Global and Australian economic outlook

Size: px

Start display at page:

Download "Global and Australian economic outlook"

Antony James
6 years ago
Views:

1 Economic Research November 2015 Global and Australian economic outlook (Still) the dark side of the boom Stephen Walters Chief Economist Australia and New Zealand J.P. Morgan Australia Limited See the end pages of this presentation for important disclosures.

2 Global GDP growth to be above trend by end 2015 (just) 2

3 but growth downgrades are dominating (again) GDP growth - major economies and zones % over year Change since % of Aust Last change start of '15 (a) Exports Emerging economies India China Asia ex. China/India EMEA EM Latin America Developed economies Australia na United States Canada United Kingdom New Zealand Euro-area Japan Australia's export partners World (Consensus) Source: J.P. Morgan, Consensus Economics. (a) Average growth for 2015 and

4 Largest downward growth revisions have been in emerging world 4

5 No lift in Aussie trading partner GDP growth expected in

6 Main risk to DM economies comes from spillovers from EM 6

7 Good news? Global interest rates still low as are energy prices 7

8 Wasn t global QE supposed to trigger an inflation explosion? 8

9 Financial market volatility still elevated 9

10 US economy healing progressing ahead of Fed lift-off 10

11 Euro area momentum turning and jobless rate falling 11

12 Japan s policy change still a work in progress inflation positive! 12

13 China s GDP growth rate to stabilize from here on policy support 13

14 Share market troubles may threaten household sentiment channel 14

15 Decent GDP growth masking extended income compression 15

16 Recent growth downgrades leave growth close to trend in 2016 Annual change (%) Share of GDP (f) 2016(f) Household spending Government consumption Business investment Government investment Dwelling investment Domestic final demand Change in inventories (cont.) Exports Imports Net Exports (cont.) GDP

17 Net exports delivering more than half the economy s expansion 17

18 Lucky country - terms of trade boom masked poor productivity 18

19 Boom bust - previous terms of trade booms ended badly Australia: terms of trade and GDP growth GDP, %oya 30 Wool/grain boom 25 Wool boom 20 Wool boom Wool/food boom (Korean war) Wool/grain boom ToT index Coal/iron ore boom WW I WW II Terms of trade (rhs) GDP (lhs) Last recession Recessions Source: RBA, J.P.Morgan

20 But no market economist forecasting recession in Australia! Previous terms of trade experiences Terms of trade GDP growth (%) Year of peak % rise - trough to peak % fall - peak to trough 3 years prior to peak 3 years after peak Recession? Yes Yes Yes Yes No Ave Yes ? 2.5?? 20

21 Boom brought structural headwinds high and rising costs The (high) cost of doing business in Australia % difference, Australia vs. global averages Tax rate (%) Lending rate (%) Multi factor and labour productivity %oya 5 4 Minimum wage (USD) Average wage (USD) 3 2 Output per hour worked Petrol (USc/l) Gas (USD mptu) Electricity (USc/KWH) Multi-factor Source: OECD, World Bank, BP, J.P.Morgan. -50% 0% 50% 100% 150% 200% Source: ABS 21

country US$ billion 500 400 300 200 100 0 Phil.

22 Slipping down the mining capex cliff after unprecedented splurge Mining investment : by country US$ billion Phil. Sth Af. Source: Grattan Institute. USA Peru Rus. Bra. Chile Can. Aust 22

23 Resources pipeline shrinking but mainly via project completions Australia s investment pipeline September 2015 Source: Deloitte Access Economics. 23

24 Exports lifting - supply-side expansion paying dividends 24

25 China now taking 35% of our merchandise exports 25

26 House price growth is cooling but debt ratio is rising again 26

27 Bubble trouble? No but house price growth to cool in

28 Supply (belatedly) responding record high housing starts 28

29 The squeeze - households income growing at multi-decade lows 29

30 Household (precautionary) savings rate still unusually high 30

31 Jobs growth running at a 5-year high but jobless rate to rise 31

32 Animal spirits, anyone? Cost of capital not the problem for business 32

33 RBA s easing cycle likely over Bank to start hiking in H

34 AUD adjusting but commodity prices down by more! 34

35 Australia one of the nine AAA-rated sovereigns left! Country ^ Nominal GDP share, % Bond market size*, USD Bond market, % of total 10 year bond yield Spread v. Aus. 10yr Germany 35% 1,375 52% Canada 20% % Australia 17% % 2.80 na Switzerland 8% 84 3% Sweden 6% 85 3% Norway 4% 53 2% Denmark 4% 120 5% Singapore 3% 68 3% Luzembourg 3% 58 2% US France UK Netherlands Finland Downgraded by S&P in 2011 Downgraded by Moodys in 2012 Downgraded by Fitch in 2013 Downgraded by S&P in 2013 Downgraded by S&P in 2014 Total 100% 2, % (Ave) (Ave) ^ AAA rated by all three ratings agencies. Conventional bonds only - no linkers or T-bills. Source: Bloomberg, J.P. Morgan. 35

36 NSW now leading state economic performance Unemployment rate (%) Employment growth (%oya) Retail spending (%oya) Capex (%oya) Building approvals (%oya) State final demand (%oya) NSW VIC QLD WA SA TAS

37 State migration flows now smaller NSW and Victoria the winners 37

38 Economic Research November 2015 Global and Australian economic outlook (Still) the dark side of the boom Stephen Walters Chief Economist Australia and New Zealand J.P. Morgan Australia Limited See the end pages of this presentation for important disclosures.

MACRO INVESTMENT OUTLOOK

MACRO INVESTMENT OUTLOOK AUGUST 18 INVESTMENT STRATEGY AND DYNAMIC MARKETS TEAM, MULTI ASSET GROUP GLOBAL SHARES CONSTRAINED BY TRADE WAR FEARS BUT AUSTRALIAN SHARES RELATIVELY RESILIENT 5 Australia -