Transcript An update from Investment Markets Research

Australian Budget 2013/14 Global outlook update
Stephen Halmarick
Head of Economic and Market Research
Prepared 15 May 2013
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Australian Budget: The path back to surplus?
Underlying cash balance
Source: Commonwealth Budget 2013/14
•
2012/13
$A19.4bn,
1.3% of GDP
•
2013/14
$A18.0bn,
1.1% of GDP
•
2014/15
$A10.9bn,
0.6% of GDP
•
2015/16
+$A0.8bn,
0.0% of GDP
•
2016/17
+$A6.6bn,
0.4% of GDP
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Key budget policy announcements - spending
•
Infrastructure: additional funding of $A24bn over 4 years for roads, rail and ports.
•
Education sector reforms: $A9.8bn over 6 years (only $A3bn feature in the forward
estimates for the new school funding model following the Gonski Review).
•
Health: DisabilityCare the government will provide $A19.3bn over seven years for
investment. Over the four year projection period, new funding is estimated to total $A1.9bn)
in the National Disability Insurance Scheme, now known as DisabilityCare Australia. This is
considered the most significant social policy reform since Medicare.
•
To be funded by a move in the Medicare levy to 2.0%, from 1.5%, from 1 July 2014 for 10
years. Will raise $A11.6bn over 4 years.
•
Defence: $A113bn will be spent on defence funding over the forward estimates, up by
$A10bn from last year's budget. This includes $A3bn over nine years to obtain twelve EA18G Growler electronic attack aircrafts.
Source: Commonwealth Budget 2013/14
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Key budget policy announcements - savings
•
Business: Broadening of the corporate tax base to prevent offshore profit shifting, closing of
loopholes, removal of deductibility for expenditure on exploration rights totalling $A4.2bn
over 4 years.
•
Families: The Government has announced that from 1 March 2014, the ‘baby bonus’ will be
abolished. Instead eligible Family Tax Benefit Part A recipients will get a payment boost of
$A2,000 for the first child and $A1,000 for subsequent children.
•
The Government has announced changes to the age of eligibility criteria for Family Tax
Benefit A as well as announcing that it will no longer proceed with the previously announced
increase in the Family Tax Benefit Part A announced in the last budget. This will save around
$A5.9bn over 4 years.
•
Individuals: Deferral of the Clean Energy Future personal tax cut subject to the revision of
the carbon price.
•
Foreign Aid deferral saving $A1.9bn over 4 years.
Source: Commonwealth Budget 2013/14
5
Revenue and outlays growth path – slightly more
realistic
Annual revenue and outlays growth (%)
Source: Commonwealth Budget 2013/14
6
Government debt levels remain low: AAA looks safe
General government net debt to GDP (%)
Source: Commonwealth Treasury 2013/14, IMF Fiscal Monitor April 2013
7
Bond supply to rise
Current and expected issuance of Commonwealth Bonds
Source: AOFM, RBA and CFSGAM
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Economic forecasts are reasonable
Key table of economic forecasts
Actual
Estimate
Forecast
Projections
2011/12
2012/13
2013/14
2014/15
GDP %yr
3.4
3.0
2.75
3.0
Nominal GDP %/yr
5.0
3.25
5.0
5.0
GNE %yr
5.2
3.0
2.75
2.25
Net exports % cont.
-1.3
0.5
0
1.0
Terms of trade %/yr
0.4
-7.5
-0.75
-1.75
Current account % GDP
-2.7
-3.5
-3.75
-3.25
Business investment %yr
20.8
10.5
4.5
1.0
Unemployment rate % at June
5.1
5.5
5.75
5.75
CPI %yr
1.2
2.5
2.25
2.25
Wages %yr
3.7
3.5
3.5
3.5
Source: Commonwealth Treasury 2013/14
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Economic outlook for Australia
GDP growth – actual and forecasts (%)
Source: ABS, RBA Statement on Monetary Policy May 2013
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Mining investment to peak in 2014
Capital expenditure – intentions FY12
Key components - mining
Iron Ore
22%
Coal
21%
Petroleum/LNG
45%
Copper
Other
Source: ABS. Data as at February 2012
1%
11%
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Exports to grow further
Export volumes – forecasts from 2012/13 till 2017/18
Forecasts
Source: BREE. Forecasts as at March 2013. Assumes medium market share for Australia
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Labour market a little softer
Unemployment rate (%)
Source: ABS. Data to 30 April 2013
Growth in labour input
13
Some signs the consumer is picking up
Consumer confidence and retail sales growth
%
Source: Bloomberg. Retail sales as at 31 March 2013, consumer confidence as at April 2013
Index
14
Australian consumers changing behaviour
Retail sales volume - index
Source: ABS. RBA, CFSGAM. Savings rate data to 31 December 2012. Retail sales data to 31 March 2013
Household savings rate (%)
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Residential building yet to respond to rate cuts
