Transcript Pitchbook US template

GLOBAL AND AUSTRALIAN ECONOMIC OUTLOOK
The price of dodging recession ... RBA spinning its wheels on policy ... AUD to keep climbing ... political risks now acute
STRICTLY PRIVATE AND CONFIDENTIAL
February 2012
Stephen Walters
Chief Economist
[email protected]
61-2-9220 1599
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Global economy – summary points
A sluggish growth performance in 2012 – global GDP growth just 2.2%
Developed markets to grow just 1.2% in CY ’12
Emerging markets to grow 4.8%
Disparate performances across borders
US economy to grow 2.3%, Europe in recession, Japan’s growth barely above 1%
China’s growth to slow to 8.4% - low point for growth = 7.2% in Q1, but bouncing to 10% by year-end
Global inflation pressure to ease
GLOBAL AND AUSTRALIAN ECONOMIC OUTLOOK
Building slack in labour and product markets to dampen price pressure
Policy-makers running out of options
Major central bank policy rates already at the lower bound – only unconventional policy options remain
EM central banks to ease policy modestly
Huge fiscal adjustments lie ahead in Europe (Greece!) and the US – Japan’s fiscal time bomb keeps ticking
AUD among the better performers
USD to weaken towards year-end AUD to reach 1.10 in 3Q. Risk of EU break up to weigh on euro
1
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Global forecasts – double dip recession avoided
Global GDP growth - % over year
% change, saar
JPMorgan
forecasts
6
4
2
GLOBAL AND AUSTRALIAN ECONOMIC OUTLOOK
0
-2
-4
-6
-8
04
05
06
07
08
Source: J.P.Morgan.
2
09
10
11
12
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Global forecasts – from JPMorgan economists
GLOBAL AND AUSTRALIAN ECONOMIC OUTLOOK
GDP growth – major economies and zones - % over year
2011
2012
2013
Last move?
China
9.2
8.4
9.1
India
7.0
7.3
8.0


