1 economics@
Asia economic updateAsia economic update
Presentation to ANZPresentation to ANZAsia Network Monthly MeetingAsia Network Monthly Meeting
Amy Amy AusterAusterSenior EconomistSenior EconomistANZ BankANZ Bank
30 June 200530 June 2005
www.anz/com/go/economicswww.anz/com/go/economicswww.anz/com/go/economics
2 economics@
Regional growth forecasts still very strong, Regional growth forecasts still very strong, with China and Japan making big contributionwith China and Japan making big contribution
4.9
7.07.03.05.34.73.25.16.54.54.68.2
4.2
37.4
2006
4.9
6.77.04.14.76.23.35.45.74.24.27.8
4.2
N/a
2007
4.26.1 Thailand
7.38.2Non-Japan East Asia*
3.86.1 Philippines7.57.7Vietnam
6.05.1 Indonesia3.85.7 Taiwan3.84.6Korea8.89.5 China
4.47.1 Malaysia4.58.2 Hong Kong
3.88.4 Singapore
4.55.8Non-Japan East Asia excl. China*
4.35.2World GDP growth (%)*
42.543.3Oil prices (US$ per barrel)
20052004
*weighted GDP at PPP exchange rates*weighted GDP at PPP exchange rates
3 economics@
0
3
6
9
12
15
Q1 00 Q3 01 Q1 03 Q3 04
Real GDP growth % YOY
0
3
6
9
12
15
Q1 00 Q3 01 Q1 03 Q3 04
Real GDP growth % YOY
Growth patterns are diverging in emerging AsiaGrowth patterns are diverging in emerging AsiaGrowth patterns are diverging in emerging Asia
China
Korea
Sources: Datastream; ABARE; Economics@ANZ
Indonesia
Singapore
0
3
6
9
12
15
Q2 01 Q4 02 Q2 04
Real GDP growth % YOY
-10-7-4-1258
1114
Q1 00 Q3 01 Q1 03 Q3 04
Real GDP growth % YOY
4 economics@
-4
-2
0
2
4
6
8
Q1 01 Q3 02 Q1 04 Q3 05 Q1 07
Real GDP growth % YOY
Real
Euroland
USA
Japan
ANZ forecasts
Japan will be important for AustraliaJapan will be important for AustraliaJapan will be important for Australia
Developed world growth
-2
-1
0
1
2
3
4
5
6
Q1 01 Q3 02 Q1 04 Q3 05 Q1 07
Real GDP growth % YOY
Real
Inventories
Final domestic demand
Net exports
ANZ forecasts
Contributors to Japan growth
Sources: Bank of Japan
5 economics@
But the outlook for oil is a key questionBut the outlook for oil is a key question
Oil demand
Sources: IMF, BP, OECD and Economics@ANZ.
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
98 00 02 04 06
Annual change (mn bbl/day)
China accounted for 36% and the US 20% of this
increase
20-year average
OPEC excess capacity
0
2
4
6
8
10
12
78 86 94 02
Mns/barrels per day
Record low in 2004
6 economics@
Will high oil prices derail Japan’s recovery?Will high oil prices derail Japan’s recovery?Will high oil prices derail Japan’s recovery?
Sources: Bank of Japan; Shokochukin Bank; METI; Economics@ANZ.
