1. A Global Economic and Market Outlook October 2012 Presented by Dr Chris Caton

2. Euro-area government bond spreads (to German bonds) 2

3. The two that matter have clearly improved (long-term bond yields (%)) 3

4. 4 2012 Growth Forecasts (%) Month of Forecast D-11J-12F-12M-12A-12M-12J-12 A-12S-12 Australia3.53.43.33.1 3.03.23.33.43.5 New Zealand 2.82.62.4 2.32.22.02.4 US2.12.2 2.3 2.22.12.2 Japan2.01.91.81.92.0 2.5 2.4 China8.38.4 8.38.1 7.97.7 Germany0.5 0.6 0.70.80.9 0.8 UK0.70.5 0.60.70.40.30.1-0.2-0.3 World2.72.6 2.52.6 Source: Consensus Economics

5. 5 2013 Growth Forecasts (%) Month of Forecast J-12F-12M-12A-12M-12J-12 A-12S-12 Australia3.23.33.1 3.43.23.1 2.9 New Zealand 3.23.33.23.13.0 2.92.8 US2.5 2.62.5 2.42.32.1 Japan1.4 1.5 1.31.4 1.3 China8.6 8.5 8.4 8.38.1 Germany1.5 1.6 1.41.31.21.0 UK1.8 1.61.41.3 World3.2 3.1 3.02.9 2.8 Source: Consensus Economics

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

7. Its the developing world, stupid 7

8. Australias Terms of trade (Index 1900-01 to 1999-00 = 100) Source: ABS Catalogue Number 5206.0, RBA and Treasury. 60 80 100 120 140 160 180 200 60 80 100 120 140 160 180 200 1869-701894-951919-201944-451969-701994-952019-20 Index Budget forecasts/ projections 5-year centred moving average

9. Chinese steel production and iron ore spot prices 9

10. 10 The labour market went sideways in 2011 Source: ABS 000s% Employment (LHS) Unemployment Rate (RHS)

11. Contributions to jobs growth (year to May 2012, thousands) 11

12. Employment change by industry (2003-04 to 2011-12) Note: Average annual growth in parentheses. Source: ABS Catalogue Number 6291.0.55.003 and Treasury.

13. 13 Australian Inflation Source: ABS % BT Forecasts GST Effect

14. Interest rate changes do make a difference! 14

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

16. We are very expensive when compared with the United States 16

17. But not otherwise! 17

18. Prices have fallen everywhere but they may be turning 18

19. 19 Gross Domestic Product Source: ABS % BT Forecasts GST Effect

20. 20 Mining investment is set to soar

21. Another perspective on mining investment 21

22. 22 Source: Consensus Economics GDPInflation Australia3.12.7 New Zealand2.62.4 Norway2.62.0 United States2.62.3 Canada2.22.0 United Kingdom2.22.6 Sweden2.11.9 Switzerland1.71.2 Spain1.62.0 France1.52.0 Netherlands1.42.0 Germany1.42.0 Eurozone1.42.0 Japan1.10.9 Italy0.72.0 Global Medium-Term Economic Growth and Inflation Prospects (2012-2022)

23. 23 Asia-Pacific Medium-Term Economic Growth and Inflation Prospects (2012-2022) GDPConsumer Prices India7.76.2 China7.33.2 Indonesia6.25.1 Philippines4.84.3 Malaysia4.72.6 Thailand4.53.1 Taiwan4.11.9 Singapore4.02.8 South Korea3.72.8 Hong Kong3.53.2 Australia3.12.7 New Zealand2.62.4 Japan1.10.9 Source: Consensus Economics

24. 24 Financial Market Forecasts Now (5 Oct) End-Dec 2012 End-June 2013 AUD/USD 1.024 0.970.88 Official cash rate (%) 3.50 3.00 10 Year Bond yield (%) 3.08 3.403.70 ASX 200 4453 45004750

25. 25 The Australian Dollar and US Trade Weighted Index Source: Datastream IndexAUD/USD US TWI inverted (LHS) AUD/USD (RHS)

26. 26 Australian dollar against Asian share markets Source: Datastream $AAsian Emerging Markets Index Asian Emerging Markets Index (RHS) $A (LHS)

27. 27 Australian Sharemarket Performance – ASX200 Source: Bloomberg

28. The Australian market is still cheap (p/e ratio) 28

29. All sectors look cheap– resources most of all 29

30. ---- cyclical industrials 30

31. ---- defensive industrials 31

32. ----banks 32

33. World share markets are cheap (P/E ratio) 33

34. 34 Morgan Stanley Capital Indexes Source: Datastream Developed IndexAsian Emerging Markets Index Asian Emerging Markets Index (RHS) World Developed Index (LHS)

35. 35 Summary Eurozone debt is a serious issue; it will drag on for a long time but is unlikely to end in catastrophe. We will always worry about China. The Australian economy should continue to experience moderate but unbalanced growth, led by mining investment. The mining boom will, of course, end eventually. The cash rate is likely to fall again. The exchange rate is above fair value. The rest of the world is still on sale for Australians. Share markets are cheap.

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