Asia ex. Japan
7.1
6.4
7.2

New Zealand
1.7
2.5
2.9

Australia
1.9
3.1
3.2
Latin America
4.3
3.4
4.2


Emerging Europe
4.6
2.7
3.5

Canada
2.3
2.2
2.5

Japan
-0.9
1.3
1.3

United States
1.7
2.3
2.2

United Kingdom
0.9
0.6
1.9

Euro-area
1.5
-0.4
0.3

Australia's export partners
6.4
4.4
4.5

Developed economies
1.3
1.2
1.5

Emerging economies
5.8
4.8
5.7

World
2.6
2.2
2.6

Source: J.P.Morgan.
3
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Global forecasts – quarterly profiles – China rebound stands out!
Global GDP growth - % saar
GLOBAL AND AUSTRALIAN ECONOMIC OUTLOOK
2011
2012
Q3
Actual
Q4
Estimate
Q1
Forecast
Q2
Forecast
Q3
Forecast
Q4
Forecast
US
1.8
2.8
2.0
2.5
3.0
2.0
Europe
0.5
-1.0
0.0
-1.5
-0.3
0.3
Japan
5.6
-0.6
1.8
1.0
1.2
1.2
China
7.9
9.2
7.2
7.8
9.5
10.0
Asia ex-Japan
6.3
5.5
6.1
6.7
7.4
7.8
Developed world
2.1
0.8
0.6
0.7
1.6
1.3
Emerging world
4.9
4.4
4.5
5.4
5.6
6.3
Australia
3.9
1.8
2.8
2.9
3.5
3.7
Global
2.9
1.7
2.1
1.9
2.7
2.6
Low points for global growth
Europe's recession intensifies
Global growth accelerates H1
Japan's economy contracted
China's growth back to 10%
Source: J.P.Morgan.
4
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Main risks – offshore troubles … European problem merely kicked down the road
European GDP
Index, 1Q08=100
105
Germany
100
Portugal
GLOBAL AND AUSTRALIAN ECONOMIC OUTLOOK
95
90
Greece
85
80
2008
Spain
Italy
2009
2010
Source: J.P.Morgan.
5
2011
2012
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Global economy – improvement in H2 ‘12
Manufacturing PMIs – US outperforming, PIIGS lagging
Global demand and supply
%oya
15
%oya
60
PMI (rhs)
10
United States
India
Canada
Russia
World
Turkey
Poland
Australia
Czech Republic
United Kingdom
Brazil
Japan
China
Germany
Hungary
France
Austria
Ireland
Netherlands
Eurozone
South Korea
Taiwan
Italy
Spain
Greece
55
5
50
0
IP (lhs)
-5
45
40
-10
35
-15
-20
Manufacturing Output, sa, 50 = no change
00
02
04
06
08
30
10
AUSTRALIAN ECONOMIC AND MARKET OUTLOOK
Source:
Major central bank balance sheets
July 1, 2008 = 100
350
Fed
250
BoE
ECB
150
BoJ
50
Jul 08
Dec 08
Jul 09
Dec 09
Jul 10
Dec 10
Jul 11
35
Dec 11
Source: J.P.Morgan
Source: J.P.Morgan. Central banks.
26
40
45
50
55
60
65
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Aussie economy – summary points
Economy to grow at “trend-like” pace in 2012 and 2013 …
… but appearance of decent growth masks disparate performance across industries and regions
Macroeconomic themes for 2012:
Consumers will continue to de-lever – hurt by rising joblessness, falling wealth and negative news-flow
Multi-speed nature of economy will become worse – mining states to do well, rust-belts to underperform
Mining investment boom to continue – corporate sector leading the way
Bank funding pressure to continue on fall-out from sovereign stresses in Europe
GLOBAL AND AUSTRALIAN ECONOMIC OUTLOOK
Australia one of few countries to avoid recession in 2008-09
Massive fiscal boost from spooked government, aggressive RBA rate cuts and plunge in AUD helped …
… as did huge fiscal stimulus in China, which lifted demand for commodities
But good fortune left us vulnerable to shocks … we did not undergo adjustments seen elsewhere
Household debt still among the highest in the world, and house prices are high
Corporate debt is low and Aussie banks are in good shape … but we now have less policy flexibility
Policy – less flexibility than before
RBA to nudge the cash rate lower, mainly on offshore concerns
Government implausibly promising a return to Budget surplus in 2012-13