-50
-25
0
25
01 02 03 04 05
Net balancejudging "good" (%)
Small firms
Large firms
Tankan business conditions
3540455055
01 02 03 04 05
Net balance (%)
Shokochukin (SME) index
85
90
95
100
105
01 02 03 04 05
Index (FY 2000= 100)
Trend
Actual
Industrial production
100
102
104
106
108
01 02 03 04 05
Index (FY 2000= 100)
Trend
Actual
Tertiary sector activity
7 economics@
The increase in oil consumption is not exceptional The increase in oil consumption is not exceptional by historical standardsby historical standards
Global oil consumption
Sources: BP, Economics@ANZ
-15
-10
-5
0
5
10
15
20
25
30
70 74 78 82 86 90 94 98 02 06
Cumulative % change over three years
8 economics@
The world isn’t running out of oil (yet)The world isn’t running out of oil (yet)
Proved Oil Reserves
Sources: BP
600
700
800
900
1000
1100
1200
1300
80 84 88 92 96 00 04
bn barrels/day
Refinery capacity
66
68
70
72
74
76
78
80
82
84
86
80 84 88 92 96 00 04
'000 barrels/day
9 economics@
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
95 96 97 98 99 '00 '01 '02 '03 '04 '05
US W Europe Japan China Remainder
% of global economy in market rates
Real
G10 still dominates global demand but China is growing, particularly in commoditiesG10 still dominates global demand but China is G10 still dominates global demand but China is growing, particularly in commoditiesgrowing, particularly in commodities
Contribution to world growth
Contribution to world energy consumption
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
95 96 97 98 99 '00 '01 '02 '03 '04
US W Europe Japan China Remainder
% of global primary energy consumption
Real
Source: Datastream, Source: BP 2004 Statistical Yearbook
10 economics@
20
40
60
80
100
120
140
00 01 02 03 04 05 06 07
US$ / tonne
Coking coal
Steaming coal
50
75
100
125
150
175
00 01 02 03 04 05 06 07
US¢ / pound
Commodity prices close to peaking but in most cases will remain strong by historical standardsCommodity prices close to peaking but in most Commodity prices close to peaking but in most cases will remain strong by historical standardscases will remain strong by historical standards
Coal
Copper
Sources: Datastream; ABARE; Economics@ANZ
Beef
Sugar
175200225250275300325350
00 01 02 03 04 05 06 07
US¢ / kilo
56789
101112
00 01 02 03 04 05 06 07
US¢ / pound
11 economics@
0
10
20
30
40
Q4 2003 Q2 2004 Q4 2004
Japan Korea EU Taiwan India
% of export volume
Australia’s key minerals market is North AsiaAustralia’s key minerals market is North AsiaAustralia’s key minerals market is North Asia
Australia’s top commodities, by value, % of total exports (03/04)
Coal
Sources: Datastream; ABARE; Economics@ANZ
Iron
16.7Petroleum and products
2.4Zinc
6.0Nickel
4.1Copper
7.0Alumina
7.1Aluminum
10.5Gold
13.9Iron
20.7Coal, black
0
10
20
30
40
50
Q4 2003 Q2 2004 Q4 2004
China Japan EU Taiwan Korea
% of export volume
12 economics@
Investment in China is moderating but Investment in China is moderating but commodity demand will remain strongcommodity demand will remain strong
0
10
20
30
Jan-04 May-04 Sep-04 Feb-050
20
40
60% ch YOYInventories
Fixed asset investment
Retail sales
0
10
20
30
95 99 '03
% ch YOY
Electricity gen.
Steel + ironproducts
Cement
Monthly indicators Major industrial products
-50
-20
10
40
70
100
1995 1999 2003
% ch YOY
Ores and fuels
Machinery and equip
Non edible raw materials
Growth of specific imports
0%
20%
40%
60%
80%
100%
1995 1999 2003
% of total
Machinery and transport
Non-edible raw mat
Light and textile
Ores, fuels + related
Composition of imports
13 economics@
For other economies in north Asia, high oil For other economies in north Asia, high oil prices are more problematicprices are more problematic
0
5
10
15
20
25
30
35
40
45
Jan-03
May-03
Sep-03
Jan-04
May-04
Sep-04
Jan-05
China Korea Hong KongTaiwan SE Asia
Exports % YOY
-10,000
-5,000
0
5,000
10,000
15,000
Jan-04 May-04 Sep-04 Jan-05 May-05
North Asia SE Asia Asia excl China
Monthly trade balance US$ mn, smoothed
Sources: Datastream
14 economics@
Detail is scant, but domestic demand appears Detail is scant, but domestic demand appears to be holding in for nowto be holding in for now
0
5
10
15
20
25
30
Jan-
04
Mar-0
4
May-04
Jul-0
4
Sep-04
Nov-04
Jan-
05
Mar-0
5
Thailand
China
Singapore
Hong Kong
0
5
10
15
20
25
30
35
40
Jan-
04
Mar-0
4
May-04
Jul-0
4
Sep-04
Nov-04
Jan-
05
Mar-0
5
Retail sales % YOY Imports % YOY
North Asia
SE Asia
Total excl China
Source: Datastream
15 economics@
Decline of pressure on local currencies will support exports in 2006
Note: charts show daily data from 31 Dec 2003 onwards.*‘Non-deliverable forward’ contract. Source: Datastream.
