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LGMA Finance Professionals Network Event
Economic Presentation
16 August 2013
Craig McGuinness
Economist / Senior ALM Analyst
FINANCIAL SOLUTIONS FOR THE BENEFIT OF ALL WESTERN AUSTRALIANS
FINANCIAL SOLUTIONS FOR THE BENEFIT OF ALL WESTERN AUSTRALIANS
Four years after the recession the global economy is still battling to return to normal.
Source: IMF World Economic Outlook
FINANCIAL SOLUTIONS FOR THE BENEFIT OF ALL WESTERN AUSTRALIANS
Europe remains the number one trouble spot in the global economy
Source: Datastream, Reuters, IMF, Societe Generale
FINANCIAL SOLUTIONS FOR THE BENEFIT OF ALL WESTERN AUSTRALIANS
Things are (slowly) improving across the Atlantic though the employment situation remains
dire.
Source: Datastream, Federal Reserve, WATC calculations
FINANCIAL SOLUTIONS FOR THE BENEFIT OF ALL WESTERN AUSTRALIANS
Bank of Japan and the new Abe Government have implemented huge stimulus measures in
an attempt to finally breathe life into the Japan’s moribund economy.
Source: Datastream
FINANCIAL SOLUTIONS FOR THE BENEFIT OF ALL WESTERN AUSTRALIANS
China’s growth has slowed in recent years.
Source: Western Australian Department of Treasury and Finance
FINANCIAL SOLUTIONS FOR THE BENEFIT OF ALL WESTERN AUSTRALIANS
However the urbanisation project has a long way to go…
Source: RBA paper – Chinese Urban Residential Construction to 2040
FINANCIAL SOLUTIONS FOR THE BENEFIT OF ALL WESTERN AUSTRALIANS
…suggesting that while they have passed their peak, commodity prices are likely to
remain well above pre-2005 levels.
FINANCIAL SOLUTIONS FOR THE BENEFIT OF ALL WESTERN AUSTRALIANS
In the short to medium term the pullback in commodity prices is likely to continue to weigh on
national income.
Source: National Bureau of Statistics
FINANCIAL SOLUTIONS FOR THE BENEFIT OF ALL WESTERN AUSTRALIANS
Weaker national income growth in the period ahead suggests employment growth is likely
to remain sluggish which will put further upward pressure on the unemployment rate.
Source: Australian Bureau of Statistics
FINANCIAL SOLUTIONS FOR THE BENEFIT OF ALL WESTERN AUSTRALIANS
With inflation comfortably within target the RBA has room to move should it be necessary to
cut rates further.
Source: Australian Bureau of Statistics
FINANCIAL SOLUTIONS FOR THE BENEFIT OF ALL WESTERN AUSTRALIANS
Australian householders are world class when it comes to borrowing to invest in property
Source: Reserve Bank of Australia
FINANCIAL SOLUTIONS FOR THE BENEFIT OF ALL WESTERN AUSTRALIANS
Though we have (so far) escaped the hangover that other countries have suffered.
Peak
Trough
WA
+225% (Mar 10)
-7% (Sep 11)
Australia
+158% (Jun 10)
-5% (Dec 11)
US
+106% (Jun 06)
-33% (Mar 12)
Ireland
+136% (Sep 07)
-51% (Mar 13)
Spain
+130% (Sep 08)
-27% (Mar 13)
Source: Datastream / WATC
FINANCIAL SOLUTIONS FOR THE BENEFIT OF ALL WESTERN AUSTRALIANS
With the mining investment boom winding down, exports are set to take over as the
State’s major growth driver.
Source: ABS / Department of Treasury / WATC
FINANCIAL SOLUTIONS FOR THE BENEFIT OF ALL WESTERN AUSTRALIANS
Central bank money creation has helped push up equity prices across the world.
Source: Bloomberg
FINANCIAL SOLUTIONS FOR THE BENEFIT OF ALL WESTERN AUSTRALIANS
Recent declines in the $A along with RBA rate cuts is helping to ease domestic
monetary conditions.
Source: Bloomberg
FINANCIAL SOLUTIONS FOR THE BENEFIT OF ALL WESTERN AUSTRALIANS
While a falling A$ is good for exports and trade exposed sectors, it can be a double-edged
sword.
Source: Bloomberg / WATC
FINANCIAL SOLUTIONS FOR THE BENEFIT OF ALL WESTERN AUSTRALIANS
Our current forecast is for the RBA to cut the cash rate one more time to 2.25%, with
November 2013 the most likely near term candidate.
Source: WATC / Reuters
FINANCIAL SOLUTIONS FOR THE BENEFIT OF ALL WESTERN AUSTRALIANS
Domestic rates remain low when compared to the major central banks however.
Source: Bloomberg
FINANCIAL SOLUTIONS FOR THE BENEFIT OF ALL WESTERN AUSTRALIANS
With the neutral cash rate now estimated to be around 1 percentage points lower than it was
pre-GFC long-term rates are also likely to be lower than the old norm.
Source: WATC
FINANCIAL SOLUTIONS FOR THE BENEFIT OF ALL WESTERN AUSTRALIANS