An Economic and Business Outlook October 2011 Presented by Dr Chris Caton

2 US Housing starts are bumping along the bottom Source: Datastream (Millions)

Government debt (% of GDP) 3

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

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

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

It’s the developing world, stupid 7

What goes up... 8

9 The Labour market has done well but employment growth has slowed dramatically Source: ABS 000’s% Employment (LHS) Unemployment Rate (RHS)

Retail spending has slowed 10

And here’s one reason..household saving has risen 11

12 Australian Inflation Source: ABS % BT Forecasts GST Effect

Interest rate changes do make a difference! 13

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

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

Prices have fallen everywhere 16

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

Coal exports are recovering but still have a way to go 18

19 Mining investment (share of GDP)

20 Source: Consensus Economics GDPInflation Australia Norway United States New Zealand Canada Sweden United Kingdom Spain2.1 Switzerland Netherlands Germany France Eurozone Japan Italy Global Medium-Term Economic Growth and Inflation Prospects ( )

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

22 Financial Market Forecasts Now (4 Oct) End-Dec 2011 End-June 2012 AUD/USD Official cash rate (%) Year Bond yield (%) ASX

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

24 Australian Sharemarket Performance – ASX200 Source: Bloomberg

Shares are cheap here and elsewhere 25

26 All sectors are looking cheap Source: IBES, MSCI, Datastream, Citi Investment Research and Analysis Major Sector PE Ratios on 12 Month Forward Consensus Earnings

27 It makes a difference when you buy

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

29 Summary  The threat of a double-dip recession in the US is exaggerated. Eurozone debt is a serious issue, but unlikely to be a game-changer.  The Australian economy should resume strong growth, led by mining investment.  The cash rate is likely to be cut next month.  The exchange rate is still above fair value. The rest of the world is on sale for Australians.  Share markets are cheap.

30 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)