6
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Aussie economy – expected GDP growth
Australia – real GDP growth and contributions to GDP
Annual change (%)
2007
2008
2009
2010
2011(e)
2012(f)
2013(f)
Household spending
5.6
1.9
1.0
2.9
3.5
2.5
2.6
Government consumption
3.3
3.7
0.7
3.4
1.6
1.5
1.5
14.9
9.4
-4.7
-1.3
16.9
14.1
10.4
Government investment
3.6
19.0
1.0
26.7
-6.9
-1.5
4.8
Dwelling investment
2.0
2.7
-4.4
4.2
-1.6
2.7
2.3
Change in inventories (cont.)
0.8
-0.3
-0.8
0.4
0.3
-0.2
-0.1
Exports
3.2
3.8
2.1
5.8
-2.0
4.9
4.9
Imports
12.6
11.2
-8.6
14.1
11.1
7.6
7.4
Net Exports (cont.)
-1.6
-1.4
2.2
-1.5
-2.7
-0.8
-0.8
GDP
4.7
2.5
1.4
2.6
1.9
3.1
3.2
GLOBAL AND AUSTRALIAN ECONOMIC OUTLOOK
Business investment
Source: ABS. J.P.Morgan.
7
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Aussie economy – GDP growth – quarterly profile
GFC and floods dented Aussie GDP
%, q/q
2.0
J.P. Morgan forecasts
1.5
1.0
GLOBAL AND AUSTRALIAN ECONOMIC OUTLOOK
0.5
0.0
-0.5
GFC
-1.0
2006
2007
2008
Floods
2009
2010
Source: ABS. J.P.Morgan.
8
2011
2012
2013
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An economic history lesson – four factors that helped us dodge recession post-GFC
“Reckless” fiscal stimulus from our spooked government
Bold action from RBA – change in cash rate target (bp)
0
Fall in Budget balance relative to fall in GDP (peak to trough)
Nov '11-
-100
10
-200
8
Feb '01 Dec '01
-300
6
Jul '96 Dec '98
-400
-500
1991-93
1972-73
2
1975-76
1983-84
0
Source: RBA.
GLOBAL AND AUSTRALIAN ECONOMIC OUTLOOK
2001-02
4
Sep '08
- Apr '09
2009-10
A 5.9% (of GDP) deterioration in Budget
balance for a 0.7% fall in GDP!
Source: MYEFO.
… and a huge fiscal stimulus from China
AUD plunged as investors pulled in risk
RMB bn
1.1
Fiscal balance (lhs)
200
1.0
0.9
0.8
0.7
0.6
0
0.0
-200
-0.5
-400
-1.0
-600
-1.5
0.5
-800
0.4
-1000
95
97
99
01
03
05
07
09
11
-1200
Source: J.P.Morgan
-2.0
Fiscal balance
as % of GDP (rhs)
1997
1999
Source: J.P.Morgan.
9
0.5
2001
2003
2005
2007
-2.5
2009
-3.0
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The benefits: avoiding recession meant disruption was minimized
… so house prices enjoyed a soft landing … so far
Jobless rate stayed low …
% oya
40
30
20
10
0
-10
GLOBAL AND AUSTRALIAN ECONOMIC OUTLOOK
Source: ABS.
88
03
08
Government debt still low (at least in relative terms)
$ billion
25
20
15
10
00
98
Source: ABS.
Aussie banks in good shape – profits of the “Big 4”
5
93
02
04
06
08
10
Source: OECD.
Source: J.P.Morgan.
10
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The cost: we weren’t forced to undergo adjustment … so …
… our productivity has slipped below OECD average …
… household debt remains very high …
%oya
4
Sweden = 154%
UK = 152%
Canada = 142%
US = 130%
Japan = 120%
France = 98%
Germany = 95%
3
2
OECD average
1
0
-1
-2
-3
2006
GLOBAL AND AUSTRALIAN ECONOMIC OUTLOOK
Source: RBA.
2007
5.0
4.5
Average last decade = 4.1 times
3.5
3.0
2.5
93
Source: RBA.
2010
2011
Productivity performance under various governments
House price to income ratio
2.0
2009
Source:. ABS., OECD, J.P.Morgan.
… and the housing market remains expensive
4.0
2008
95
97
99
01
03
05
07
09
11
Source:. ABS., J.P.Morgan.
11
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… and we have less policy flexibility than before
… and government has donned a fiscal straight-jacket
RBA has “only” 425bp to work with …
% of GDP
Percent per annum, end of period
8
Government
forecasts
2
7
0
6
-2
5
-4
4
3
-6
71
2
GLOBAL AND AUSTRALIAN ECONOMIC OUTLOOK
96
