Grant Turley CFO Network presentation
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Transcript of Grant Turley CFO Network presentation
Australia’s Challenges in a Commodity Boom
Grant TurleySenior FX Strategist15 September 2010
2
Australia has outperformed most advanced economies during the global financial crisis
Sources: Bloomberg and ANZ
Unemployment rates
3
4
5
6
7
8
9
10
11
12
13
80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10
UK US AUS Eurozone
%
3
Australia was assisted by a sharp rebound in trading growth compared to the OECD
4
Australia and the worldFor Australia, the G7 outlook is less and less meaningful - China is now our number 1 trade partner
Source: ANZ, RBA ASEAN 6: Singapore, Indonesia, Malaysia, Thailand, Philippines, Vietnam Other Asia: HK & Taiwan
Australian two-way trade weights
World Asia
0
10
20
30
40
50
60
70
70 75 80 85 90 95 00 05 10
US Europe
UK Asia
% pts
0
5
10
15
20
25
30
35
70 75 80 85 90 95 00 05 10
Japan
China
Korea
ASEAN 6
Other Asia
% pts
5
Industrial commodity prices move in long wave (25-40 year) cyclesReal copper price
Sources: Bloomberg; ANZ.
0
100
200
300
400
500
600
700
1897 1907 1917 1927 1937 1947 1957 1967 1977 1987 1997 2007 2017
Real Price (US CPI adjusted)
6
Australia is now poised for an investment boomThe proposed Resource Super Profits tax is impacting investment planned for 2012-19
ABARE Advanced Mining and Energy Projects
Source: ABARE
7
Infrastructure requirements and mining drive an investment boom Investment is expected to surge in late 2010
Sources: ABS and ANZ
Engineering construction
0
5000
10000
15000
20000
25000
30000
87 89 91 93 95 97 99 01 03 05 07 09 11
New engineering construction
Engineering commencements 6mforward 4qma
Vol $mn
0
20
40
60
80
100
120
140
00 01 02 03 04 05 06 07 08 09 10 11
$A
(e)
(e)+20% (mining +40%)
Capital expenditure expectations
8
Inflation has not been to the bottom of the target band in 10 yearsThe current forecast leaves little room for upside surprises
Sources: RBA and ANZ
RBA’s Core Inflation Forecasts
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
5.0
01 02 03 04 05 06 07 08 09 10 11 12
annual
% c
han
ge
RBA May & Aug 10 Forecast
RBA Feb 10 Forecast
RBA Nov 09 Forecast
RBA Aug 09 Forecast
RBA May 09 Forecast
RBA core inflation
Forecast
9
Australia has been supported by the GFC fiscal responseNow we are looking for a transition to the private sector
Sources: ANZ, ABS
Australian GDP
-2
-1
0
1
2
3
4
5
6
87 89 91 93 95 97 99 01 03 05 07 09 11
-2
-1
0
1
2
3
4
5
6
7
Private final demand
Public final demand
GDP rhs
Ppt
contr
ibuti
on t
o y
earl
y G
DP g
row
th
Forecasts
% y
early
change
10
The household sector is likely to be the casualty of this mining boom because the capacity-constrained Australian economy can’t accommodate all sectors firing
-60
-40
-20
0
20
40
60
80
00 01 02 03 04 05 06 07 08 09 10
Building approvals
Housing finance approvals
'000 a
nnualis
ed (
12m
ma)
0
2
4
6
8
10
02 03 04 05 06 07 08 09 10
Total retail sales
annual %
change
Retail sales Building approvals
11
In August the RBA expected the savings rate to riseThe Q2 GDP figures revealed a further decline in the saving rate
Household savings ratio
Sources: ABS
-4
-2
0
2
4
6
8
95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10
Household savings
% of household disposible income
12
100
150
200
250
300
350
400
450
76 78 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10
100
125
150
175
200
225
Population growth vs. dwelling completions
Annual dwelling completions (rhs)
Annual population gain (lhs)
Strong population gains drive an undersupply of housingThis will put a floor under house prices and construction but upward pressure on rents and inflation
‘000 ‘000
Sources: ABS, ANZ Economics and Markets Research
13
Market expectations do not reflect policy risksEven modest further tightening is not priced-in
Source: ANZ & Bloomberg
RBA cash rate and market expectations
2.0
3.0
4.0
5.0
6.0
7.0
8.0
95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12
per
cen
t
RBA Cash Rate
ANZ Forecast
Current Cash Rate Futures
14
Australia - “Making room for the mining boom MkII”
• The Australian economic outlook is strong We forecast growth to accelerate to 3¾ - 4% next year The new peak in the terms of trade is set to drive an investment and export boom. In the short-term, it could be a bumpy ride as the economy transitions from public to
private demand drivers A disruption to global credit markets and a hard landing in Chinese property are the
main external risks
• Inflation has more than likely bottomed in 2Q10 We are on cusp of investment boom and capacity is already stretched in product and
labour markets Strong demand and limited supply flexibility points to a pick up in inflation
• Households must accommodate the investment boom With a boom in mining investment ‘locked in’ a subdued household is required This prospect seems unlikely with falling unemployment and rising wealth The RBA will need to step in to restrain the household
• The return of the two-speed economy Divergent prospects for different sectors suggest the split between the resource
and non-resource States may sharply widen
15
Australian dollar outlookIf commodity prices remain elevated so too will the Australian dollar
Source: Bloomberg, ABS and ANZ
Terms of trade and A$TWI
50
60
70
80
90
100
110
120
130
140
86 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
45
50
55
60
65
70
75
80
Terms of trade RHS
A$TWI RHS
A$ TWIIndex
Forecasts
16
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