Economic and financial market outlook for

Transcription

1 Economic and financial market outlook for - Presentation to Northern Territory Treasury Corporation Saul Eslake Chief Economist ANZ Bank Darwin 18 th August 1 economics@

2 The world economy is growing remarkably strongly 8 Real % change from previous year 7 Global economic growth Fastest since 197 Long-term trend Note: GDP is measured in US$ at purchasing power parities. Source: IMF; Economics@ANZ. economics@

3 considering all the things that could have gone wrong in recent years Oil prices at over US$ per barrel the highest (in real terms) since the early 198s (when they peaked at $93 in dollars) Rising American interest rates the US cash rate has more than trebled, from 1% to 3½%, over the past 1 months, and will likely keep rising at least to ¼% by the end of this year Weak economic growth in continental Europe and Japan Substantial imbalances of payments between major regions of the global economy US current account deficit now over % of GDP well in excess of levels traditionally regarded as sustainable paralleled by large current account surpluses in Asia prompting persistent fears of abrupt and disruptive swings in exchange rates Continued concerns in many quarters about housing bubbles On-going threat of further terrorist attacks highlighted by the recent London bombings and the continued insurgency in Iraq 3 economics@

4 Although the oil price has risen sharply, in real terms it is still well below its 198 peak Nominal and real oil price 1 US$ per barrel 9 8 Oil price in dollars Oil price Note: Oil price is West Texas Intermediate Source: Thomson Financial Datastream; US Bureau of Labor Statistics; Economics@ANZ. economics@

5 The most recent rise in oil prices hasn t led to sharp rises in inflation or interest rates Oil prices and inflation Oil prices and interest rates US$ per barrel ( prices) Real oil prices % change from year earlier US$ per barrel ( prices) % per annum Real oil prices G7 consumer prices (right scale) G7 3-mth interest rates (right scale) Note: Shaded areas denote oil price shocks Sources: Datastream; OECD; Economics@ANZ. economics@

6 Economic growth has been much less affected by higher oil prices than in previous oil shocks Oil prices and economic growth 1 9 US$ per barrel ( prices) Real oil price (left scale) Real % change from year earlier OECD GDP growth (right scale) Note: Shaded areas denote oil price shocks. Source: Thomson Financial Datastream; OECD. economics@

7 The world economy is less sensitive to swings in oil prices than it used to be Barrels of oil per day per US$1mn of world GDP pa Spending on energy as a % of total US household spending % (3-mth moving average) Average for past yrs Sources: BP Statistical Review of World Energy ; IMF; US Bureau of Economic Analysis; Economics@ANZ. 7 economics@

8 Currently high oil prices result from a demand shock, not a supply shock as in the 7s and 8s World oil supply and demand Mn barrels of oil per day Demand Supply Sources: BP Statistical Review of World Energy ; OPEC 8 economics@

9 OPEC is pumping about as much oil as it can: the supply constraints are in non-opec producers OPEC and non-opec production OPEC production as as p.c. of capacity 3 Millions of barrels per day Non-OPEC 1 9 % 3 9 OPEC Former Soviet Union Sources: BP Statistical Review of World Energy ; OPEC Monthly Oil Market Report July ; IMF World Economic Outlook April. 9 economics@

10 China is the world s second largest economy, and its second largest consumer of oil Share of world GDP * Share of world oil use % of world total US 3 % of world total US 1 China China *in US$ converted at purchasing power parities Sources: IMF World Economic Outlook April database; BP Statistical Review of World Energy ; OPEC Monthly 1 Oil Market Report July ; Economics@ANZ. economics@

11 Over the past four years China has accounted for 38% of the growth in world oil demand Chinese oil consumption and production Growth in world oil demand 8 7 Millions of barrels per day Consumption 3.. Millions of barrels per day 3 Production Net imports Rest of world US China Sources: BP Statistical Review of World Energy ; OPEC Monthly Oil Market Report July ; 11 Economics@ANZ. economics@

12 Going up: prices of commodities China imports; going down: prices of commodities it exports US$/tonne Coal Metallurgical Thermal US$/tonne Iron ore Nickel US / pound Aluminium US / pound Copper US / pound Zinc US / pound Sources: Datastream. 1 economics@

