Transcript Slide 1

Asian Economics
Australia in 2012/13:
Will the luck continue?
July 2012
Paul Bloxham
Chief Economist (Australia and New Zealand)
HSBC Bank Australia Limited
+61 (2) 435 966 522
[email protected]
View HSBC Global Research at: http://www.research.hsbc.com
Issuer of report: HSBC Bank Australia Limited
Disclosures and Disclaimer This report must be read with the disclosures and the analyst
certifications in the Disclosure appendix, and in the Disclaimer, which forms part of it
ABC
Global Research
Lucky country: Australia’s last recession ended 20 years ago
Australian GDP Growth
Company
Logo
%
F/C
8
6
4
2
0
Q4 1991
-2
-4
1980
1985
1990
1995
2000
2005
2010
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Source: ABS; HSBC estimates
2
Six macro themes for Australia in 2012/13
Company
Logo
1) ‘Elephant in the room’
– Global risks continue to dominate the landscape
2) ‘Mining boom rolls on’
– Two-thirds of GDP growth is mining investment
3) ‘AUD and Dutch disease’ – Has held down inflation, but effects to wear off
4) ‘Deleveraging continues’ – Happening at the best time: when the economy is growing
5) ‘Productivity challenge’ – The issue should become more prominent in 2012/13
6) ‘Conventional policy works’ – Monetary policy works and there is fiscal room to move
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3
1.1) ‘Elephant in the room’ – Europe is straining under the weight of debt
General Government Gross Debt
Company
Logo
Per cent of GDP
%
European Countries
%
Other Advanced Countries
250
250
Japan
Greece
200
150
France
100
200
Italy
US
100
UK
Germany
NZ
50
Spain
Ireland
Australia
0
90
94
98
02
06
10
14
91
95
99
150
50
0
03
07
11
15
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Source: IMF
4
1.2) Part of the challenge is the major economic divergences
Company
Logo
Europe: Relative GDP Growth
September 2008 = 100
Index
100
Core
Non-Core
Germany
France
Portugal
Spain
Ireland
95
Italy
Index
100
95
90
90
85
85
80
Sep-08
Greece
80
Sep-09
Sep-10
Sep-11
Mar-09
Mar-10
Mar-11
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Source: Thomson Reuters Datastream
5
1.3) Unemployment rates are moving in the wrong directions
Europe: Unemployment Rate Comparison
%
Core
Non-core
Company
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%
Spain
20
20
Greece
15
15
Germany
France
10
10
Italy
Portugal
5
5
Austria
Denmark
Ireland
0
Mar-04
0
Jun-06
Sep-08
Dec-10
Mar-05
Jun-07
Sep-09
Dec-11
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Source: Thomson Reuters Datastream
6
1.4) Eurozone is showing inflation divergences
% Yr
% Yr
Core HICP inflation
Company
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4
4
3
3
2
2
1
1
0
0
-1
-1
03
04
05
06
Germany
07
08
Periphery *
09
10
11
12
Other Eurozone
*Ireland, Greece, Spain and Portugal (GDP weighted average)
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grid from
slide master
Source: Thomson
Reuters Datastream
7
1.5) Timely indicators for Europe have stabilised, but are still weak
European Coincidence Indicator (EuroCOIN)
Company
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%
%
1.0
1.0
0.5
0.5
0.0
0.0
-0.5
-0.5
-1.0
-1.0
-1.5
-1.5
1995
1997
2000
2003
2005
2008
2011
Source: Eurostat and HSBC
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grid from slide master
8
1.6) US also faces big challenges
%
66
US - Employment to Population Ratio
%
Company
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66
64
64
62
62
60
60
58
58
56
56
54
54
1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010
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Source: Thomson Reuters Datastream
9
1.7) US fiscal austerity is a heavy drag on economic growth
Company
Logo
0.8
Government ppt contribution to real GDP growth over the past year:
0.6
0.4
0.2
0.0
-0.2
Federal government
State and local government
Total government
-0.4
-0.6
05
06
07
08
09
10
11
12
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Source: Bureau of Economic Analysis
10
1.8) But recent global growth has been due to emerging economies
Company
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Contributions to World Growth
Year on year change
ppt
F/C
12
10
12
10
Emerging economies
8
ppt
8
6
6
4
4
2
2
0
0
-2
-2
Advanced economies
-4
-4
1991
1994
1997
2000
2003
2006
2009
2012
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Source: IMF, HSBC estimates
11
1.9) Asia output growth has become less about exports in recent years
Company
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340
+ 34%
290
240
+15%
190
140
90
40
Jan-90
Jan-92
Jan-94
Jan-96
Jan-98
Jan-00
EM Asia export volume
Jan-02
Jan-04
Jan-06
