verage - Reverse A xis (rhs)
613
-800
Jan-02
Jan-04
Jan-06
Jan-08
We believe the US economy is bottoming and may already be
recovering. But the recovery will be U in shape not a V-shaped
one.
The AUD’s Dashboard
Risk Aversion & the AUD
90
%
0.60
6
0.70
50
0.80
30
0.90
1.00
A ustralian-US 2Year Swap
Spread, % (lhs)
A UD/USD
Inverted A xis (rhs)
70
AUD & 2-Year Swap Spread
4
0.85
2
0.70
0
0.55
A UD/USD
(rhs)
VIX Vo latility
Index (lhs)
10
1.00
06-Jul-07
•
•
06-Jul-08
06-Jul-09
-2
Jan-96
0.40
Jan-00
Jan-04
Jan-08
Investors appetite towards risk is a dominant driver of the AUD.
Interest-rate differentials are also in the AUD’s favour.
The Finish Line
"The information contained in this report (the Information) is provided for, and is only to be used by,
persons in Australia. The information may not comply with the laws of another jurisdiction. The
Information is general in nature and does not take into account the particular investment objectives or
financial situation of any potential reader. It does not constitute, and should not be relied on as, financial
or investment advice or recommendations (expressed or implied) and is not an invitation to take up
securities or other financial products or services. No decision should be made on the basis of the
Information without first seeking expert financial advice. For persons with whom St. George has a
contract to supply Information, the supply of the Information is made under that contract and St.
George’s agreed terms of supply apply. St. George does not represent or guarantee that the Information
is accurate or free from errors or omissions and St. George disclaims any duty of care in relation to the
Information and liability for any reliance on investment decisions made using the Information. The
Information is subject to change. Terms, conditions and any fees apply to St. George products and
details are available. St. George or its officers, agents or employees (including persons involved in
preparation of the Information) may have financial interests in the markets discussed in the Information.
St. George owns copyright in the Information unless otherwise indicated. The Information should not be
reproduced, distributed, linked or transmitted without the written consent of St. George. "