13 Better macro-economic policies and globalization are combining to keep global inflation down Exports as a share of global GDP Source: IMF, World Economic Outlook April database; Economics@ANZ. In both advanced and emerging economies, improvements in the way monetary policy is conducted have contributed significantly to lowering inflation and inflationary expectations in particular, the trend towards central bank independence Globalization is also contributing to keeping inflation down the share of exports in global GDP has almost doubled over the last two decades providing a significant additional source of competitive discipline over price-setting behaviour and forcing producers to pay much greater attention to controlling costs and lifting productivity 13 economics@

14 Despite pushing up the prices of commodities, China is pushing down the prices of finished goods China s share of global merchandise exports China s merchandise trade balance 1 % 7 US$ billion 1 8 Total excluding intra-eu & NAFTA trade Total Source: IMF, Direction of Trade Statistics database; Economics@ANZ; China National Statistics Bureau. 1 economics@

15 The US$ has fallen a lot less than in previous US$ bear markets despite an unprecedented deficit Trade-weighted US dollar US current account deficit Index: = 1-31% -% 1-1 % of GDP 1-3% Note: US$ index is in real (inflation-adjusted) terms. Shaded areas denote periods of major declines in the US$. Sources: JP Morgan; US Bureau of Economic Analysis. 1 economics@

16 China is also helping to keep the US$ from falling and global bond yields down US current account deficit and its financing US$ bn - four quarter moving total Current account deficit Net equity investment Net borrowing Sources: US Bureau of Economic Analysis; Official reserves Other 1central bank websites; Datastream. economics@ $ bn Japan China Asian FX reserves Taiwan Korea Reserves as at end- Increase in 3 Asian FX reserves stood at US$½trn as at end June a rise of more than US$1.1trn since the end of India Hong Kong Singapore Malaysia Other Increase in Increase in to date

17 These trends appear to reflect a rise in saving relative to investment, especially in Asia United States Japan Latin America % of GDP % of GDP % of GDP Euro area Developing Asia World % of GDP 3 % of GDP % of GDP Saving Investment Source: Bank for International Settlements, 7 th Annual Report. 17 economics@

18 ... so the rise in US borrowing has been matched (driven?) by higher saving elsewhere in the world % of GDP United States - % of GDP Euro area Net lending as a % of GDP % of GDP Japan - 3 Developing Asia % of GDP Latin America % of GDP % of GDP World Net lending is gross saving minus gross investment. It is conceptually equal to the current account balance. 18Source: BIS; Economics@ANZ. economics@

19 Strikingly, US long-term rates have fallen even though US short rates have more than trebled % pa Fed funds (cash) rate 1-year bond yield % pa Four episodes of rising US interest rates 1-year bond yield Fed funds (cash) rate % pa 1-year bond yield Fed funds (cash) rate 3 Note: Shaded areas show periods when the Federal Reserve has been tightening monetary policy by raising the Federal % pa 1-year bond yield Fed funds (cash) rate Unlike Australia, in the US most personal and business borrowing is done at fixed rates Thus, what happens to longterm rates is much more important Usually, longterm rates rise while the Fed is tightening monetary policy But in this latest episode, longterm rates have fallen funds (cash) rate. Sources: Datastream; Federal Reserve 19 economics@

20 Long-term interest rates are declining all over the world, not just in the US US Japan 7 % per annum 3 % per annum % per annum Europe Germany 1 3 UK Emerging markets Sources: Datastream; Lehman Brothers. economics@ % per annum 1 3

21 The decline in long-term rates is helping to prolong the household spending boom in the US Mortgage rates Household wealth 11 % per annum House prices Index (Q1 198 = 1) % of annual disposable income Household saving rate % of annual disposable income Sources: Federal Reserve; Office of Federal Housing Enterprise Oversight; Bureau of Economic Analysis. 1 economics@

22 The US economy is thus continuing to surprise analysts and investors with its resilience % pt contrbn to GDP from prvs qtr (saar) Real GDP growth Final sales stocks 3 Non-farm employment Change from previous month ('s) Trend Actual 3 Sources: US Bureaux of Economic Analysis and Labor Statistics; US Commerce Department. economics@ Capital goods orders * % change from year earlier Trend Actual * Non-defence; excludes aircraft 3 Retail sales % change from previous month (excl. auto dealers and garages) Actual Trend 3

23 Inflation has eased back a notch in recent months but slowing productivity spells rising labour costs Producer prices finished goods Productivity % ch. from year earlier % ch. from year earlier 3 Headline -3 Core (excl. food & energy) Actual Trend 1 3 Consumer prices Labor costs 3 % ch. from year earlier Headline % ch. from year earlier Average hourly earnings Unit labor costs 1 Core (excl. food & energy) Sources: US Bureaux of Labor Statistics and Economic Analysis. 3 economics@

