Private Healthcare Australia Conference

Private Healthcare Australia Conference How is healthcare performing? - an industry economists perspective Dean Pearson Head of Industry Analysis, NAB November 29, 213 Hobart, Australia

Confidence is contagious, but so is a lack of confidence 2 Vince Lombardi, legendary NFL player & coach

The Numbers Cartoon by Nicholson from The Australian newspaper: www.nicholsoncartoons.com.au

Global economic forecasts Half of current global growth still coming from China, India & Brazil but a bigger contribution in 214 from advanced economies. 212 213 214 215 World GDP growth United States Euro zone Japan China 3.2 2.9 3.5 3.6 2.8 1.7 2.6 2.9 -.6 -.3 1.1 1.4 2. 1.9 2.1 1.5 7.8 7.5 7.2 7. 3.8 3.8 4.2 Emerging 3.5 Asia (a) India 5.1 4.4 4.9 5.3 Trading partners 44 4.2 4. 4.2 4.1 (a) South Korea, Taiwan, ASEAN

Australian economic forecasts Weaker AUD & lower interest rates won t be enough. Mining transition & fiscal austerity will see the labour market slow. GDP 213 2.3 214 2.4 215 2.9 4.5 4. GDP % change Employment 1.1.3.9 3.5 3. Unemployment rate* 5.9 6.6 6.3 2.5 2. 1.5 CPI underlying** 2.3 2.4 2.1 1..5. RBA cash rate* $US/$A* 2.5.95 2.25.86 3. n.a. -.5 Dec 29 Dec 2 Dec 211 Dec 212 % change % change on year earlier Dec Dec 213 214 * at end of period; ** through-year growth Source: ABS and NAB forecasts 55

The Business Environment Cartoon by Nicholson from The Australian newspaper: www.nicholsoncartoons.com.au

Australian business conditions & confidence After surging to a 3½ year high in September, the business confidence fell back significantly in October suggesting businesses have reassessed their expectations given the continued weakness in actual conditions. Business conditions (net balance) Business confidence (net balance) 2 2 - - -2-2 -3-4 Average of the indexes of trading conditions, profitability and employment. IV I II III IV I II III IV I II III IV 2 211 212 213-3 -4 Excl. normal seasonal changes, how do you expect conditions facing your industry in the next mth to change? IV I II III IV I II III IV I II III IV 2 211 212 213 77 Seasonally adjusted Conds 199s recn Trend Seasonally adjusted Conds GFC Conf 199s recn Source: NAB Monthly Business Survey Trend Conf GFC

Capacity utilisation & capital expenditure Capacity utilisation by industry shows little incentive for new investment. There is still little evidence that business investment outside the mining sector is likely to pick up strongly any time soon. % 95 9 85 8 Capacity Utilisation Transport & utilities Mining All industries % 95 9 85 8 12 8 6 4 2 Capital expenditure (net balance) 75 Manufacturing 7 28 29 2 211 212 213 75 7-2 -4 IV I II III IV I II III IV 211 212 213 Source: NAB 8 Seasonally adjusted Trend

Business conditions by state State conditions have converged as weakness infiltrates previously strong performers. More recently, conditions have lifted significantly in WA. Business conditions by state (net balance), 3-month moving average 2 2 2 - - - -2-2 -2-3 -3-3 -4 IV I II III IV I II III IV 211 212 213-4 IV I II III IV I II III IV 211 212 213-4 IV I II III IV I II III IV 211 212 213 99 Australia NSW VIC Australia QLD WA Australia SA TAS

Regional Unemployment Big disparities in unemployment within and across Australian regions. Some suburbs & towns clearly missed out on the boom. % 11 9 8 7 6 5 4 3 2 1 Unemployment Rate by Statistical Division (avg year to October 213) NSW VIC QLD SA WA TAS NSW SYDNEY Inner & Inner Western Sydney Inner Sydney Inner Western Sydney Eastern Suburbs St George-Sutherland Canterbury-Bankstown Fairfield-Liverpool & Outer South Western Sydney Fairfield-Liverpool Outer South Western Sydney Central Western Sydney North Western Sydney Lower Northern Sydney Central Northern Sydney Northern Beaches Gosford-Wyong BALANCE OF NSW Hunter Newcastle Hunter excluding Newcastle Illawarra & South Eastern Illawarra Wollongong Illawarra excluding Wollongong South Eastern Richmond-Tweed & Mid-North Coast Northern, Far West-North Western & Central Northern, North Western & Central West Far West Murray-Murrumbidgee VICTORIA MELBOURNE North Western Melbourne Outer Western Melbourne Inner Melbourne North Eastern Melbourne Inner Eastern Melbourne Southern Melbourne Outer Eastern Melbourne South Eastern Melbourne Mornington Peninsula BALANCE OF VIC Barwon-Western District Central Highlands-Wimmera Loddon-Mallee Goulburn-Ovens-Murray All Gippsland QUEENSLAND BRISBANE Brisbane City Inner Ring Brisbane City Outer Ring South & East BSD North BSD Balance Ipswich City BALANCE OF QLD Gold Coast Gold Coast North Gold Coast South Sunshine Coast West Moreton Wide Bay-Burnett Mackay-Fitzroy-Central West Darling Downs-South West Northern-North West Far North SOUTH AUSTRALIA ADELAIDE Northern Adelaide Western Adelaide Eastern Adelaide Southern Adelaide BALANCE OF SA Southern & Eastern SA Northern & Western SA WESTERN AUSTRALIA PERTH Central Metropolitan East Metropolitan North Metropolitan South West Metropolitan South East Metropolitan BALANCE OF WA Lower Western WA Remainder-Balance WA TASMANIA HOBART BALANCE OF TAS Southern Northern Mersey-Lyell NORTHERN TERRITORY ACT AUSTRALIA

