Economic Update

Dr Ron Woods

Dr Ron WoodsChallenger Financial Services Group

22 November 2006

House prices annual % change

-10%

0%

10%

20%

30%

40%

50%

Dec.00 Dec.01 Dec.02 Dec.03 Dec.04 Dec.05 Dec.06

0%

10%

20%

30%

40%

50%

60%

Ho

ba

rt o

nly

Perth

Brisbane

Adelaide

Sydney

Melbourne

Hobart, only city on right axis

Net job creation 2 yrs to housing peak*

-5%

0%

5%

10%

15%

20%

25%

*east cost bubble: Q3 2001 to Q3 2003

>100% net priv sector

Final demand by state, % annual change

1%

2%

3%

4%

5%

6%

Jun-03 Dec-03 Jun-04 Dec-04 Jun-05 Dec-05 Jun-06

1%

2%

3%

4%

5%

Australia, left axis

Aust less WA & QLD, right axis

Comex copper futures

Comex oil futures

Theoretical Phillips curve

-5.0%

-2.5%

0.0%

2.5%

5.0%

7.5%

10.0%

4 5 6 7 8 9 10

unemployment rate, %

Wag

es, c

ore

CPI in

flatio

n

GSTimpact

core CPI & unemployment

wages & unemployment

20061995

20001992

PC incorrect: Phillips curve since ’90s

-5.0%

-2.5%

0.0%

2.5%

5.0%

7.5%

10.0%

4 5 6 7 8 9 10

unemployment rate, %

Wag

es, c

ore

CPI i

nfla

tion

GSTimpact

core CPI & unemployment

wages & unemployment

20061995

20001992

Australian yield curve (10-yr minus 3-yr)

-0.50

-0.25

0.00

0.25

0.50

0.75

1.00

Nov-99 Nov-00 Nov-01 Nov-02 Nov-03 Nov-04 Nov-05 Nov-06

Inflationary expectations contained: 10-year bond yield

minus 3-year bond yield

inverted yield curve

Email to

roneconomics@hotmail.com

Disclaimer

The information contained in this presentation is current as of 10 November unless otherwise specified and is intended solely for licensed financial advisers. It is issued by Challenger Managed Investments Limited ABN 94 002 835 592 AFSL 234668. It must not be passed on to a retail client except where it is included as part of the financial adviser’s own advice to the client and is not accredited to Challenger. It should be regarded as general information only rather than advice. It has been prepared without taking account of any person’s objectives, financial situation or needs. Offers of interests in any Challenger product are contained in the current Product Disclosure Statement which is available on our website (www.challenger.com.au) and must be considered before making a decision about the product. Past performance is not a reliable indicator of future performance.

Monetary policy scorecard

Feb 2001

Dec 2001

SepOct

Apr

Mar

Dec

Nov

May

Nov '99

Aug

May Feb 2000

Apr

Dec

J un

MarMay '06

Aug

Nov '06

-0.50

-0.30

-0.10

0.10

0.30

0.50

0.70

0.90

1.10

J une-98 J une-99 J une-00 J une-01 J une-02 J une-03 J une-04 J une-05 J une-06

10

yr

bo

nd

yie

ld m

inu

s 3

year

yie

ld

Yield curve 10yr minus 3yr easing tightening

easing more appropriate in this range

tightening more appropriate in this range