24 Japan s economy might well be on a sustainable growth path after 1 years of stagnation Real GDP growth Business confidence 8 % pt contrbn to GDP from prvs qtr (saar) Net balance judging "good" (%) Large firms - Small firms - - Final sales stocks Employment Change from previous month ('s) Actual Consumer confidence Net balance positive (%) - Trend Sources: Economic & Social Research Institute; Labour Ministry; Bank of Japan; Economic Planning Agency. economics@

25 Japan s corporate sector financial position is now much improved Corporate profit share of GDP % (-qtr moving average) Rate of return on assets 9. % (-qtr moving average) Debt-equity ratio % Bankruptcies. 's (annual moving average) Sources: Bank of Japan; Tokyo Shoko Research Company. economics@

26 Japan s banking system is gradually getting over its bad loan problem Banks NPL ratio % (as at 31 March) Banks capital adequacy ratio % (as at 31 March) Bank lending Sources: IMF; Financial Supervisory Agency; Bank of Japan. economics@ % change from year earlier Lending stance of banks Net balance (%) reporting banks' lending stance 'easier' Large firms Small firms

27 Deflationary pressures are beginning to abate prompting speculation about an end to the ZIRP # Corporate goods prices * Land prices % ch. from year earlier * equivalent to a producer price index Total Domestic % ch. from year earlier Six major Japanese cities 1 3 Consumer prices Tankan output prices judgement % ch. from year earlier Headline Core (excl. food & energy) 1 3 # zero interest rate policy. Sources: Bank of Japan; 7 Prime Minister s Office; National Land Agency. economics@ Net balance (%) reporting increases Large firms Small firms 1 3

28 China s economy is continuing to grow rapidly but the mix of growth is shifting Real GDP Fixed investment % ch. from year earlier % ch. from year earlier (cumulative) 1 3 Industrial production Retail sales 1 1 % ch. from year earlier Actual 1 1 % ch. from year earlier Actual -mth moving average -mth moving average Source: China National Statistics Bureau 8 economics@

29 Lending growth and inflation have slowed, but the trade surplus is ballooning Money supply and bank lending Exports and imports % ch. from year earlier M Bank loans % ch. from year earlier (-mth moving avge) Exports Imports Producer and consumer prices % ch. from year earlier Producer prices Consumer prices 1 3 Sources: China National Statistics Bureau; Merchandise trade balance 9 People s Bank of China. economics@ 1 8 US$bn (annual moving total) 1 3

30 China s shift to a basket peg is a natural step in the evolution of the financial system Renminbi vs US dollar Rmb per $ 1-mth non-deliverable forward rate Spot rate 1 3 Rmb real effective exchange rate 1 Index ( = 1) JP Morgan index IMF index Sources: Datastream; IMF; JP Morgan Chase. The PBoC s announcement on 7 July of a shift in China s exchange rate regime from a fixed peg to the US$ to alignment with a basket of currencies is a natural step in the evolution of a market oriented FX regime The new regime is in some ways similar to that used by Singapore, and by Australia between 197 and 1983 However note that the Rmb is being referenced rather than pegged to the basket so that its value will continue to be managed A significant appreciation of the Rmb in real-effective terms does not seem justified 3 economics@

31 Increasingly, global growth is being driven by regions that typically don t get a lot of attention United States Japan Latin America 3 1 Real % change Real % change Real % change Old EU Emerging Asia Former Soviet bloc 3 1 Real % change Real % change Real % change Source: IMF; Economics@ANZ. 31 economics@

32 Leading indicator for smaller Asian economies points to an end to the recent growth slowdown Asian LEI monthly changes % change from previous month 3 ANZ s Asian LEI is a weighted average of the LEIs published for Korea, Taiwan, Thailand and Malaysia it leads the industrial production (ex China & Japan) cycle by around months This LEI has risen in 3 of the past months, after falling for 8 of the previous 9 months East Asian IP and the composite leading indicator % change from year earlier Industrial production (excl. Japan and China) Asian composite leading indicator ( mths forward) 1 3 Sources: OECD; Datastream; Economics@ANZ. 3 economics@

