A Global Economic and Market Outlook

March 2009

Presented by Dr Chris Caton

2

Financial Market Forecasts

Now(27 Feb)

End-Jun2009

End-Dec2009

AUD/USD 0. 640 0.69 0.73

Official cash rate (%) 3.25 2.50 2.50

10 Year Bond yield (%) 4.31 4.40 4.60

ASX 200 3345 3700 4200

3

The Australian Dollar and US Trade Weighted Index

Source: Datastream

89

103

118

132

147

161

03 04 05 06 07 08 09

0.55

0.64

0.73

0.82

0.91

1Index AUD/USD

US TWI inverted (LHS)

AUD/USD (RHS)

4

Exchange-rate volatility has been very high

5

Australian Sharemarket Performance – ASX200

Source: Bloomberg

1000

1500

2000

2500

3000

3500

4000

4500

5000

5500

6000

6500

7000

93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09

6

Australian Sharemarket Performance – ASX200 (log scale)

Source: Bloomberg

1000

10000

93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09

7

Australian p/e ratios

8

Largest falls in Australian equities

9

US Housing starts and Permits

Source: Datastream

0.4

0.8

1.2

1.6

2

2.4

96 97 98 99 00 01 02 03 04 05 06 07 08 09

Permits Starts

(Millions)

10

Total US Non-farm Employment

Source: Datastream

-1.6

-1.2

-0.8

-0.4

0

0.4

0.8

1.2

1.6

71 73 75 77 79 81 83 85 87 89 91 93 95 97 99 01 03 05 07 09

3mth / 3mth chg

11

2009 Growth Forecasts (%)

Month of Forecast

A-08 S-08 O-08 N-08 D-08 J-09 F-09

Australia 2.6 2.6 2.1 1.7 1.1 0.9 0.3

New Zealand 1.7 1.7 1.3 0.6 0.2 -0.2 -0.9

US 1.4 1.4 0.0 -0.6 -1.3 -1.8 -2.1

Japan 1.2 0.9 0.5 -0.1 -0.9 -1.7 -3.8

China 9.2 9.1 8.8 8.1 7.8 7.4 7.0

Germany 1.1 0.8 0.3 -0.4 -1.2 -2.0 -2.5

UK 0.9 0.6 -0.2 -0.9 -1.5 -2.2 -2.6

“World” 2.6 2.5 1.9 1.1 0.4 -0.2 -0.8

Source: Consensus Economics

12

Trading partners growing significantly below trend

13

Real GDP growth in Australia and the US

Source: Datastream

-4

-2

0

2

4

6

8

10

80 82 84 86 88 90 92 94 96 98 00 02 04 06 08

USAustralia

Year to % change

14

The Labour market

Source: ABS

7500

8000

8500

9000

9500

10000

10500

11000

89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09

4.0

5.0

6.0

7.0

8.0

9.0

10.0

11.0000’s %

Employment (LHS)

Unemployment Rate (RHS)

15

Australian Inflation

Source: ABS

-1

0

1

2

3

4

5

6

7

8

9

90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11

Headline CPI Underlying inflation

%

BT Forecasts

GST Effect

16

Petrol Prices relative to CPI

Source: ABS

0.8

0.9

1

1.1

1.2

1.3

1.4

1.5

80 82 84 86 88 90 92 94 96 98 00 02 04 06 08

17

Household debt and interest

18

Hang on…help is on the way

19

House Prices - Australia v Brisbane

Source: ABS

100

150

200

250

300

350

400

450

500

550

600

650

87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08

Brisbane Australia

Index (1987 = 100)

20

50

100

150

200

250

300

350

400

450

59 64 69 74 79 84 89 94 99 04 09

2000 = 100

Deflated byUS CPI

Real metal prices

Sources: IMF International Financial Statistics; US Bureau of Labor Statistics; Economics@ANZ.

Commodity prices are finally falling

21

Gross Domestic Product

Source: ABS

-3

-2

-1

0

1

2

3

4

5

6

7

8

90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10

Qtly growth Year-to growth Non-farm year-to growth

%

BT Forecasts

GST Effect

22

Source: Consensus Economics

GDP InflationAustralia 2.9 2.8New Zealand 2.5 2.6United States 2.3 2.0Canada 2.3 1.9Sweden 2.1 2.2Norway 2.0 2.4Spain 1.9 2.3United Kingdom 1.8 2.1France 1.6 1.7Netherlands 1.5 1.8Switzerland 1.5 1.4Euro zone 1.5 1.9Germany 1.2 1.5Japan 1.0 0.3

Italy 0.9 2.0

Global Medium-Term Economic Growth and Inflation Prospects (2008-2021)

23

Asia-Pacific Medium-Term Economic Growth and Inflation Prospects (2008-2018)

GDP Consumer Prices

China 8.5 3.7

India 7.5 5.2

Indonesia 5.8 6.0

Malaysia 5.3 3.0

Thailand 5.1 3.3

Singapore 4.8 2.5

Taiwan 4.4 2.1

South Korea 4.2 2.9

Hong Kong 4.1 3.2

Australia 2.9 2.8

New Zealand 2.5 2.6

Japan 1.0 0.3

Source: Consensus Economics

24

Morgan Stanley Capital Indexes

Source: Datastream

600

900

1200

1500

1800

2100

2400

2700

3000

3300

3600

02 03 04 05 06 07 08 09

100

150

200

250

300

350

400

450

500

550

600Developed Index Asian Emerging Markets Index

Asian Emerging Markets Index (RHS)

World Developed Index (LHS)

25

Summary

2009 will be a very poor year for the world economy. A deep recession in the US is (more than) fully priced in. The risk is that it drags on.

The Australian economy has slowed, and is almost certainly already in recession. No matter what, it will be a tough year for many.

Interest rates will continue to fall.

The exchange rate is below fair value and likely to rise.

Stocks are cheap right now.

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