1. Nurturing the Green Shoots

2. Economic Outlook Westpac Economics April 2010

3. 3 Advertising rules of thumb Pro-cyclical: as consumer spend increases, advertising picks up more quickly Unfortunately, if consumer spend falls, advertising falls by far more In general, a 1% change in real consumption will lead to a 2.5% change in real advertising spend in the short term Consumption “ causes ” advertising, not the other way Increased advertising spend does not raise overall consumption, but rather influences what products we spend our money on In the long run, relationship is 1 for 1 Newspaper advertising volumes depend positively on circulation in the other main media types (a rising tide raises all boats).

4. 4 A bad year for virtually all 2009 2003 ann % chgshare NEWSPAPERS-18%30.5%37.1% TELEVISION-12%27.9%31.9% RADIO-12%11.5%12.1% MAGAZINES-13%10.6%10.4% INTERACTIVE11%10.5%0.4% OUTDOOR-8%3.3%2.5% UNADDRESSED MAIL-5%2.8%3.0% ADDRESSED MAIL-5%2.6%1.9% CINEMA-33%0.3%0.6% TOTAL-12%

5. 5 Advertising and consumption

6. 6 Advertising $2.335bn industry in 2007, $2.045bn last year Advertising spend averages around 2.2% of household consumption Severe downturn last year: advertising revenue down 11.7% (almost 14% in real terms) Mix of economic growth all important for outlook. Most dependent on consumer spend, which is likely to lag behind general economic growth We are forecasting close to double digit growth in advertising spend in each of the next couple of years.

7. 7 Advertising outlook Forecast

8. 8 Responsiveness of sectoral growth to growth in rest of the economy

9. 9 The changing face of NZ exports

10. 10 Destination of NZ dairy exports

11. 11 World growth forecasts

12. 12 Commodity prices have recovered

13. 13 The Aus mining boom pt 1

14. 14 The Aus mining boom pt 2

15. 15 “It’s different this time” The strength of the recovery is usually in proportion to the depth of the downturn In the 16 slowdowns/recessions since 1950, the peak growth rate during recovery has averaged 4.8% Weaker recoveries following a major supply shock (e.g. 1970s oil crisis) or a domestic banking crisis (e.g. late 1980s) – neither of which apply this time Excluding these, peak growth has averaged 5.7% So we are still forecasting a sub-par recovery! “The error of optimism dies in the crisis, but in dying it gives birth to an error of pessimism. This new error is born not an infant, but a giant”. Arthur C. Pigou

16. 16 Peak growth rates in post-1950 economic recoveries

17. 17 The Long Haul: The US Economy Nothing in memory has prepared consumers for such turbulent, epochal change, the sort of upheaval that happens once in 50 years. The US economy remains almost comatose a full year and a half after the recession officially ended. Unemployment is still high; real wages are declining. The current slump already ranks as the longest period of sustained weakness since the Great Depression. That was the last time the economy staggered under as many "structural“’ burdens... once-in-a- lifetime dislocations that will take years to work out. “This is a sick economy that won't respond to traditional remedies... There's going to be a lot of trauma before it's over.” TIME, September 1992

18. 18 One month of decent jobs growth, and we get: In the US

19. 19 This...

20. 20...and this...

21. 21...and this...

22. 22...and this

23. 23 “Where’s the growth going to come from?” Housing construction unsustainably low Business starting to expand, capacity utilisation high Rebuilding inventories Great commodity prices Durables consumption recovers Employment and wages resume growth, boosting consumption Export growth, especially to Asia & Australia But imports bouncing back Banks lend

24. 24 Housing consents per 1000 people

25. 25 Annual stock change

26. 26 Firms’ own activity expectations

27. 27 Expansion plans back to average

28. 28 Labour not as easy to find

29. 29 Housing equity withdrawal: Annual total, $ Billions

30. 30 Spending by type

31. 31 Growth in property values by price decile of suburb

32. 32 RBNZ inflation forecasts

33. 33 Risks China Access to funding Short term impact of tax changes Winter growing conditions Australian boom sees resurgence of skill labour shortages

34. Nurturing the Green Shoots