Source: RBA.
98
00
02
04
06
08
85
90
95
00
05
10
Government promising largest fiscal improvement ever!
Change in budget balance, % of GDP
3.0
Percent
12
Small business rate
Standard variable home loan rate
2.5
2.0
8
1.5
6
Deposit rate
4
2
80
Source: MYEFO.
RBA spinning its wheels on policy?
10
76
10
1.0
0.5
Cash rate
00
02
04
06
08
10
0.0
12
'74
Source: AOFM.
Source: RBA, J.P.Morgan.
12
'87
'88
'89
'95
'98
'00
'03
'13(f)
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Outlook: themes for 2012 – No. 1: Australia’s investment boom to continue
Value of investment in the pipeline – mining and non-mining
Value of pipeline now exceeds A$900 billion
$ billion
950
850
Up 72%
Possible
750
650
Under
consideration
550
Down 32%
450
2008
2009
2010
2011
GLOBAL AND AUSTRALIAN ECONOMIC OUTLOOK
Source: Access Economics, J.P.Morgan.
Up 15%
Committed
Value of investment by industry
$ billion
Up 51%
Mining
450
400
Under
construction
350
300
Infrastructure
250
0
50
100
150
200
250
300
350
200
150
Other
100
$ billion
50
0
Source: Access Economics, J.P.Morgan.
2005
2006
2007
2008
Source: Access Economics, J.P.Morgan.
13
2009
2010
2011
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Outlook: themes for 2012 – investment boom (cont.)
Much of the mining investment spending aimed at supplying China
% of total exports
35
China
30
25
Japan
GLOBAL AND AUSTRALIAN ECONOMIC OUTLOOK
20
15
Korea
10
5
0
India
2007
2008
2009
Source: ABS, J.P.Morgan.
14
2010
EU27
2011
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Themes for 2012 – No. 3: high AUD exacerbating the multi-speed economy
State performance – miners v. the rust belt
Consumers/dwellings v. capex and exports
% oya
12
Real final demand, %oya
20
Private investment plus exports
9
15
6
3
10
0
-3
-6
5
Consumer spending plus dwellings
02
04
06
08
10
0
12
GLOBAL AND AUSTRALIAN ECONOMIC OUTLOOK
Source: ABS, J.P.Morgan.
NSW
Vic
Qld
SA
Tas
Source:. ABS. J.P.Morgan.
Manufacturing industry – share of GDP
Mining employment v. other sectors
%
% of total
% of total
2.5
18
13
Retail
16
12
2.0
14
11
12
1.5
10
10
Mining (lhs)
1.0
8
6
WA
74
79
84
89
94
99
04
09
9
Manufacturing
0.5
8
00
Source: ABS, J.P.Morgan.
Source: ABS.
15
02
04
06
08
10
12
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Themes for 2012 – No. 4: Corporate sector in decent shape
Company profits – still close to record highs
A$ 000's
60
50
40
30
20
10
GLOBAL AND AUSTRALIAN ECONOMIC OUTLOOK
0
94
96
98
00
02
04
06
08
10
12
Bank credit growth to business
Source: ABS.
% change, 6 months
20
* Listed sector gearing ratio now
less than 50% (was over 100% in
late 1980s)
15
10
5
0
-5
78
Source: RBA
16
83
88
93
98
03
08
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Themes for 2012 – No. 5: Bank funding stresses – conservatism by lenders
Aussie “bank” 5 year CDS spread
Economy-wide credit growth to be held to single digits
Basis points
250
% oya
25
200
20
150
15
10
100
5
50
0
0
2007
2008
2009
2010
2011
-5
2012
Source: Bloomberg, J.P.Morgan.
GLOBAL AND AUSTRALIAN ECONOMIC OUTLOOK
Long term average = 12.3%
78
83
88
93
98
Source: RBA, J.P.Morgan.
Funding composition of Aussie banks – more stable mix now
Domestic
deposits
Short term debt Long term debt
Securitization
Equity
2004
2005
2006
2007
2008
2009
2010
2011
45
42
39
39
41
47
48
50
30
31
31
34
31
24
22
20
14
16
18
17
17
20
21
20
5
6
7
6
6
4
3
3
7
6
6
6
6
7
7
8
Change since 2007
11
-14
3
-4
2
Source: APRA, RBA.
17
03
08
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Themes for 2012 – No. 2: Cautious households
Household wealth and savings rate
