A Global Economic and Market Outlook March 2012 Presented by Dr Chris Caton

European tensions are lessening? (bond yields(%)) 2

Back to the future? (spread to German bunds) 3

Government debt (% of GDP)– Greece has the biggest problem by far 4

5 US Housing starts are showing some signs of life Source: Datastream (Millions)

Growth Forecasts (%) Month of Forecast M-11J-11 A-11S-11O-11N-11D-11J-12F-12 Australia New Zealand US Japan China Germany UK “World” Source: Consensus Economics

7 Real GDP growth in Australia and the US Source: Datastream Year to % change

It’s the developing world, stupid 8

What goes up... 9

...must come down (RBA’s forecast of terms of trade) 10

Commodity prices have already peaked 11

12 The labour market went sideways in 2011 Source: ABS 000’s% Employment (LHS) Unemployment Rate (RHS)

Retail spending has slowed (volumes, index, March qtr 2007=100) 13

And here’s one reason..household saving has risen 14

15 Australian Inflation Source: ABS % BT Forecasts GST Effect

Interest rate changes do make a difference! 16

House Prices - Australia v Sydney Source: ABS Index (1987 = 100)

House Prices - Australia v Melbourne Source: ABS Index (1987 = 100)

House Prices - Australia v Brisbane Source: ABS Index (1987 = 100)

If there is a bubble it’s been there for a while 20

Prices have fallen everywhere 21

Value of new approvals (net of refinancing) 22

Housing credit growth has slowed significantly 23

This isn’t good news either  24

25 Gross Domestic Product Source: ABS % BT Forecasts GST Effect

26 Mining investment is set to soar

We’ve never been here before—mining investment as a share of GDP 27

28 Source: Consensus Economics GDPInflation Australia New Zealand2.7 Norway United States Sweden Canada United Kingdom Spain Switzerland Netherlands France Germany Eurozone Japan Italy Global Medium-Term Economic Growth and Inflation Prospects ( )

29 Asia-Pacific Medium-Term Economic Growth and Inflation Prospects ( ) GDPConsumer Prices India China Indonesia Singapore Philippines Malaysia Thailand Taiwan South Korea Hong Kong Australia New Zealand2.7 Japan Source: Consensus Economics

30 Financial Market Forecasts Now (8 Mar) End-June 2012 End-Dec 2012 AUD/USD Official cash rate (%) Year Bond yield (%) ASX

31 The Australian Dollar and US Trade Weighted Index Source: Datastream IndexAUD/USD US TWI inverted (LHS) AUD/USD (RHS)

The $A against an index of Chinese activity 32

The $A against Asian share markets 33

34 Australian Sharemarket Performance – ASX200 Source: Bloomberg

The Australian market is cheap (P/E ratio) 35

36 Valuations have deflated to reflect soft outlook Major Sector PE Ratios on 12 Month Forward Consensus Earnings Source: IBES, MSCI, Datastream, Citi Investment Research and Analysis

World share markets are cheap (P/E ratio) 37

38 Morgan Stanley Capital Indexes Source: Datastream Developed IndexAsian Emerging Markets Index Asian Emerging Markets Index (RHS) World Developed Index (LHS)

39 Summary  The threat of a double-dip recession in the US has gone. Eurozone debt is a serious issue; it will drag on for a long time but is unlikely to end in catastrophe.  The Australian economy should experience strong but unbalanced growth, led by mining investment.  The cash rate will probably fall again.  The exchange rate is above fair value. The rest of the world is on sale for Australians.  Share markets are cheap.

40 This presentation has been prepared by BT Financial Group Limited (ABN ) ‘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. No part of this presentation should be used elsewhere without prior consent from the author. For more information, please call BT Customer Relations on :00am to 6:30pm (Sydney time)