PhilipWebb Economic Forecast 2013 (copyright)

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WELCOME

PhilipWebbEconomic Forecast

Guest Speakers : Rob Brooker & Enzo Raidmondo

Philip Webb

Economic Update Forum

Rob BrookerHead of Australian Economics & Commodities, NAB12 November 2013

Important information

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GDP growth still below trend but improving in 2014 (mainly via advanced economies)

Still very depressed but recession may be bottoming out

Better fundamentals with moderate growth & potential withdrawal of stimulus causing volatility in financial markets

New stimulus packages implemented, QE has weakened Ұ and driven up equities. The bright spot!!

Focus on quality of growth rather than quantum, but mini stimulus to support H2 growth. Growth still robust but less rapid

Global economic story

The money is easyUS Fed still buying securities from private sector

Starts to end in March?

Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13

Govt securities Mortgage-backed securitiesLending to banks Crisis-related facilitiesBank deposits Banknotes

US Fed balance sheet

($US billion)

Source: IMF

QE1 QE2QE3

Global economic forecastsHalf of current global growth from China, India & Brazil

Bigger contribution in 2014 from advanced economies

4.14.24.04.2Trading partners

2013IMF

weight2012 2014 2015

World GDP growth 3.2 3.5 3.6

United States 19 2.8 2.6 2.9

Euro zone 14 -0.6 1.1 1.4

Japan 6 2.0 2.1 1.5

China 15 7.8 7.2 7.0

Emerging Asia(a) 8 3.8 3.8 4.2

India 6 5.1 4.9 5.3

(a) South Korea, Taiwan, ASEAN

Australian economic storyAdjusting to end of mining investment boom

Confidence better but headwinds remain

MINING

CASH RATE

FISCAL

Transition from labour-intensive investment to capital-intensive export: unemployment to rise, consumers to remain cautious

One more cut (maybe May) as unemployment continues to edge up

Downside from commodities prices, further cash rate cut & upside on USD as QE3 ends

Fiscal story no different under new government: preservation of AAA requires eventual return to cash surplus and fiscal restraint

Australian economic forecastsWeaker AUD & lower interest rates won’t be enough

Mining transition & fiscal austerity see labour market slower

* at end of period; ** through-year growth

n.a.0.860.95n.a.0.900.93$US/$A*

3.002.252.502.502.252.75RBA cash rate*

2.12.42.32.02.62.4CPI underlying**

6.36.65.96.66.35.7Unemployment rate*

0.90.31.10.70.41.3Employment

2.92.42.32.82.22.9GDP

2015201420132014-152013-142012-13

Confidence better but for how long? Business & consumer sentiment have improved

But business conditions remain below trend

Oct-07 Oct-08 Oct-09 Oct-10 Oct-11 Oct-12 Oct-1360

Business (s.a. LHS) Consumer (n.s.a. RHS)

Business & consumer confidence

Sources: NAB; Melbourne Institute-Westpac

bal.Index

Oct-07 Oct-08 Oct-09 Oct-10 Oct-11 Oct-12 Oct-13-40

Confidence Conditions

Business confidence & conditions

Source: NAB

Broad-based improvementSuggests influence of change of government

Interest rates & AUD also matter; mining also reflects China

Oct-12 Jan-13 Apr-13 Jul-13 Oct-13-40

Manufacturing Mining Construction Retail

Monthly confidence indexes(seasonally adjusted)

Source: NAB business survey

Transport Wholesale Services Finance

bal.Net.

Signs of life in forward indicators?Sales, profitability & employment better than mid-2013

Orders & stocks improved but capacity utilisation weak

Oct-07 Oct-08 Oct-09 Oct-10 Oct-11 Oct-12 Oct-13-40

Profitabiity Trading Employment

Business conditions: components

Source: NAB

Sep-07 Sep-08 Sep-09 Sep-10 Sep-11 Sep-12 Sep-13-30

Capacity use (LHS) Orders (RHS) Stocks (RHS)

Forward indicators

Source: NAB

Conditions still multi-speedMining, manufacturing, construction, retail weak

Wholesale, transport better; services best

Manufacturing Mining Construction Retail

Monthly conditions indexes(seasonally adjusted)

Transport Wholesale Services Finance

bal.Net.

Interstate variations widening againConfidence converging across states

But conditions showing wide variation

VIC NSW QLD SA WA TAS (trend)

Source: NAB

bal.Net.

VIC NSW QLD SA WA TAS (trend)

Source: NAB

Conditions worsen in ASX300Confidence improved from SMEs to ASX300 firms

But conditions deteriorating across all firm sizes

Sep-10 Jun-11 Mar-12 Dec-12 Sep-13-30

ASX300 (n.s.a.) Large (quarterly) SME

Quarterly confidence indexes(seasonally adjusted)

Source: NAB

bal.Net.

Sep-10 Jun-11 Mar-12 Dec-12 Sep-13-30

ASX300 (n.s.a.) Large (quarterly) SME

Quarterly conditions indexes(seasonally adjusted)

Source: NAB

bal.Net.