Ratio to income (inverted)
4
% of income
12
Wealth (lhs, inverted)
9
GLOBAL AND AUSTRALIAN ECONOMIC OUTLOOK
5
Savings rate (rhs)
6
6
3
7
0
8
-3
89
94
99
Source: ABS, RBA, J.P.Morgan.
18
04
09
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Themes for 2012 – Cautious households (cont.)
Employment has stalled … but hours worked rising
mn
000's
11500
1650
Employment (lhs)
1600
11000
1550
Hours (rhs)
1500
10500
… but equity portfolios under pressure
1450
Index
10000
2006
2007
2008
2009
2010
2011
2012
1400
2013
6500
S&P 500 (rhs)
5800
GLOBAL AND AUSTRALIAN ECONOMIC OUTLOOK
Household balance sheets in decent shape …
Relative to income
800
Total assets
700
5100
1200
4400
1000
3700
800
3000
2008
600
600
2009
500
400
Financial assets
300
Source: Bloomberg , J.P.Morgan.
200
100
0
Debt
89
94
99
04
09
Source: RBA.
19
1400
ASX200 (lhs)
Source: ABS.
Index
1600
2010
2011
2012
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Main risks – a harder landing for Aussie housing … unlikely
House prices – largest states
$ 000s
500
WA
Housing starts – still not building enough homes
450
'000s - annual rate
200
400
NSW
180
350
160
140
GLOBAL AND AUSTRALIAN ECONOMIC OUTLOOK
Victoria
300
120
100
Queensland
Average since 1985
85
90
95
00
05
250
10
200
Source: ABS, J.P.Morgan.
Tasmania
150
100
00
02
50
Source: RP Data, J.P.Morgan.
21
04
06
08
10
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Inflation outlook – disinflation period now behind us?
Headline and core to fall … but then the carbon tax!
%oya
5
J.P. Morgan forecasts
Headline
4
GLOBAL AND AUSTRALIAN ECONOMIC OUTLOOK
3
2
1
Core
03
05
07
Source: ABS, J.P.Morgan.
22
09
11
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RBA policy decisions influenced by bank funding, high AUD and global risks
Anxious RBA officials cut cash rate twice late last year … largely on offshore concerns
RBA eased on escalating global risks … despite decent domestic growth outlook
Factors pushing the RBA towards trimming cash rate (and maintaining easing bias for now)
Higher bank funding costs causing bank mortgage rates to decouple from cash rate
AUD close to cycle-highs against USD and at record highs v. euro – monetary conditions tightening
Offshore risks still prominent – Greece, China housing, financial market stresses
GLOBAL AND AUSTRALIAN ECONOMIC OUTLOOK
Federal government promising the largest fiscal tightening in Australia’s economic history
Issues arguing against further rate cuts
RBA officials forecasting trend-like growth and well-behaved inflation
Inflation to fall near term, but carbon tax to trigger sharp price rises from Q3
Global growth to improve in H2 – growth in China to be 10% by Q4
On balance … probably only one more rate cut from the RBA … most likely in May
Risk is that RBA easing cycle is over …
… next move in the cash rate could be a hike!
23
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Popular AUD to keep climbing … official demand growing larger
Forecast table – AUD v. majors
End of:
Current
March
June
September
December
1.076
85.73
0.817
0.679
1.28
1.06
80.56
0.82
0.68
1.33
1.08
82.08
0.81
0.69
1.32
1.10
1.08
77.76
0.78
0.68
1.32
AUD v.
USD
Yen
Euro
GBP
NZD
79.20
0.80
0.69
1.34
GLOBAL AND AUSTRALIAN ECONOMIC OUTLOOK
Source: J.P.Morgan.
High AUD supported by M&A traffic …
… and insatiable offshore demand for Aussie bonds
45
Percent of total outstanding
Country as target (inflow)
30
15
18
0
-15
-3
14
-3
-21
31
25
5
-2
-17
2
-1
4
-5
3
-7
13
-18
New record high
80
Country as acquirer (outflow)
41
16
0
