Economic Perspectives p from Global to Local What It Could Mean - - PowerPoint PPT Presentation

Economic Perspectives p from Global to Local

What It Could Mean for Your Business Your Business

PMA ANZ Newcastle Fresh PMA-ANZ Newcastle Fresh

Presentation by: Presentation by:

Dean Pearson

Head of Industry Analysis NAB Head of Industry Analysis, NAB

Friday 18th March 2011

Global Economy Global Economy

Major suppliers of global oil markets

Share markets have been extremely volatile recently Share markets have been extremely volatile recently, due to the unrest in Libya. That said, Libya ranks 18th as a producer of oil, dwarfed by Russia and Saudi Arabia. a producer of oil, dwarfed by Russia and Saudi Arabia.

3

Global Industrial Production

Global measures of economic activity for the Global measures of economic activity for the closing months of 2010 was surprisingly positive, and seems to have carried over into early 2011 and seems to have carried over into early 2011.

4

Industrial Production - Emerging versus Developed Economies versus Developed Economies

While developed economies are improving, emerging economies continue to out-perform

Industrial production: Aug 2007 = 100

economies continue to out-perform.

140 160 Developed world Emerging world 100 120 80 100 60 Dec-06 Dec-08 Dec-06 Dec-08 Dec-10

US Japan Euro area

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US Japan Euro area China India Brazil

Sources: OECD Main Economic Indicators, CEIC, NAB

China’s Economy

All i di ti th t Chi i th All indications are that Chinese economic growth remained strong through the final months of 2010.

China - Real GDP

Percentage change

China - Consumer Prices

% % 12 12 % % Year-ended 6 9 6 9 Six-month-ended-annualised growth % % 8 8 3 6 3 6 4 4 Quarterly

• 3
• 3

Monthly growth 2000 2002 2004 2006 2008 2010 Source: CEIC Database, NAB

• 6

2004 2005 2006 2007 2008 2009 2010 2011

• 6

Source: CEIC Database, NAB

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China’s Housing & Construction Sectors

Last May alone average house price (70 large cities) Last May alone, average house price (70 large cities) rose 12.4%, prompting the introduction of various measures to cool the market. But, prices still rose 6.4% in December.

• coo

e a e u , p ces s

• se 6

% ece be

China - 70-cities House Price Index

Percentage change

China - Construction Sector

Floor space sq metres 12 3 % % Year-ended (lhs) 160 90 105 Floor space, sq metres Mn Mn Monthly New buildings construction Dwelling sales* Total 8 2 Year-ended, median (lhs) 120 140 60 75 Monthly Total 4 1 80 100 30 45 3-month Residential

• 4

2005 2006 2007 2008 2009 2010

• 1

Monthly (rhs) 60 2004 2006 2008 2010 2004 2006 2008 2010 15 3 month moving average

* Includes only new dwellings (pre-sales or completed).

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Source: CEIC, NAB

Why China & India are so important y p

Industrialisation and urbanisation in China and India are following a familiar path

Relative Economic Development

GDP per capita relative to advanced economies, equivalent prices 80 80 p p q p % % Australia 60 60 Japan South Korea 20 40 20 40 China 20 1950 1960 1970 1980 1990 2000 20 India

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1950 1960 1970 1980 1990 2000

Source: Maddison database

Global Economic Forecasts

Despite the European sovereign debt crisis global growth Despite the European sovereign debt crisis, global growth will be solid in 2011, particularly in emerging markets such as China, East Asia, India & Brazil, helping the global economy as China, East Asia, India & Brazil, helping the global economy grow by over 4%.

WEIGHTS 2006 2007 2008 2009 2010 (f) 2011 (f) 2012 (f)

GDP US

0.21 2.7 2.0 0.0

• 2.6

2.9 3.2 3.3 GDP JAPAN 0.06 2.0 2.3

• 1.2
• 6.3

4.0 1.7 2.3 EURO GDP 0 152 3 1 2 7 0 3 4 0 1 7 1 5 1 8 EURO GDP 0.152 3.1 2.7 0.3

• 4.0

1.7 1.5 1.8 UK GDP 0.031 2.9 2.7 0.0

• 5.0

1.4 2.1 2.2 nonjap asia 0.042 5.6 6.0 3.2 0.5 7.0 5.5 5.0 latin american 4 0.085 5.3 5.4 4.3

• 2.1

7.4 5.6 5.3 china 0.125 12.7 14.2 9.6 9.1 10.3 9.1 8.0 0.125 12.7 14.2 9.6 9.1 10.3 9.1 8.0 canada 0.018 2.9 2.5 0.4