33 Individual country / regional growth forecasts % change in real GDP from previous year 7 United States. 3¾ 3 3 Japan Western Europe Australia Developed countries China Other East Asia South Asia Latin America Developing countries Russia & Eastern Europe World. 1¾ 1½.1 1½ ¼ 3. ¼ 3¼ 3½ 3. ½ ½ ½ ¼ 8.8 ¼ ¼.9 7 ¾ ½.8 3¾ 3½ 7.3 ¼.3 ¾.1 ¼ * Weighted by GDP in US$ at purchasing power parity exchange 33 rates. Sources: national agencies; IMF; Economics@ANZ. economics@

34 Asian growth forecasts % change in real GDP from previous year 7 Japan. 1¾ 1½ China Korea Taiwan Indonesia Thailand Hong Kong SAR Malaysia Singapore Philippines Vietnam East Asia (incl Japan) ¼ 8. 3¾ ½ ¼.7 ½ ½.1 ½ ¾.1 3¾ 8. 3¾ 7.1 ½ ½ ¾ 8. ¾ ½.1 ¼ ¼ 7.7 ¼ ¾ * Weighted by GDP in US$ at purchasing power parity exchange 3 rates. Sources: national agencies; IMF; Economics@ANZ. economics@

35 The world economy in a decade s time GDP in GDP GDP in 1 growth, US$bn Rank - US$bn 1 (f) United States 1, ,9 China 8, , 1 Japan,9 3 1., India 3,3. 7,1 3 Germany,99 1.,897 United Kingdom 1,8.1, =7 France 1,81 7.1,39 9 Italy 1, ,978 1 Russia 1,8 9.,8 Brazil 1, , =7 Canada 1, ,8 1 Korea 1, ,7 11 Indonesia ,3 =1 Australia Note: GDP figures are converted to US$ at purchasing power parities (PPPs), not market exchange rates. Forecasts are consensus forecasts ; the fact that they are presented here does not imply that they are endorsed by Economics@ANZ. Sources: IMF, World Economic Outlook April ; Consensus Economics, Consensus Forecasts April ; 3 economics@ Economics@ANZ. Rank

36 Some striking implications of these forecasts China will surpass the US as the world s largest economy measured at PPP (not market) exchange rates (China won t overtake the US on market exchange rates until around ) Chinese per capita GDP would still be only about ¼ that of the US India will overtake Japan as the third largest economy Russia will move past Italy and France to become the world s sixth largest economy while Brazil will join the UK as equal seventh Australia s economy would rank somewhere in the low s (cf. 1 th in ) behind (among others currently smaller than Australia) Taiwan, Turkey, Iran and Thailand 3 economics@

37 China is reclaiming its historical position as the world s largest economy Shares of world GDP, AD 38 % 33 Western Europe 8 3 US China India Source: Angus Maddison, The World Economy: A Millennial Perspective, OECD Development Centre, 1; IMF, World Economic Outlook Database, April ; Economics@ANZ. 37 economics@

38 China s global impact on relative prices is hugely beneficial for Australia Long-term price changes for Australian exports and imports Ratio of Australian export prices to import prices 8 % per annum (real US$ terms) 1-3 = Export prices Import prices 19s 197s 198s 199s s Sources: Australian Bureau of Statistics; US Bureau of Economic Analysis; Economics@ANZ. 38 economics@

39 The China-driven reversal in Australia s terms of trade has been a key element in the A$ recovery Australia s terms of trade and the exchange rate 1-3 = 1 May 197 = Trade weighted value of the A$ (right scale) 'Terms of trade' (ratio of unit export to unit import prices) (left scale) Sources: ABS; Reserve Bank of Australia 39 economics@

40 The reversal in Australia s terms of trade has also boosted Australians relative living standards Australia s ranking among OECD countries in terms of GDP per capita 1 Ranking US Japan Australia New Zealand Note: GDP is in 1999 US$ at PPP exchange rates. Source: GGDC Total Economy Database. economics@

41 Australia is enjoying its longest run of uninter- rupted economic growth since Federation Australian real GDP growth, % change from previous year 1 1 (f) quarters of negative 3 qtrs qtrs - growth in this period, of ve of ve including episodes of growth growth -1 or more consecutive in this in this quarters of ve growth period period no quarterly data before Note: data are for financial years ended 3 June. Sources: Angus Maddison, Monitoring the World Economy ; Reserve Bank; ABS; Economics@ANZ. 1 economics@