Jan-08
Jan-10
EM Asia output
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Source: CEIC
12
1.10) China’s PMI has spent seven months below its breakeven level
China HSBC PMI
Company
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Index
Index
55
55
50
50
45
45
40
40
35
35
2004
2005
2006
2007
2008
2009
2010
2011
2012
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Source: HSBC
13
1.11) Chinese fixed asset investment slowed, but are expected to hold up
Chinese Fixed Asset Investment
Company
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Year-ended change on quarterly observations
%
%
40
40
30
30
20
20
10
10
0
0
2000
2001
2003
2004
2006
2007
2009
2010
2012
Source: CEIC, HSBC
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14
1.12) China’s public housing should buffer the construction slowdown
Company
Logo
Completed floor space of residential housing
1,000
(mn sqm)
800
600
400
200
0
2009
2010
Commercial
2011e
Public
2012f
Source: CEIC, HSBC
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15
1.13) Still expect strong medium-term demand for commodities
Metals Consumption
20
Commodity-intensive
stage of development
Korea
16
Per capita consumption
Company
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Japan
12
Euro
8
China
US
4
Brazil
0
0
10
Source: IMF, HSBC
20
30
40
50
GDP per capita ('000s)
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16
1.14) Demand for energy expected to continue to be solid
Energy Consumption
Per capita energy consumption (BTUs)
0.40
Company
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Commodity-intensive
stage of development
0.35
US
0.30
0.25
0.20
Germany
Korea
0.15
Japan
0.10
China
Brazil
0.05
India
0.00
0
10
Source: IMF, HSBC
20
30
40
50
GDP per capita ('000s)
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17
1.15) Australia’s trading partner growth is solid, but risks are to the downside
Australian and Major Trading Partner Growth
Year-ended change
%
F/C
Australian GDP
Company
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%
6
6
4
4
2
2
0
0
Major trading
partner GDP
(export weighted)
-2
-2
-4
-4
1996
1998
2000
2002
2004
2006
2008
2010
2012
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Source: ABS, CEIC, RBA, HSBC
18
1.16) Credit to GDP ratio now higher than at the 1997 peak
Company
Logo
100
95
Asian Financial Crisis
leverage
90
85
Global
80
Financial
Crisis
75
Mar-91
Mar-93
Mar-95
Mar-97
Mar-99
Mar-01
Credit to GDP ratio Asia ex J
Mar-03
Mar-05
Mar-07
Mar-09
Mar-11
Asia ex JP ex CH
Source: CEIC, HSBC
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2.1) ‘Mining boom rolls on’ – investment is rising very strongly
Mining Investment
Company
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Per cent of nominal GDP
%
2012/13
10
2011/12
8
6
4
2
0
1860
1880
1900
1920
1940
1960
1980
2000
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Source: ABS, RBA, HSBC
20
2.2) Value of pipeline of advanced projects is substantial
Company
Logo
Value of Advanced Mining Projects
$Abn
$Abn
Infrastructure
200
Energy
150
100
150
100
Mineral
Minerals &
Energy Processing
50
200
50
0
0
1995
1998
2001
2004
2007
2010
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Source: BREE, HSBC
21
2.3) Commodity prices have peaked, but are still around historical highs
Australia's Commodity Prices
Index
Company
Logo
2008/09 = 100
Index
In USD
160
160
120
120
80
80
In AUD
40
40
0
0
1982 1985 1988 1991 1994 1997 2000 2003 2006 2009 2012
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Source: RBA, HSBC
22
2.4) Australian business conditions are a bit below average
NAB Business Survey
105
Company
Logo
30
Conditions
90
15
75
0
60
-15
45
-30
30
-45
Confidence
15
-60
0
-75
-15
-90
-30
-105
-45
-120
1997
2000
2003
2006
2009
2012
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Source: Thomson Reuters Datastream, NAB
23
3.1) ‘AUD and Dutch disease’ – AUD rose sharply in 2009 and 2010
Exchange Rate
Company
Logo
1.60
1.60
1.40
1.40
AUD/USD
1.20
1.20
1.00
1.00
0.80
0.80
0.60
0.60
Post-float
average
0.40
0.40
0.20
1970
0.20
1976
1982
1988
1994
2000
2006
2012
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Source: RBA
24
3.2) Appreciation has held down inflation, but the effect should wear off
Tradables and non-tradables inflation
Company
Logo
Year-ended change
%
%
6
6
Non-tradables
4
4
2
2
0
0
Tradables
(ex food & fuel)
-2
-2
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
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Source: ABS, RBA
25
3.3) High AUD has seen big net outflows of tourists
Company
Logo
Short-term Arrivals and Departures
Annual rolling sum
m
m
Departures
6
6