Private sector residential building approvals
20000
15000
10000
5000
0
1983
1988
Total
Source: ABS. Data to 31 March 2013
1993
Detached houses
1998
2003
2008
2013
Higher-density housing
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Australian business conditions soften
Business confidence and business conditions
Source: NAB, data to May 2013
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Low inflation (partly) driven by strong AUD
Tradables and non-tradables inflation
Source: ABS, Data to 31 March 2013
18
Allows RBA to ease….risks still to the downside
Official cash rate (%)
Source: RBA, data to 8 May 2013
19
Lower interest rates are helping the household sector
Source: RBA Statement on Monetary Policy May 2013
20
Australian bond yields off 60 year lows
3-year and 10-year Australian government bond yields (%)
Source: Bloomberg. Data to 13 May 2013
21
AUD has been falling
Rising against USD and a basket of currencies
Source: RBA. Data as at 15 May 2013
22
Australian equity markets improving
US, Australia and world equity markets. Index = 100 December 1994
Source: Bloomberg. Data to 10 May 2013
23
Political risk ahead of 14 September election
Opinion polls suggest a change of government…at this stage
Source: Newspoll, CFSGAM. Data to 5 April 2013
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Global economic outlook
Global growth outlook looking better
IMF Global Growth Forecasts
Source: IMF World Economic Outlook April 2013
26
Japan starts an aggressive new QE phase
Size of central bank balance sheets % GDP – post QE
Source: BoJ, ECB, BoE, Federal Reserve, CFSGAM. Data as at April 2013. Assumes Federal Reserve stops $US85bn/mth purchases in January 2014
27
Global bond yields at generational lows
Developed markets 10 year bond yields (%)
Source: Bloomberg. Data to 10 May 2013
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Global equity markets improving
Global equity markets. Index = 100 December 1994
Source: Bloomberg. Data to 10 May 2013
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Fed sets unemployment and inflation “targets”
Unemployment rate (%), PCE Inflation (%) and Fed forecasts
Source: Bloomberg. Unemployment rate to 31 March 2013. PCE data to 31 March 2013. Fed forecasts as at March 2013 and till 2015
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Fed policy is clearly helping housing market
Housing starts and builders confidence
FHFA house price index purchase only
Source: Bloomberg. Housing starts to 31 March 2013. NAHB Index to April 2013. FHFA House Price Index to 28 February 2013
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Natural gas – a long term benefit for the US economy
Natural gas prices for manufacturing
US Gas Plant Production of LNG
$US/MBTU
1000/barrels per day
Country
Price
Japan
$15
Korea
$13
Germany
$11
US
$3
Source: ISI. As at January 2013. US Gas plant production of LNG to 28 February 2013
32
“Whatever it takes” has been working
10 year bond yield spread above German 10 year bond yields
Source: Bloomberg. Data to 8 May 2013. Note Ireland is nine-year bond yield spread
33
EU economy – recession in H1 13
Annual GDP growth (%)
Key issues:
Source: Bloomberg. Data to 31 December 2012. Spain and Italy to 31 March 2013
•
EU in recession in 2012 and
H1 2013 and low growth for
next five years
•
More pressure on budget
deficits
•
Structural reform needed
•
Political challenges
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A social disaster in the making
Unemployment rate – youth and total
Source: Bloomberg. Data to 31 March 2013. Greece to 31 January 2013
35
Japan – Economic growth and inflation (upside risks)
Annual GDP and CPI
Source: Bloomberg. CPI data to 31 March 2013. GDP data to 31 December 2012.
36
Japan – Weaker Yen part of the plan
USDJPY and AUDJPY
Source: Bloomberg. Data to 13 May 2013
37
China growth outlook solid
Contribution to growth
Annual GDP growth (%)
Consensus forecasts
Q4 12
Q1 13
Q2 13
Q3 13
Q4 13
Q1 14
Q2 14
GDP %/yr
7.90
7.70
7.95
8.05
8.00
8.00
7.90
CPI %/yr
2.10
2.40
2.80
3.25
3.40
3.30
3.35
Source: Bloomberg. GDP data to 31 March 2013. Contribution data and forecasts from EIU. GDP and CPI forecasts are market consensus from Bloomberg as at 8 May 2013
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Implications for investors
1. Slow growth and lower return environment to persist
2. Quantitative easing forcing down real yields and driving a hunt for yield and income
3. Portfolio diversification critical, to deal with:
• ongoing re-assessment of the macro outlook
• easy money/tight fiscal policy/currency “wars”
• political uncertainties and risks
• alternative assets looking more attractive
4. Investing in the structural changes flowing through the global economy remains a
medium-term focus.
• Invest in countries and companies “facing” the worlds growth
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