42 After 1 years of continuous growth the business cycle is again rearing its head Output growth increasingly subject to capacity constraints labour shortages, infrastructure bottlenecks, etc not a brick wall, but lowering the potential growth rate Demand rising at a much faster pace than supply boosted by commodity price gains, government largesse, low interest rates and gains in personal wealth Current account deficit largest in over years despite most favourable terms of trade in 3 years reflecting supply-side constraints on resources exports, effects of stronger A$ on competitiveness, and spill-over of strong domestic demand into imports Productivity growth has slowed sharply partly reflecting stalled reform agenda Scattered evidence of cost and price pressures wages growth clearly ticking upwards domestic price pressures masked by stronger A$ economics@

43 The Australian economy is running into capacity constraints for the first time in 1 years % Unemployment rate % of the labour force Actual Labour shortages Businesses reporting labour shortages as a constraint on output Trend Sources: ABS; National Australia Bank; Lowest since Nov 197 Highest in the 1-year history of this survey 3 Economics@ANZ. economics@ ' 1 3 % Capacity utilization Trend Job vacancies Highest in - year history of this series Actual (seas. adj. by ANZ) 1 3 Edged down from 1-yr high

44 Current account deficit the largest in over years despite best terms of trade in 3 Current account balance Terms of trade * 3 % of GDP 1-3 = Terms of trade more favourable than at any time since mid-197s commodities boom Deficit larger than 7% of GDP -8 for first time since *The terms of trade is the ratio of export to import prices. Source: Australian Bureau of Statistics. economics@

45 Productivity went backwards last year in absolute and relative terms Productivity (output per hour worked) Australian productivity relative to United States % change from year earlier (trend) 88 8 % 3 1 US Australia Sources: US Bureau of Economic Analysis; Commonwealth Treasury; Groningen Growth and Development Centre (University of Groningen, Netherlands, and the Conference Board); Economics@ANZ. economics@

46 Wage and price pressures are beginning to pick up although A$ strength is offsetting some of this Enterprise bargaining settlements Average % increase, all current agreements Public sector Private sector Producer prices % change from year earlier Imported Domestically produced Wage price index % change from year earlier Public sector Private sector 1 3 Consumer prices * Sources: Dept of Employment & Workplace Relations; ABS. economics@ % change from year earlier 'Nontradeables' 'Tradeables'

47 This is the point in the business cycle from which, in the past, recessions have originated Three policy mistakes have traditionally been made at this stage of the business cycle - Allowing wages to grow faster than justified by productivity in a tight labour market much less of a risk now that centralized wage fixation is dead Failing to allow the Reserve Bank to raise interest rates before inflation has begun to accelerate not a serious risk now that the RBA is independent although persistent government criticism of recent rate increases reminds us why this is important Giving away too much of the revenue dividend in spending increases and tax cuts still a significant risk (as demonstrated in ) 7 economics@

48 In Federal outlays grew 1¾% in real terms the fastest in over years Government outlays (excl. defence and interest) Real % change from previous year 1 Federal own-purpose* State & local * ie, excluding payments to State & local governments. Source: ABS, quarterly national accounts; Economics@ANZ. 8 economics@

49 Growth in household spending is likely to be more subdued than in recent years Positive factors for household spending Continued growth in employment (albeit less strong than in -) and low unemployment Growth in real wages Stable and (by historical standards) low interest rates Income tax cuts and increases in government welfare spending Negative factors for household spending Stagnant house prices Extended balance sheets greater reticence about additional borrowing Higher petrol prices Heightened sensitivity to movements in interest rates Demographic factors 9 economics@

50 Slower growth in household spending will contribute to a more balanced mix of growth Consumer spending Real % ch. from year earlier Domestic demand and net exports % pt contrbn to change in real GDP from yr earlier Domestic demand Net exports Investment spending Real % ch. from year earlier Business Housing Real GDP Real % ch. from year earlier Sources: ABS; Economics@ANZ. economics@

51 NT business conditions have been more subdued than elsewhere in Australia but are improving Real State final demand New motor vehicle regos % change from year earlier (trend) Australia NT s average = 1 Australia NT 1 3 Small business confidence Retail sales Net balance optimistic (%) 1 3 Sources: ABS; Sensis; Economics@ANZ. 1 economics@ NT Australia % change from year earlier (trend) NT Australia 1 3

