A Global Economic and Market Outlook

February 2013

Presented by Dr Chris Caton

Euro-area government bond spreads (to German bonds)

2

The two that matter have clearly improved (long-term bond yields (%))

3

4

2013 Growth Forecasts (%)

Month of Forecast

M-12 A-12 M-12 J-12 J-12 A-12 S-12 O-12 N-12 D-12 J-13

Australia 3.1 3.1 3.4 3.2 3.1 3.1 2.9 2.9 2.8 2.7 2.6

New Zealand

3.2 3.1 3.0 3.0 2.9 2.8 2.8 2.7 2.6 2.6 2.5

US 2.6 2.5 2.5 2.4 2.3 2.1 2.1 2.0 1.9 1.9 2.0

Japan 1.5 1.5 1.5 1.3 1.4 1.4 1.3 1.3 0.8 0.6 0.7

China 8.6 8.5 8.5 8.4 8.4 8.3 8.1 8.1 8.1 8.1 8.1

Germany 1.5 1.6 1.6 1.4 1.3 1.2 1.0 0.9 0.8 0.7 0.7

UK 1.8 1.8 1.8 1.8 1.6 1.4 1.3 1.2 1.3 1.1 1.0

“World” 3.2 3.1 3.1 3.0 2.9 2.9 2.8 2.8 2.7 2.6 2.6 Source: Consensus Economics

5

Real GDP growth in Australia and the US

Source: Datastream

-5

-2.5

0

2.5

5

7.5

10

80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12

USAustralia

Year to % change

Australia’s Terms of trade (Index 1900-01 to 1999-00 = 100)

Source: ABS Catalogue Number 5206.0, RBA and Treasury.

60

80

100

120

140

160

180

200

60

80

100

120

140

160

180

200

1869-70 1894-95 1919-20 1944-45 1969-70 1994-95 2019-20

Index Index

Budget forecasts/ projections

5 - year centred moving average

Have iron ore prices got ahead of themselves?

7

8

The Labour market is close to static

Source: ABS

8500

9000

9500

10000

10500

11000

11500

12000

00 01 02 03 04 05 06 07 08 09 10 11 12 134.0

4.5

5.0

5.5

6.0

6.5

7.0

7.5000’s %

Employment (LHS)

Unemployment Rate (RHS)

Contributions to jobs growth (year to November 2012, thousands)

9

10

Australian Inflation

Source: ABS

0

1

2

3

4

5

6

7

00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15

Headline CPI Underlying inflation

%

BT Forecasts

GST Effect

Interest rate changes do make a difference!

11

House Prices - Australia v Canberra

Source: ABS

100

150

200

250

300

350

400

450

500

550

600

87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12

Canberra AustraliaIndex (1987 = 100)

House Prices - Australia v Sydney

Source: ABS

100

150

200

250

300

350

400

450

500

550

600

87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12

Sydney AustraliaIndex (1987 = 100)

We are very expensive compared with the United States

14

But not otherwise!

15

Prices have fallen everywhere but they may be turning

16

17

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 11 12 13 14

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

%

BT Forecasts

GST Effect

18

Mining investment will peak soon

19

Financial Market Forecasts

Now (1 Feb)

End-Jun 2013

End-Dec 2013

AUD/USD 1.042 1.00 0.95

Official cash rate (%) 3.00 2.75 2.75

10 Year Bond yield (%) 3.50

3.60 3.75

ASX 200 4878

5000 5200

20

The Australian Dollar and US Trade Weighted Index

Source: Datastream

64

84

103

122

142

161

180

99 00 01 02 03 04 05 06 07 08 09 10 11 12 130.40

0.52

0.64

0.76

0.88

1.00

1.12Index AUD/USD

US TWI inverted (LHS)

AUD/USD (RHS)

21

Australian dollar against Asian share markets

Source: Datastream

0.6

0.7

0.8

0.9

1

1.1

1.2

08 09 10 11 12 13175

245

315

385

455

525

595$A Asian Emerging Markets Index

Asian Emerging Markets Index (RHS)

$A (LHS)

22

Australian Sharemarket Performance – ASX200

Source: Bloomberg

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 10 11 12 13

The Australian market is not nearly as cheap as it was (p/e ratio)

23

The current state of the US economy does make a difference to markets

24

The current recovery compared with previous “big ugly bears”

25

26 Source: Consensus Economics

GDP Inflation Australia 3.0 2.6 Norway 2.7 1.9 New Zealand 2.6 2.3 United States 2.5 2.3 Sweden 2.2 1.7 Canada 2.1 2.0 United Kingdom 1.8 2.8 Netherlands 1.6 2.2 Switzerland 1.6 1.1 Spain 1.6 2.1 France 1.4 1.9 Germany 1.4 2.1 Eurozone 1.1 2.0 Japan 1.1 0.7 Italy 0.5 2.1

Global Medium-Term Economic Growth and Inflation Prospects (2012-2022)

27

Asia-Pacific Medium-Term Economic Growth and Inflation Prospects (2012-2022)

GDP Consumer Prices

India 7.2 5.9 China 7.1 3.0 Indonesia 6.1 5.7 Philippines 5.2 4.4 Malaysia 4.8 2.3 Thailand 4.4 3.0 Singapore 4.0 2.7 Taiwan 3.4 2.1 South Korea 3.4 2.7 Hong Kong 3.3 3.1 Australia 3.0 2.6 New Zealand 2.6 2.3 Japan 1.1 0.9

Source: Consensus Economics

28

Morgan Stanley Capital Indexes

Source: Datastream

600

900

1200

1500

1800

2100

2400

2700

3000

3300

3600

03 04 05 06 07 08 09 10 11 12 13100

150

200

250

300

350

400

450

500

550

600Developed Index Asian Emerging Markets Index

Asian Emerging Markets Index (RHS)

World Developed Index (LHS)

29

Summary

Eurozone debt is a serious issue; it will drag on for a long time but is unlikely to end in catastrophe. We will always worry about China.

Fiscal cliff issues have been delayed for a few months.

The Australian economy should continue to experience moderate but unbalanced growth, led by mining investment. The mining boom will, of course, end eventually.

The cash rate is likely to fall again.

The exchange rate is above fair value. The rest of the world is still on sale for Australians.

Share markets are still slightly cheap.

30

This presentation has been prepared by BT Financial Group Limited (ABN 63 002 916 458) ‘BT’ and is for general information only. Every effort has been made to ensure that it is accurate, however it is not intended to be a complete description of the matters described. The presentation has been prepared without taking into account any personal objectives, financial situation or needs. It does not contain and is not to be taken as containing any securities advice or securities recommendation. Furthermore, it is not intended that it be relied on by recipients for the purpose of making investment decisions and is not a replacement of the requirement for individual research or professional tax advice. BT does not give any warranty as to the accuracy, reliability or completeness of information which is contained in this presentation. Except insofar as liability under any statute cannot be excluded, BT and its directors, employees and consultants do not accept any liability for any error or omission in this presentation or for any resulting loss or damage suffered by the recipient or any other person. Unless otherwise noted, BT is the source of all charts; and all performance figures are calculated using exit to exit prices and assume reinvestment of income, take into account all fees and charges but exclude the entry fee. It is important to note that past performance is not a reliable indicator of future performance.

This document was accompanied by an oral presentation, and is not a complete record of the discussion held.

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