Download Craig James 1 July 2011

The Australian & Global Economy
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Craig James
Chief Economist, CommSec, July 2011
Important information
This presentation has been prepared without taking account of the
objectives, financial situation or needs of any particular individual.
Before acting on the information in this seminar, you should consider its
appropriateness to your circumstances and, if necessary, seek
appropriate professional advice.
Commonwealth Securities Limited ABN 60 067 254 399
AFSL 238814 (CommSec) is a wholly owned but non-guaranteed
subsidiary of Commonwealth Bank of Australia ABN 48 123 123 124
and a Participant of the ASX Group.
Examples used in this presentation are for illustrative purposes only.
The Big Picture
 Global economy growing…
Emerging nations lead the way…
Global economy
Drivers of world economy Contribution to growth 2011
China
0.81%
United States
0.74%
India
0.18%
Japan
0.14%
Newly Industrialised Asia*
0.13%
Germany
0.13%
ASEAN 5 #
0.12%
Brazil
0.11%
Russia
0.10%
United Kingdom
0.08%
France
0.07%
Canada
0.05%
Other countries
1.70%
World
4.30%
Source: IMF & CommSec
* Newly industrialised Asia – Hong Kong, Taiwan, Singapore
and South Korea
# ASEAN 5 – Indonesia, Malaysia, Thailand, Philippines and
Vietnam
So What?
Exchange rates, trade,
sharemarket, interest rates
Ascent of China
China awakes
 Land of 1.3 billion people industrialises…
Major resource demands…
www.thenewmans.id.au
Australian focus is trade
 Three-quarters of exports to Asia…
But driven by China and India…
China industrialises
 China is our number 1 trading partner…
Huge gains, potential to grow further…
Demand for Aussie Raw Materials
Commodity price perspectives
 Commodity prices hit 100-year low in 2002….
and then came China…Australia is a key winner
Mining boom
Not just mining
So What?
Interest rates, investment,
economic policy
Drivers of the Australian economy
2007 – 2010, % contribution to the change in GDP
Mining
17.4%
Professional, scientific and technical services
11.9%
Construction
11.6%
Financial and insurance services
10.8%
Agriculture, forestry and fishing
10.8%
Healthcare and social assistance
9.7%
Education and training
5.1%
Public administration and safety
5.1%
Transport, postal and warehousing
3.8%
Wholesale trade
3.5%
Source: ABS & CommSec
Big Picture
 Economy slides due to floods
…but underlying position is soft…
Conservative Consumers
 Consumers remain cautious…
…and more inclined to save
Housing
 Building approvals flat…
…and house prices fall for four months
Tight job market
 Unemployment remains low…
…wages up, especially in the mining sector
Interest rates
 Cash rate still below average…
…but what matters are lending rates…
Inflation
 Headline inflation boosted by petrol, fruit & veg…
…but underlying rate held down by discounting
Reserve Bank views
 Underlying inflation contained…
…but RBA expects stronger growth ahead
RBA Output & Inflation Forecasts
GDP - Nov 10
GDP - Feb 11
GDP - May 11
Underlying CPI - Nov 10
Underlying CPI - Feb 11
Underlying CPI - May 11
Source: Reserve Bank, CommSec
Dec 10
Jun 11
Dec 11
Jun 12
3.50
2.75
2.70
2.50
2.25
2.25
3.50
3.25
2.50
2.50
2.25
2.50
3.75
4.25
4.25
2.75
2.75
3.00
3.75
3.75
4.25
2.75
2.75
3.00
Dec 12
Jun 13
Dec 13
4.00
4.00
3.75
3.00
3.00
3.00
4.00
4.00
3.75
3.00
3.00
3.00
3.75
3.25
Aussie dollar
 High Aussie dollar keeping inflation down…
…as well as keeping a cap on growth…
Outlook & Issues
 European debt
 US economic recovery
 China expansion
 Carbon tax
 Mining Tax
 Structural change
 ‘New conservatism’
CommSec forecasts
Forecasts
Economic growth
2.40% in 2010/11
4.10% in 2011/12
Inflation
3.10% in 2010/11
3.10% in 2011/12
Unemployment
4.50-4.75%, end 2011
4.25-4.50%, end 2012
Cash rate
5.00-5.25%, end 2011
5.50-5.75%, end 2012
Sharemarket
(Australian)
5,000 points, end 2011
5,500 points, end 2012
Australian dollar
US104c in Dec 2011
US95c in December 2012
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