Retail sector weakConsumers still saving to repair balance sheets

Lower interest rates will help but higher unemployment won’t

Jun2005

Jun2007

Jun2009

Jun2011 2013

Household saving ratePer cent of net household disposable income

Source: ABS & NAB calculations

Seasonally adjusted Trend

Mining cliff approaching?After 2013 mining investment could take 2% pts p.a. off GDP

And release 75000 jobs from mining construction

Dec-00 Dec-03 Dec-06 Dec-09 Dec-12 Dec-150

Commencements Work done Work yet to be done

Source: ABS, NAB estimates

Engineering construction: mining($ billion, CVM)

Dec-03 Dec-05 Dec-07 Dec-09 Dec-11 Dec-13 Dec-15

Mining employment in construction Mining employment in operations

Mining employment

Source: NAB estimates

persons Projection

Structural adjustment to continueMining employment starting to decline

Adjustment process to go into reverse

Australian employmentChange since March 2008

2008 2009 2010 2011 2012 2013

Mining

Manufacturing

Education &

training

Health care &

social assistance

Sources: ABS; NAB

Retail

Employment indicators still softLabour market looks softer than 2012

Labour market conditions% change on same month of previous year

Oct-10 Oct-11 Oct-12 Oct-13

Job vacancies (LHS) ANZ job ads (LHS)

DEEWR internet vacancies (LHS) Employment (RHS)

Series break

Forecasts of cash ratesCash rate expectations December 2013

2 2.25 2.5 2.75 3 3.25 3.5

31/12/2013

No. of

forecasters

Cash rate forecast

Source: Bloomberg

Forecasts of cash rateCash rate expectations February 2014

2 2.25 2.5 2.75 3 3.25 3.5

28/02/2014

No. of

forecasters

Cash rate forecast

Source: Bloomberg

Forecasts of cash rateCash rate expectations March 2014

2 2.25 2.5 2.75 3 3.25 3.5

31/03/2014

No. of

forecasters

Cash rate forecast

Source: Bloomberg

Forecasts of cash rateCash rate expectations June 2014

2 2.25 2.5 2.75 3 3.25 3.5

30/06/2014

No. of

forecasters

Cash rate forecast

Source: Bloomberg

Forecasts of cash rateCash rate expectations September 2014

2 2.25 2.5 2.75 3 3.25 3.5

30/09/2014

No. of

forecasters

Cash rate forecast

Source: Bloomberg

Forecasts of cash rateCash rate expectations December 2014

2 2.25 2.5 2.75 3 3.25 3.5

31/12/2014

No. of

forecasters

Cash rate forecast

Source: Bloomberg

House prices strength patchyStrong rises in Sydney & Melbourne

But still recovering from GFC elsewhere

Monthly dwelling pricesRP Data-Rismark hedonic prices

Oct-07 Oct-08 Oct-09 Oct-10 Oct-11 Oct-12 Oct-13

$'000 $'000

Sydney

Melbourne

Brisbane

Adelaide

Source: RP Data-Rismark

Price bubble unlikelyPrices broadly in line with household borrowing capacity

House prices constrained by job insecurity

Dec-99 Dec-01 Dec-03 Dec-05 Dec-07 Dec-09 Dec-11 Dec-13 Dec-1550

Average dwelling price (LHS)

Implied borrowing capacity (RHS)

House prices & borrowing capacity

Forecast

First home buyer blues?But state govt schemes now focus on construction

Changes caused pull forward of applications

Sep-07 Sep-08 Sep-09 Sep-10 Sep-11 Sep-12 Sep-13

NSW VIC QLD SA WA

Housing finance for owner occupationAll lenders, total dwellings, % first home buyers

Source: ABS & NAB calculations

Supply shortage to continueRising unemployment & interest rates weighing on construction

But enough activity to prevent under-supply worsening

Dec-99 Dec-01 Dec-03 Dec-05 Dec-07 Dec-09 Dec-11 Dec-13 Dec-152.40

Completions (LHS) Population per dwelling (RHS)

Dwelling constructionCompletions & dwelling supply

Number

per qtr

$m per qtr

Forecast

Employment security a key constraintAccess to credit & rising interest rates becoming less of an issue

Major Constraints on Existing Property

0.50 1.50 2.50 3.50 4.50 5.50

Rising Interest Rates

Relative Returns on Other

Investments

Lack of Stock

Level of Prices

Access to Credit

Employment Security Q3'13

Not At All

Significant

Not Very

Significant

Somewhat

SignificantSignificant

Significant

Source: NAB Residential Property Survey

Overseas interest in new constructionHigh levels of interest from Asian investors

Source: NAB Residential Property Survey

Percentage Share of Buyers (Current)

Existing Properties vs New Developments

Australian Resident

First Home Buyers

Australian Resident

Owner Occupiers

Australian Resident

Investors

Overseas Buyers Other

Existing Properties New Developments

Prices likely to moderateSydney, Melbourne & Brisbane stronger than others

NAB Capital City House Price Forecasts (%)*

3.04.57.6-0.1-3.49.9Capital City Average

2.52.58.63.2-4.76.2Perth

1.52.01.0-1.0-3.96.9Adelaide

4.05.04.10.7-5.63.6Brisbane

2.54.56.8-3.1-3.013.3Melbourne

4.06.011.50.8-2.211.6Sydney

201520142013201220112010

*percentage changes represent through the year growth rates to Q3

State of the Residential MarketPhillip Webb, 12 November 2013

Market overview

Market outlook

Outer eastern hot spots

Market Overview

Victoria’s economic growth still slow

Unemployment still stabilising

Interest rates still at record low

Confidence has improved

Households are still saving more

Source: Reserve Bank of Australia

Million dollar sales increasing

First home buyers lowest on record

Population growth again on the rise

Victorian residential market over 30 years

Melbourne residential prices over 10 years

Auctions and clearance rates

Vacancy rates relatively stable

Rental Growth, Melbourne

Market Outlook

Consumer Sentiment v Clearance Rates

Clearance Rates v House Price Growth

Sentiment v Clearance Rates v House Price Growth

Outer Eastern Hot Spots

Outer Eastern Overview

Top 10 House Price Growth (Quarter)

Top 10 Unit Price Growth (Quarter)

Top 10 Rental Yield Suburbs

Top Rental Options

Top Investment Options

REIV Research

Following the market

QUESTIONS

THANK YOU

for attending

PhilipWebb Economic Forecast 2013 (copyright)

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