• 2.6

3.0 2.5 2.6 India 0.051 9.9 9.3 7.3 6.8 9.0 8.4 7.4 Africa 0.024 6.1 6.3 5.5 2.1 5.0 5.5 5.8 CIS 0.043 8.2 8.6 5.5

• 6.6

4.2 4.7 4.6 E Europe 0.035 6.7 5.7 3.0

• 3.7

4.2 3.6 4.0 Middle East 0.05 5.7 5.9 5.1 2.4 3.9 4.6 4.7 Other advanced 0.073 4.5 4.7 1.7

• 1.1

4.6 5.6 3.8 GLOBAL TOTAL 0.999

5.4 5.4 2.9

• 0.7

4.9 4.5 4.2

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Australian Economy Australian Economy

Australian Economy - The story so far

Australia’s now-20 year economic expansion is Australia s now-20 year economic expansion is without rival in our modern economic history.

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Business Confidence

Business confidence rebounded strongly in January and Business confidence rebounded strongly in January and February as the flood crisis receded. The sense of relief was strongest in Queensland was strongest in Queensland.

Business confidence (net balance)

20 20

• 20

1990s recession

• 40

Feb 08 Aug 08 Feb 09 Aug 09 Feb 10 Aug 10 Feb 11

12

Feb-08 Aug-08 Feb-09 Aug-09 Feb-10 Aug-10 Feb-11

Seasonally adjusted Trend

Business Conditions

Business conditions tumbled nationally in January pulled Business conditions tumbled nationally in January, pulled down by the severity of the Queensland floods. Conditions improved in February but remain poor improved in February but remain poor.

Business conditions components (net bal. s.a.)

40 Trading Profitability Employment 20 Trading Profitability Employment

• 20
• 40

1990s recession

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Feb-08 Aug-08 Feb-09 Aug-09 Feb-10 Aug-10 Feb-11

Business Conditions by State

WA still strong; Qld and Tas disappoint Conditions fell WA still strong; Qld and Tas disappoint. Conditions fell heavily in Queensland, and also in Tasmania, Victoria, SA and WA but rose modestly in NSW SA and WA, but rose modestly in NSW.

40 40 40

20 20 20 40

• 20

40

• 20
• 40
• 20
• 40

Feb-09 Aug-09 Feb-10 Aug-10 Feb-11

• 40

Feb-09 Aug-09 Feb-10 Aug-10 Feb-11

• 40

Feb-09 Aug-09 Feb-10 Aug-10 Feb-11

Australia NSW VIC Australia QLD WA Australia SA TAS

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Flood impacts in Queensland

Confidence plummets in Queensland and then bounces back to new record highs. But, sales & profits still under pressure and conditions have been weak in Qld for all of 2010.

Business Confidence Capacity Utilisation Business Conditions

20 20

84

20 20 80 82

• 20
• 20

6 78

• 40

Feb-09 Aug-09 Feb-10 Aug-10 Feb-11

• 40

Feb-09 Aug-09 Feb-10 Aug-10 Feb-11 74 76 Feb-09 Aug-09 Feb-10 Aug-10 Feb-11

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Australia Queensland Australia Queensland Australia Queensland

Impact of the Floods - Recovery Phase

Important to understand that not just Qld affected Important to understand that not just Qld affected. Across Australia 10% of moderate-large firms reported a major disruption (30% in Qld) major disruption (30% in Qld).

Change associated with the floods (per cent)

Extent that your losses will be covered by Insurance

VIC NSW

1-25% None at all

QLD VIC

51 75% 26-50%

WA SA

76-100% 51-75%

• 14
• 12
• 10
• 8
• 6
• 4
• 2

Revenue Capacity utilisation

0% 10% 20% 30% 40% Don’t know

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Labour Costs

O l t t b i h th t l b t Our latest business survey shows that labour costs have continued to increase, but there are signs that the th t b ki growth rate may be peaking.

Costs & prices (3-mth ave, % p.a.)

8 Labour costs (% p.a.) 4 6 8 & capacity utilisation (%) 5 6 83 85 2 4 3 4 79 81 83

• 2

1 2 77 79

• 4

Feb-08 Aug-08 Feb-09 Aug-09 Feb-10 Aug-10 Feb-11 Labour Product price Retail price Feb-09 Aug-09 Feb-10 Aug-10 Feb-11 Aug-11 Feb-12 75 Labour costs (LHS) Cap U 12 mths ahead (RHS)

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Unemployment

Unemployment stabilises as employment slows But to Unemployment stabilises as employment slows. But to strengthen from late 2011 with unemployment to move down in 2012 to 4 ½% Wages currently under control but test down in 2012 to 4 ½%. Wages currently under control but test to come later.

