A global economic and market outlook Dr Chris Caton February 2015

Growth Forecasts (%) Month of Forecast M-14A-14M-14J-14 A-14S-14O-14N-14D-14J-15F-15 Australia New Zealand US Japan China Germany UK “World” Source: Consensus Economics

Resources investment (% of GDP) 2

The terms of trade have come down a long way (index, 2012/13=100) 3

Mining exports have been growing rapidly 4

5 Financial Market Forecasts Now (12 Feb) End-Jun 2015 End-Dec 2015 AUD/USD Official cash rate (%) Year Bond yield (%) ASX

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

7 Australian Share market Performance – ASX200 Source: Bloomberg

The Australian market is close to fair value (forward p/e ratio) 8

The resources sector has been a massive drag on the market 9

Australia has kept pace with the developed world ex US 10

11 The labour market data are still soft and unemployment is still rising Source: ABS 000’s% Employment (LHS) Unemployment Rate (RHS)

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

Australian houses are the biggest in the world (sq m per capita) 13

Prices have been rising rapidly in just two cities in the past year (% increase year to January 2015) 14 Source : Core Logic RPData

Where’s the bubble? Average house price increase in the past ten years 15

The investors are now in charge 16 source :CBA

Investors have been piling in in New South Wales 17

18 Summary  The question in the US has shifted from tapering of QE to when will rates begin to rise and how quickly?  The Eurozone is battling deflation.  We will always worry about China.  The Australian economy should continue to experience only moderate growth. The mining investment boom has ended with no significant pickup to date in non-mining capex.  The cash rate is likely to fall again.  The exchange rate may fall further.  The Australian share market is close to fair value.

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