Transcript Powerpoint format

Australian Outlook
January 2003
B Business
E Environment
F Forecasts
O Omens
R Revelations
E Enlightenment
foreseechange
www.foreseechange.com
1
Contents
Activity/Indicator
Slide Number
Summary
3
Australian Dollar
4
Interest Rates
8
GDP
10
CPI
12
Index of Consumer Sentiment
14
Future Issues of BEFORE
16
2
Summary
• There is upwards pressure on consumer prices
and on interest rates
• The value of the Australian dollar is likely to
remain within a narrow range
• GDP growth is expected to slow due to
– Weak exports, in part influenced by the drought
– Slowing investment growth, especially housing
• The biggest threat to discretionary consumption
spending, is oil prices
3
Australian Dollar
• The Australian dollar rose slightly in late 2002, following
an upgrading of Australia’s debt rating and a cut in US
interest rates
• The Australian dollar is expected to remain steady over
the next 12 months
– Rising Australian interest rates and improved expectations for
world growth (reflected in commodity prices) could lift the $A
slightly
– Rising US interest rates could bring about a fall in the $A
– But the poor climate for R&D in Australia is likely to limit the
upside opportunity (see our research paper at
www.futuretoolkit.com/currency.pdf)
• Much depends on the value of the US dollar too
– It declined by 10% to 17% against major currencies in 2002
– The large US current account deficit requires foreign financing
4
50
48
Mar-1995
Jun-1995
Sep-1995
Dec-1995
Mar-1996
Jun-1996
Sep-1996
Dec-1996
Mar-1997
Jun-1997
Sep-1997
Dec-1997
Mar-1998
Jun-1998
Sep-1998
Dec-1998
Mar-1999
Jun-1999
Sep-1999
Dec-1999
Mar-2000
Jun-2000
Sep-2000
Dec-2000
Mar-2001
Jun-2001
Sep-2001
Dec-2001
Mar-2002
Jun-2002
Sep-2002
Dec-2002
Mar-2003
Jun-2003
Sep-2003
Dec-2003
Mar-2004
Jun-2004
TWI
Australian Dollar - TWI
Australian Dollar Trade-weighted Index (TWI)
source: history, RBA; forecast, foreseechange
62
60
58
56
54
52
history
forecast
quarter
5
0.50
0.45
Mar-1995
Jun-1995
Sep-1995
Dec-1995
Mar-1996
Jun-1996
Sep-1996
Dec-1996
Mar-1997
Jun-1997
Sep-1997
Dec-1997
Mar-1998
Jun-1998
Sep-1998
Dec-1998
Mar-1999
Jun-1999
Sep-1999
Dec-1999
Mar-2000
Jun-2000
Sep-2000
Dec-2000
Mar-2001
Jun-2001
Sep-2001
Dec-2001
Mar-2002
Jun-2002
Sep-2002
Dec-2002
Mar-2003
Jun-2003
Sep-2003
Dec-2003
Mar-2004
Jun-2004
$US
Australian Dollar - $US
source: history, RBA; forecast, foreseechange
Australian Dollar vs US Dollar
0.85
0.80
0.75
0.70
0.65
0.60
0.55
history
forecast
quarter
6
Australian Dollar
(average for quarter)
Mar 03
TWI
(Dec 02 = 51.9)
51.3
$US
(Dec 02 = 0.558)
0.560
Jun 03
50.5
0.554
Sep 03
50.6
0.551
Dec 03
51.2
0.555
Mar 04
51.7
0.559
Jun 04
51.9
0.561
Quarter
7
Interest Rates
• The Reserve Bank of Australia (RBA) influences
interest rates by setting a target for the cash
rate, which is the overnight money market
interest rate
• Domestic activity is strong enough for the RBA
to want to lift rates, but they are constrained by
the very low interest rates in USA
– Official interest rates in Australia are 3.5% higher than
in USA, the biggest gap since April 1992
• Our model predicts that interest rates will rise by
0.5% by mid-2003 and by a further 0.5% by mid2004
8
0
Jun 2004
Jun.2003
2
Jun.2002
Jun.2001
Jun.2000
Jun.1999
Jun.1998
Jun.1997
Jun.1996
Jun.1995
Jun.1994
Jun.1993
Jun.1992
Jun.1991
Jun.1990
%
Cash Rate
source: RBA, foreseechange
Cash Rate
16
14
12
10
8
6
4
History
Forecast
quarter
9
GDP
• Australia’s strong economic growth rate is
expected to continue, although there is likely to
be a slowdown in late 2003
– Slowing investment growth (especially housing) with
some recovery during 2004, depending on interest
rates
– Weak export growth, in part caused by drought, with
some recovery likely but timing uncertain
• Strong growth in household consumption
spending (which constitutes 60% of GDP) will
underpin GDP growth
10
-3
Jun-2004
Jun-2003
-2
Jun-2002
Jun-2001
Jun-2000
Jun-1999
Jun-1998
Jun-1997
Jun-1996
Jun-1995
Jun-1994
Jun-1993
Jun-1992
Jun-1991
Jun-1990
annual % change
GDP
Gross Domestic Product (Chain Volume)
sources: ABS 5206.0; foreseechange
7
6
5
4
3
2
1
0
-1
history
forecast
quarter
11
CPI
• Consumer prices are predicted to rise at a faster
rate than the RBA’s target zone (between 2%
and 3% per year)
– This would put upward pressure on interest rates
• Influential factors include
– Oil prices: the recent spike above $30 per barrel, if
maintained, will lift the cpi
– The drought will put upward pressure on food prices
– The value of the Australian dollar: an increase would
tend to hold prices down
12
-1
Jun.2002
Jun.2001
Jun.2000
Jun.1999
Jun.1998
Jun.1997
Jun.1996
Jun.1995
Jun.1994
Jun.1993
Jun.1992
Jun.1991
Jun.1990
History
Forecast
Jun 2004
Jun.2003
annual % change
CPI
source: ABS 6401.0, foreseechange
Consumer Price Index
8
7
6
GST introduction
5
4
3
2
1
0
quarter
13
Index of Consumer Sentiment
• Research by foreseechange and by the RBA shows that
the index of consumer sentiment (ICS) tells us nothing
about the future of consumer spending
• Instead, it is like a rear vision mirror: reflecting past
economic news
– So it can be modelled and predicted
• Some business decision makers believe that it does
contain information about the future and use it as an
input to decision making
– For example, increasing production or imports when ICS rises
• Our model predicts a period of quite steady ICS
– although, being survey based, it is subject to sampling error
– It is also volatile, depending as it does on economic news and
how that is portrayed in the media
14
Index of Consumer Sentiment
Index of Consumer Sentiment
sources: Westpac - Mebourne Institute; foreseechange
120
115
105
100
95
Apr-2003
Jan-2003
Jul-2002
Apr-2002
Jan-2002
Oct-2001
Jul-2001
Apr-2001
Jan-2001
Oct-2000
Jul-2000
Apr-2000
Jan-2000
Oct-1999
Jul-1999
85
Apr-1999
90
Oct-2002
History
Forecast
Jan-1999
index
110
month
15
Future Issues of BEFORE
Activity/Indicator
Month
$A
All
Interest Rates
Feb, May, Aug, Nov
GDP
Jan, Apr, Jul, Oct
CPI
Mar, Jun, Sep, Dec
Index of Consumer
Sentiment
All
Consumer Willingness and
Ability to Spend
Jun, Dec
16