52 NT housing market picking up, and house prices are far less stretched than in southern capitals Residential building approvals Established house prices s average = 1 Australia NT 1 1 % change from year earlier All capitals Darwin Housing finance commitments Rental price-earnings ratios * s average = 1 NT Australia x (-qtr moving median) All capitals Darwin 1 3 * Ratio of price to annual gross rental income. Sources: ABS; REIA; Economics@ANZ. economics@

53 Most indicators of the NT labour market showing less strength than Australia as a whole Employment Participation rate % change from year earlier (trend) Australia NT % (trend) NT Australia 1 3 Unemployment Newspaper job ads % (trend) NT Australia 1 3 % change from year earlier (trend) NT - Australia Sources: ABS; Economics@ANZ. 3 economics@

54 Investment and production from the offshore economy lifting NT growth in and Gross State product Real % change from year earlier (years ended June 3) Northern Territory Australia Sources: ABS; NT Budget Papers -. Weak NT economic growth in -3 and 3- largely reflects sharply declining offshore oil production and tourism, and completion of Alice Springs-Darwin railway Infrastructure and resource investment now picking up again, boosting onshore economic activity Commencement of LNG production at Wickham Point, increased output from offshore gas fields and Gove alumina will further lift GSP growth in - Some recovery in tourism activity also plausible economics@

55 NT population growth is recovering after sharp slowdown earlier this decade Net migration to NT Population growth No. per week (-qtr moving average) 3. % change from year earlier From overseas From interstate 1. Australia NT Sources: ABS; Economics@ANZ. economics@

56 Reserve Bank will keep rates on hold for an extended period but next move will still be up Inflation Short-term interest rates 7 % pa. % pa 'Headline' RBA target band.. Cash rate 9-day bill yield 3. 1 Excluding GST and 'volatile' items Sources: ABS; Datastream; Economics@ANZ. economics@

57 Models of the Australian bond market have been thrown out by the odd behaviour of US yields 8 7 US 1-year bond yield % per annum US bond yields much lower than predicted by model Australian 1-year bond yield % per annum Over-prediction of Australian bond yield due attributable to US factors 3 Predicted Actual Predicted Actual Australia-US 1 year spread Model details Basis points Predicted Spread model working fine Actual US 1 yr = Core CPI +.38 x (USD3m LRA) +.8 x (ISM LRA) -.8 Budget (%GDP) Spread =.1 +. x (Aust3m US3m) Aus 1 yr = US 1 yr + spread LRA = long run average (199-) of variable Sources: Datastream; Economics@ANZ. 7 economics@

58 Sense that there is only limited upside for short rates will see Australian bond spreads narrow 1-year yields Spreads 7. % pa Basis points days-1 years.. Australia US 1 1 Basis points Australia-US 1 year Sources: Datastream; Economics@ANZ. 8 economics@

59 A$ has been helped by strong global investor appetite for (tolerance of) risk Measures of investor risk aversion and the A$ Equity market volatility Credit market spreads.8 US Index (inverted) 1.8 US Basis points (inverted) VIX index (right scale) A$-US$ (left scale) A$-US$ (left scale) Spread between yields on A-rated corporate and 3- year US Treasury bonds (right scale) Note: The VIX index is a measure of US stock market volatility based on prices of options on S&P futures. Sources: Datastream; Economics@ANZ. 9 economics@

60 A$ outlook shaped by lower, though still firm, commodity prices and narrowing rate premium Traditional fundamentals and the A$ Commodity prices Interest rate spreads.8 US -3 = US Basis points A$-US$ (left scale) RBA commodity price index (in US$) (right scale) Australia-US 9-day interest rate spread (right scale) A$-US$ (left scale) Sources: Datastream; Reserve Bank of Australia; Economics@ANZ. economics@

61 Australian dollar to lose ground against US$ but rise modestly against most other currencies A$ vs US$ A$ vs.8 US$ A$ vs A$ vs NZ$ NZ$ Sources: Datastream; Economics@ANZ. 1 economics@

62 Summary of the economic outlook for Australia Real GDP growth (%) ¾ 3¼ Employment growth (%).9 1½ 1¾ Unemployment rate (%) (a). ½ ½ Housing starts ( s) Motor vehicle sales ( s) CPI inflation (%) (b). 3 ¼ Wage cost (WCI) inflation (%) (b) 3.8 3½ Current account deficit ($bn) 8 3 RBA cash rate (% pa) (a) year bond yield (%) (a) A$ - US$ (a).7..8 A$ TWI(May 197 = 1) (a) (a) June (b) Year to June quarter; all other forecasts are year-average economics@