-6
-42
-31
70
2
60
-25
50
40
-30
30
-45
20
10
Source: J.P.Morgan.
89
Source: AOFM.
24
94
99
04
09
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Politics/policy - status
Ruling ALP looks likely to topple another Prime Minister
… and return to the “assassinated” Kevin Rudd
Coalition likely to win next election, which is not due until August 2013
One hope for ALP is that Rudd can win early election during “honeymoon” period
Status of major policy initiatives
Carbon tax – set to launch on July 1, with compensation paid beforehand … (Rudd likely to delay start date)
Mining tax – has passed Lower House, and likely to get through Upper House too – (Rudd would stick with tax)
GLOBAL AND AUSTRALIAN ECONOMIC OUTLOOK
Asylum seekers – in disarray – record number of boat arrivals … (Rudd would change this too)
Health insurance rebate – passed Lower House and likely to pass upper house
Budget - fiscal policy
Government promises a return to surplus in 2012-13
Coalition also promises return to surplus … but agnostic about the timing
State politics – tide has turned against Labor governments
NSW, Victoria and WA recently swung to the Coalition … Queensland will in March
South Australia and Tasmania likely to remain under control of ALP … for now
25
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Aussie forecast details
Australia – macroeconomic forecasts
Australia: economic projections percentage change over previous period, seasonally adjusted annual rates, unless stated
2011
2013
2012
3.1
2.5
10.9
10.9
-1.5
2013
3.2
2.6
5.6
15.0
4.8
Q2
5.7
4.2
-5.3
11.0
-6.2
Q3
3.9
4.8
50.6
28.2
-24.0
Q4
1.8
2.8
1.3
12.7
9.2
Q1
2.8
1.2
8.9
8.6
3.3
Q2
2.9
1.6
8.8
4.2
-6.0
Q3
3.5
2.4
8.9
8.6
5.4
Q4
3.7
3.2
11.0
8.6
6.1
Q1
3.3
2.8
3.7
8.2
25.4
Q2
3.2
2.8
4.2
27.0
-8.0
Q3
2.1
2.0
2.2
27.0
-12.1
Q4
2.8
2.0
-0.7
27.0
14.0
Government consumption
Exports of goods & services
Imports of goods & services
Contributions to GDP growth:
Inventories
Net trade
1.6
-2.0
11.1
1.5
4.9
7.6
1.5
4.9
7.4
3.8
12.0
14.8
-4.6
8.1
18.2
2.0
4.1
6.1
1.2
4.1
5.7
2.8
4.9
4.1
4.8
2.0
6.1
0.8
4.1
6.6
1.0
4.1
8.2
-0.7
8.2
8.2
2.2
6.1
8.2
2.7
4.9
8.2
0.4
-2.7
0.0
-0.8
-0.1
-0.8
3.1
-0.9
-3.4
-2.3
1.3
-0.6
0.2
-0.5
0.1
0.0
-0.1
-1.0
-0.3
-0.7
0.1
-1.1
0.0
-0.4
-0.2
-0.8
-0.4
-1.0
GDP deflator (%oya)
Consumer prices (%oya)
Producer prices (%oya)
Trade balance (A$ bil, sa)
Current account (A$ bil, sa)
as % of GDP
3m eurodeposit rate (%)*
4.3
3.6
3.6
-6.8
-51.4
-4.1
6.0
2.9
2.7
2.8
21.6
-38.4
-2.5
3.9
2.5
2.6
4.0
10.4
-49.6
-3.1
4.0
4.0
3.6
3.6
8.3
-6.7
-1.9
5.0
3.5
2.3
3.4
9.5
-5.6
-1.5
4.8
3.7
3.1
3.4
7.7
-7.1
-1.9
4.5
3.5
2.4
1.8
7.0
-8.0
-2.1
3.7
2.7
2.1
1.9
6.2
-8.8
-2.3
3.9
2.8
2.9
3.4
4.6
-10.4
-2.7
4.0
2.7
3.5
4.0
3.8
-11.2
-2.9
4.0
2.6
2.9
4.0
2.8
-12.2
-3.1
4.0
2.6
3.0
4.0
2.9
-12.1
-3.0
4.0
2.5
2.3
4.0
2.4
-12.6
-3.1
4.0
2.5
2.4
4.0
2.3
-12.7
-3.1
4.0
10-year bond yield (%)*
US$/A$*
Commonwealth budget (FY, A$ bil)
as % of GDP
Unemployment rate
Industrial production
5.6
0.75
-52.0
-3.6
5.1
0.4
4.2
1.08
-21.0
-1.4
5.5
2.2
4.2
1.03
-10.0
-0.6
5.5
-0.3
5.2
0.82
4.2
0.88
3.8
1.00
4.2
1.06
4.3
1.08
4.3
1.10
4.2
1.08
4.2
1.06
4.2
1.04
4.2
1.02
4.2
1.01
4.9
10.7
5.2
7.7
5.2
2.0
5.4
0.0
5.5
-1.0
5.5
2.0
5.6
4.0
5.6
2.0
5.4
-1.0
5.3
-2.0
5.3
0.0
Chain volume GDP
Private consumption
Construction investment
Equipment investment
Public investment
GLOBAL AND AUSTRALIAN ECONOMIC OUTLOOK
2012
2011
1.9
3.5
8.6
14.9
-6.9
*All financial variables are period averages
Source: J.P.Morgan.
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