Australian labour market

3 4 6 0 6.5 2 3 5.5 6.0 1 4.5 5.0

• 1

Dec-2006 Jun-2008 Dec-2009 Jun-2011 Dec-2012 4.0 E l t (12 th t LHS)

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Employment (12-mths-to, LHS) Unemployment rate (%, RHS)

Population growth and interstate migration

This chart highlights some big disparities between This chart highlights some big disparities between unemployment both within and across Australian regions regions.

Annual National Population Growth Annual Net Interstate Migration

350000 400000 450000 500000 40000 40000 % Qld Flow of persons Flow of persons 200000 250000 300000 350000 20000 20000 Vic WA 50000 100000 150000

• 40000
• 20000
• 40000
• 20000

NSW SA 1 9 8 2 1 9 8 4 1 9 8 6 1 9 8 8 1 9 9 1 9 9 2 1 9 9 4 1 9 9 6 1 9 9 8 2 2 2 2 4 2 6 2 8 2 1 Net Births Net Migration

Source: ABS, NAB Group Economics

• 60000

1982 1987 1993 1999 2005 2010 1987 1993 1999 2004 2010

• 60000

Source: ABS, NAB Group Economics 19

House prices and expectations

Consumer caution also evident in housing markets. A Consumer caution also evident in housing markets. A significant drop back in house price expectations. Small prices increases in Adelaide, Canberra and Sydney, expected p , y y, p to be offset by declines in Brisbane, Melbourne and Perth.

NAB Residential Property Index (next 12 months) House Price Expectations (next 12 months)

%

NAB Residential Property Index (next 12 months)

50 60 70 Jun-10 Sep-10 Dec-10

5.0 6.0 7.0 Mar-10 Jun-10 Sep-10 Dec-10

%

30 40 50

2.0 3.0 4.0

10 20

• 1.0

0.0 1.0

Vic/Tas NSW/ACT SA/NT Residential Property Index WA QLD

• 2.0

ADEL CAN SYD PER AUS MEL BRIS

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Source: NAB Quarterly Australian Residential Property Survey

Australia’s Terms of Trade

As well as the rebuild process Australian economy will As well as the rebuild process, Australian economy will still be boosted by strong terms of trade with coal & iron prices riding Chinese steel output prices riding Chinese steel output.

Energy & iron ore prices $US Index Sep qtr 2007 = 100.0 300 200 100 Dec-03 Dec-06 Dec-09 Oil Th l l

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Oil Thermal coal Iron ore Metal coal Sources: Datastream, NAB forecasts

Financial markets - Interest Rates

Cash rate to rise to 5 25% by late 2011 Cash rate to rise to 5.25% by late 2011.

Cash rate (end of quarter)

RBA h ith t f

8 Cash rate (end of quarter) (% p.a.)

RBA happy with rates for now. But, post flood rebuilding + b ill d i

6

resources boom will drive unemployment lower hence adding to wages pressures. Also more l d l b ll

4

relaxed globally. That suggests another 50 points of tightening We ha e tentati el p t

2

• tightening. We have tentatively put

it in August and November. We don’t see the need to go further

Dec-06 Dec-08 Dec-10 Dec-12 Actual Forecast

We don’t see the need to go further and hence our peak rate is 5¼%.

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Actual Forecast

Source: ABS, NAB forecasts

Financial markets - Currency

$A to test $US1 05 by mid 2011 then back to 90c by late $A to test $US1.05 by mid-2011, then back to 90c by late

• 2012. Recent strength in the A$ really reflects weakness

in the US$ in the US$.

Exchange rates Exchange rate (end of quarter) ($US/$A) 1.1 1.5

1.0 1.1

1.0 1.4

0 8 0.9

0.9 1.3

0.7 0.8

0.8

Apr-10 Jul-10 Sep-10 Dec-10

1.2

0.6

Dec-06 Dec-08 Dec-10 Dec-12 Actual Forecast

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USD per AUD (LHS) USD per EUR (RHS)

Source: RBA

Actual Forecast Sources: ABS, NAB forecasts

Australia’s GDP Profile

Th b lk f th fl d i t f ll i Q1 GDP 2 6% i The bulk of the flood impact falls in Q1. GDP now 2.6% in 2010, declining to 2.5% in 2011 and 3.7% in 2012.

Real Output/Expenditure (GDP) - Quarterly

Quarte rly GDP 4 per. Mov. Avg.