Singapore dollar
Korean won
1000
1050
1100
1150
1200Dec-03 Apr-04 Aug-04 Dec-04 Mar-05
Won per US$(inverted)
1.60
1.65
1.70
1.75Dec-03
Mar-04
Jun-04
Sep-04
Dec-04
Mar-05
S$ per US$(inverted)
Chinese yuan7.77.87.98.08.18.28.38.4
Dec-03
Mar-04
Jun-04
Sep-04
Dec-04
Mar-05
Yuan per US$ (inverted)
Spot rate
12-mth NDF*
Japanese Yen
100
105
110
115
120
125Dec-03
Mar-04
Jun-04
Sep-04
Dec-04
Mar-05
Y per US$(inverted)
16 economics@
Some changes to our currency forecastsSome changes to our currency forecasts
55.554.555.0056.05US$ - PP
32.8032.1031.3031.69US$ - NT$
1 0651 050 1 0061 035US$ - Won
39.0039.5040.838.91US$ - Bt
8 9009 3009 6009 290US$ - Rph
3.603.803.803.80US$ - M$
7.797.797.787.80US$ - HK$
15 768
1.64
8.28
102.6
Dec 2004
15 850
1.67
8.28
107
Jun 2005
16 100
1.69
8.28
112
Dec 2005
16 400US$ - Dong
1.72US$ - S$
8.28US$ - Yuan
115US$ - ¥
Dec 2006
17 economics@
8
10
12
14
16
18
20
79 80 81 82
% pa Fed funds (cash) rate
10-yearbond yield
Behaviour of US bond markets and Fed conundrum connected with Asia savings exportsBehaviour of US bond markets and Fed Behaviour of US bond markets and Fed conundrum connected with Asia savings exportsconundrum connected with Asia savings exports
Four episodes of rising interest rates
Note: Shaded areas show periods when the Federal Reserve has been tightening monetary policy by raising the ‘Federal funds’ (cash) rate. Sources: Datastream; Federal Reserve
6
7
8
9
10
11
88 89 90
% pa Fed funds (cash) rate
10-yearbond yield
23456789
93 94 95
% pa
Fed funds(cash) rate
10-year bond yield
0
1
2
3
4
5
03 04 05
% pa
Fed funds(cash) rate
10-year bond yield
l Unlike Australia, in the US most personal and business borrow-ing is done at fixed rates
l Thus, what happens to long-term rates is much more important
l Usually, long-term rates rise while the Fed is tightening monetary policy
l But in this latest episode, long-term rates have fallen
18 economics@
Cross rates with A$ forecastsCross rates with A$ forecasts
0.590.560.630.57A$ - Euro
36.136.042.143.66A$ - PP
21.321.224.124.68A$ - NT$
692693770806A$ - Won
25.426.131.130.31A$ - Bt
5 7856 1387 3517 236A$ - Rph
2.442.512.922.96A$ - M$
12 282
1.27
6.45
79.9
Dec 2004
12 126
1.27
6.33
82.2
Jun 2005
10 626
1.12
5.46
72.6
Dec 2005
10 168A$ - Dong
1.12A$ - S$
5.38A$ - Yuan
73.5A$ - ¥
Dec 2006
19 economics@
Consensus forecasts for the next 10 yearsConsensus forecasts for the next 10 years
102
639
3,603
290
560
864
1,099
8,092
1,826
9,000
4,009
12,332
2005
GDP (2005 US$bn at PPP exchange rates)Real GDP growth, % pa
5005.44.7Malaysia
9505.62.8Thailand
1,5506.02.7Indonesia
1,7004.54.4Korea
1502.93.2New Zealand
9003.43.7Australia
7,0156.06.0India
17,5508.08.4China
2,2502.12.8United Kingdom
11,0002.02.0Euro area
4,6501.51.1Japan
16,9503.23.4United States
2015 (e)2006-2015 (f)1995-2005
Note: These are ‘consensus forecasts’; the fact that they are presented here does not imply that they are endorsed by Economics@ANZ. Sources: IMF, World Economic Outlook April 2005;Consensus Economics, Consensus Forecasts April 2005;Economics@ANZ.