Arrivals
4
4
2
2
0
0
Net flow
-2
1977
-2
1981
1985
1989
1993
1997
2001
2005
2009
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Source: ABS
26
3.4) Tourist outflow and online sales have been holding back retail sales
Household consumption and retail sales
Company
Logo
$Abn
$Abn
192
71
4.2% y-o-y
188
69
184
67
Household
Consumption (LHS)
180
65
2.9% y-o-y
176
63
172
61
168
59
Retail Sales (RHS)
164
57
160
55
2007
2008
2009
2010
2011
2012
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Source: ABS
27
3.5) Employment is weakest in exchange rate-sensitive industries
Employment across selected industries
February 2007 = 100
Index
Index
Mining (RHS)
120
Company
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HH Services (LHS)
115
180
160
Utilities (LHS)
110
Public admin (LHS)
Business services (LHS)
105
100
140
120
100
Retail (LHS)
95
80
Manufacturing (LHS)
90
2007
2008
2009
2010
2011
2012
60
2013
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Source: ABS, HSBC
28
4.1) ‘Household deleveraging continues’ – saving is high
%
25
Household Saving
Company
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20
15
10
5
0
-5
1959 1964 1969 1974 1979 1984 1989 1994 1999 2004 2009
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Source: ABS, RBA
29
4.2) Household credit growth has slowed in recent years
Household Credit and Income Growth
Year-ended change
%
20
Company
Logo
%
20
Household credit
15
15
10
10
5
5
Household
disposable income
0
-5
1990
0
-5
1994
1998
2002
2006
2010
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Source: ABS
30
4.3) Households are paying down debt
Company
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31
4.4) Household caution has put downward pressure on house prices
Housing prices across the price distribution*
$'000
Company
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$'000
Top quintile (-7.8%)**
550
Middle quintiles
(-4.4%)**
500
550
500
Bottom quintile (-4.5%)**
450
450
400
400
2008
2009
*Capital cities
2010
2011
2012
2013
**falls from peak in brackets
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Source: RP Data
32
4.5) But we remain unconcerned about a large house price decline
Company
Logo
Household Debt by Income Group
%
50
40
30
20
10
0
Lowest
2
3
4
Highest
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Source: HILDA, RBA
33
4.6) Housing loan arrears are low
Company
Logo
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34
4.7) The unemployment rate is still historically low, despite rising recently
Unemployment Rate
Company
Logo
Seasonally adjusted
%
%
10
10
8
8
6
6
4
4
2
2
1978
1982
1986
1990
1994
1998
2002
2006
2010
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Source: ABS
35
4.8) Signs of labour market improvement
Employment
Persons, '000s
Company
Logo
11600
11500
11400
11300
11200
11100
11000
10900
10800
Jan-09
Jul-09
Jan-10
Jul-10
Jan-11
Jul-11
Jan-12
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Source: ABS
36
4.9) Housing prices have grown in line with income for almost a decade
Housing price to income ratio
Company
Logo
6
5
4
3
2
1
0
1993
1995
1997
1999
2001
2003
2005
2007
2009
2011
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Source: RP Data / Rismark
37
5.1) ‘The productivity challenge’ – can’t keep growing without productivity
Growth in Income and Product
Company
Logo
Year-ended change
%
%
National Income
8
8
6
6
4
4
2
2
Gross Domestic Product
0
0
-2
-2
-4
-4
1993
1996
1999
2002
2005
2008
2011
Delete grid from slide master
Source: ABS
38
5.2) Commodity prices have peaked, which means income boost easing
Terms of Trade
Company
Logo
2008/09 = 100
Index
Index
120
120
100
100
80
80
60
60
40
40
1959
1965
1971
1977
1983
1989
1995
2001
2007
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Source: ABS
39
5.3) Actual productivity growth has been very weak
GDP per hour worked*
Company
Logo
Index (log scale)
5.10
180
2000-05
1.9%pa
5.05
5.00
2005-11
0.8%pa
4.95
4.90
1990-95
1.7%pa
130
4.85
4.80
4.75
1995-00
2.6%pa
1980-85
1.6%pa
110
4.70
1985-90
0.9%pa
4.65
100
4.60
1980
1984
1988
1992
1996
2000
2004
2008
2012
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Source: ABS, HSBC
40
5.4) Growth has been driven by working harder, not necessarily smarter
Factor Contribution to Potential GDP Growth
%
Year-ended
Company
Logo
%
Total factor productivity
Growth in
hours worked
4
4
2
2
0
0
Growth in capital stock
-2
1980 1983 1986 1989 1992 1995 1998 2001 2004 2007 2010
-2
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Source: ABS, HSBC
41
5.5) Underinvestment in infrastructure is pushing up the cost base
Utilities Price Inflation
Company
Logo