2.0% 1.0% 0.0%

• 1.0%

Jun-01 Jun-03 Jun-05 Jun-07 Jun-09 Jun-11

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Industry Conditions Industry Conditions

Industry Share of State Production

When comparing conditions across states important to When comparing conditions across states, important to review the contribution of industry sectors to each economy! eco o y

Business Conditions by Industry Sector

Industry conditions provide stark evidence of a two-speed Australian economy, with conditions strongest in mining and ti d k t i t il f t i h l l recreation and weakest in retail, manufacturing, wholesale and construction.

25 50 25 50 25 50 25 25 25 25 25

• 50
• 25

Feb-09 Aug-09 Feb-10 Aug-10 Feb-11

• 50
• 25

Feb-09 Aug-09 Feb-10 Aug-10 Feb-11 -50

• 25

Feb 09 Aug 09 Feb 10 Aug 10 Feb 11

Mining Manuf Constn Retail Wsale Transp

Feb-09 Aug-09 Feb-10 Aug-10 Feb-11

Fin, bus, prop Rec, pers

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Business Conditions - Cyclical Sectors

Retail well below industry average Consumers are more Retail well below industry average. Consumers are more

• cautious. Will be impacted by floods. Saving ratio has

moved up significantly.

• ed up s g

ca y

Household saving ratio (% of household income)

Business conditions (net balance trend)

10 12 14

Business conditions (net balance, trend) 20 40

4 6 8

20

• 2

2

• 20
• 4

Sep-98 Sep-00 Sep-02 Sep-04 Sep-06 Sep-08 Sep-10

Trend Seasonally adjusted

• 40

Feb-09 Aug-09 Feb-10 Aug-10 Feb-11 Retail Manuf Constn All

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Trend Seasonally adjusted

Source: ABS

eta a u Co st

Retailing by Sector

R t ili diti i k th l l Retailing conditions remain weaker than year ago levels. All segments of retailing struggled. The biggest falls have been suffered by restaurants clothing retailers and have been suffered by restaurants, clothing retailers and department stores.

Business conditions (net balance, n.s.a.) 60 80 Business conditions (net balance, n.s.a.) 60 80 20 40 60 20 40 60

• 40
• 20
• 40
• 20
• 60

Feb-09 Aug-09 Feb-10 Aug-10 Feb-11

Total Food Pers & Hhold

• 60

Feb-09 Aug-09 Feb-10 Aug-10 Feb-11

Total Cars Other

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SME conditions by industry

Accommodation transport finance b siness ser ices Accommodation, transport, finance, business services and finance very strong; property, retail and wholesale the weakest the weakest.

Business Conditions - Dec Quarter 2010

50

SME Cash Flow & Business Conditions - December Quarter 2010

60 30 40

e

Business Survey SME Survey 30 40 50 60 Conditions Cash Flow 10 20

N et B a lan ce

10 10 20

N e t B a la n ce

• 20
• 10

A ll M inin g cturin g uctio n R etail lesa le po rt & age n ce & rance sine ss rvices

• perty

rvice s cafe s st. H e alth

N.A N.A

• 30
• 20
• 10

A ll u rin g ctio n R e tail e sa le

• rt &

g e n ce & a n ce n e ss vice s p e rty vice s ca fe s t. e a lth M M anu fa c C onstr W ho T ran sp stor F ina insu B u s ser P ro se A ccom ., & res H M a nu fa ct C o n stru R W h o le T ra n sp sto ra F in a n in su r B u si se rv P ro se rv A cco m ., c & re s H

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Important information p

DISCLAIMER “[Whil h b t k i i thi t i l ] N ti l DISCLAIMER: “[While care has been taken in preparing this material,] National Australia Bank Limited (ABN 12 004 044 937) does not warrant or represent that the information, recommendations, opinions or conclusions contained in this document (“Information”) are accurate, reliable, complete or current. The Information has been prepared for dissemination to professional investors for information purposes only prepared for dissemination to professional investors for information purposes only and any statements as to past performance do not represent future performance. The Information does not purport to contain all matters relevant to any particular investment or financial instrument and all statements as to future matters are not guaranteed to be accurate. In all cases, anyone proposing to rely on or use the Information should independently verify and check the accuracy, completeness, reliability and suitability of the Information and should obtain independent and specific advice from appropriate professionals or experts. To the extent permissible by law, the National shall not be liable for any errors, To the extent permissible by law, the National shall not be liable for any errors,

• missions, defects or misrepresentations in the Information or for any loss or damage

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Thank-You

A presentation by NAB Economics p y