Year-ended change
%
%
16
16
Electricity
12
12
8
8
Water &
Sewerage
4
4
0
0
2004
2006
2008
2010
2012
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Source: ABS
42
5.6) The sustainable rate of GDP growth has come down
Australian Economic Growth
Company
Logo
Year-ended change
%
%
6
6
Trend GDP (HP filter)
4
4
2
2
Actual GDP
0
0
-2
1988
-2
1991
1994
1997
2000
2003
2006
2009
2012
Delete grid from slide master
Source: ABS, HSBC
43
5.7) Unit labour cost growth has been high, but is easing
Inflation and Unit Labour Costs
Company
Logo
Year-ended change
%
8
6
%
Nominal unit
labour costs*
8
6
4
4
2
2
CPI**
0
0
-2
1993 1995 1997 1999 2001 2003 2005 2007 2009 2011
-2
* Non farm; ** Excludes interest and tax changes
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Source: ABS
44
5.8) RBA’s inflation forecasts assume a pick-up in productivity
RBA Underlying Inflation* Forecasts**
Company
Logo
Year-ended
%
%
Actual underlying inflation
5
5
4
Aug-11
Nov-11
4
3
3
2
2
Feb-12
May-12
1
1
0
0
2001
2003
2005
2007
2009
2011
2013
* Average of trimmed mean & weighted median; ** Mid-point where applicable
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Source: ABS, RBA
45
6.1) ‘Conventional policy works’ – Interest-rate sensitive sectors will get a boost
Responses to 100 bp Cut in Cash Rate
Company
Logo
Impact after 6 quarters
%
8.7
8
6
4
2
0.9
0.5
0
GDP
(expenditure)
Household
consumption
Dwelling
investment
Delete grid from slide master
Source: RBA
46
6.2) Despite a higher margin between RBA and effective rates
Effective Mortgage Rate and RBA's Cash Rate
%
9
Company
Logo
Effective Mortgage Rate (LHS)
21
Average
6
18
3
15
0
12
%
Cash Rate (RHS)
-3
9
-6
6
Average
-9
3
-12
Jan-00
0
Apr-02
Jul-04
Oct-06
Jan-09
Apr-11
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Source: RBA
47
6.3) Government faces big task to meet budget plans
Federal Government Budget Balance
Per cent of nominal GDP
%
Forecast
2
MYEFO
Nov'11
1
0
Company
Logo
Historical
%
2
1
0
-1
-1
-2
-2
-3
-4
Budget
May'12
-5
-3
-4
-5
Jun 90 Jun 93 Jun 96 Jun 99 Jun 02 Jun 05 Jun 08 Jun 11 Jun 14
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Source: Federal Treasury
48
6.4) Biggest fiscal contraction since the 1950s
Fiscal Policy Stance
Company
Logo
Per cent of nominal GDP
%
F/C
Expansionary
3
"Fiscal Impulse"
%
3
2
2
1
1
0
0
-1
-1
-2
-2
-3
-3
-4
Contractionary
-5
Underlying
cash balance
-4
-5
1971 1975 1979 1983 1987 1991 1995 1999 2003 2007 2011
Delete grid from slide master
Source: Federal Treasury
49
6.5) Net debt position still looks healthy
Australian Government Net Debt
Company
Logo
Per cent of nominal GDP
%
F/C
%
15
15
10
10
5
5
0
0
-5
-5
Jun 71
Jun 79
Jun 87
Jun 95
Jun 03
Jun 11
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Source: Federal Treasury
50
Disclosure appendix
Analyst Certification
The following analyst(s), economist(s), and/or strategist(s) who is(are) primarily responsible for this report, certifies(y) that the opinion(s) on the
subject
Company
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security(ies) or issuer(s) and/or any other views or forecasts expressed herein accurately reflect their personal view(s) and that no part of their compensation
was, is or will be directly or indirectly related to the specific recommendation(s) or views contained in this research report: Paul Bloxham
Important Disclosures
This document has been prepared and is being distributed by the Research Department of HSBC and is intended solely for the clients of HSBC and is not for
publication to other persons, whether through the press or by other means.
This document is for information purposes only and it should not be regarded as an offer to sell or as a solicitation of an offer to buy the securities or other
investment products mentioned in it and/or to participate in any trading strategy. Advice in this document is general and should not be construed as personal
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should, before acting on the advice, consider the appropriateness of the advice, having regard to their objectives, financial situation and needs. If necessary,
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originally invested. Certain high-volatility investments can be subject to sudden and large falls in value that could equal or exceed the amount invested.
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© Copyright 2012, HSBC Bank Australia Ltd, ALL RIGHTS RESERVED. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, on any form or by any means,
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206/01/2012
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