Labour market challenge Adjustment process to go into reverse! Mining could release k construction jobs in 3 years. But jobs are being made as well as lost. Health has been a key driver of jobs growth! 11

Population growth Australia's population grew by 1.8% in 212, well above its long-term average. WA population growing at more than double the national average. persons 5, Annual Population Growth: Australia 45, 4, 35, 3, 25, 2, 15,, 5, Mar-11 Mar-12 Mar-13 Mar-83 Mar-84 Mar-85 Mar-86 Mar-87 Mar-88 Mar-89 Mar-9 Mar-91 Mar-92 Mar-93 Mar-94 Mar-95 Mar-96 Mar-97 Mar-98 Mar-99 Mar- Mar-1 Mar-2 Mar-3 Mar-4 Mar-5 Mar-6 Mar-7 Mar-8 Mar-9 Mar- 12 Natural Increase Net Migration

Net Interstate Migration At the State level, net interstate migration is also important (ie. movements within states). And here there are some big differences. persons 6, Annual Net Interstate Migration 4, 2, -2, -4, -6, Mar-82 Mar-83 Mar-84 Mar-85 Mar-86 Mar-87 Mar-88 Mar-89 Mar-9 Mar-91 Mar-92 Mar-93 Mar-94 Mar-95 Mar-96 Mar-97 Mar-98 Mar-99 Mar- Mar-1 Mar-2 Mar-3 Mar-4 Mar-5 Mar-6 Mar-7 Mar-8 Mar-9 Mar- Mar-11 Mar-12 Mar-13 NSW VIC QLD SA WA NT 13 Caroline Springs, on Melbourne's western fringe

Lower rates have seen expectations (& actual) house prices increase, esp. in NSW But we still expect relatively moderate gains (by historical norms) in the next 12 months (around 5%) but with differences across cities. % 6. 5. 4. 3. 2. 1.. -1. Property Survey - House Price Expectations Estimated price growth during relevant survey period... 14-2. -3. -4. Q1'11 Q2'11 Q3'11 Q4'11 Q1'12 Q2'12 Q3'12 Q4'12 Q1'13 Q2'13 Q3'13 Next 6 months Source: Nab Residential Housing Survey Q3 213 Current expectations in... Next 12 months Australia Victoria NSW Qld SA/NT WA Next 2 years

More interest in investor market - esp. foreign Owner occupier the largest share and appears to be increasing again. But overseas investors are around 12.5%. Main focus is Qld & recently NSW. % 6 Percentage Share of Buyers - New Developments % Share of Demand for New Properties from Overseas Buyers Current Quarter Next 12 Months 25 5 2 4 3 15 2 5 FHBs Resident Australian Overseas Owner Occupiers Investors Buyers Other FHBs Resident Australian Overseas Owner Occupiers Investors Buyers Other Q2 2 Q3 2 Q4 2 Q1 211 Q2 211 Q3 211 Q4 211 Q1 212 Q2 212 Q3 212 Q4 212 Q1 213 Q2 213 Q3 213 Q3'11 Q3'12 Q2'13 Q3'13 Australia Victoria NSW QLD WA 15

Industry share of state production When comparing conditions across states, important to review the contribution of industry sectors to each economy. The most notable disparity is the mining sector. 16

Aust industry structure & growth Construction, Finance and Health Services have recorded the fastest growth rate of all sectors over the past decade. And Health a key employer! 16, Australia Industry Structure (bubble size = employment) 14, Mining Finance & Insurance Manufacturing gross value added 211/12 ($mn) 12,, 8, 6, 4, Education & Training Utilities Public Administration & Safety Wholesale Retail Prof, Scientific & Technical Services Transport, Post & Warehousing Communications Health & Social Assistance Construction 2, Admin & Support Services Hospitality Rental, Hiring & Real Estate Agriculture Arts & Recreation 17. 1. 2. 3. 4. 5. 6. 7. average growth in gross value-added 22/3-211/12 (%)

Business conditions by industry sector Multi-speed economy narrowing: but fast lane slowing. Big fall in mining since peak. Consumer dependent sectors remain poor. Where is the strength? = Recreational & Personal Services (incl. Health, Education, Travel). 4 4 4 3 3 3 2 2 2 - - - -2-2 -2-3 IV I II III IV I II III IV 211 212 213-3 IV I II III IV I II III IV 211 212 213-3 IV I II III IV I II III IV 211 212 213 Mining Manuf Constn Retail Wsale Transp Fin, bus, prop Rec, pers 18 Source: NAB Monthly Business Survey

SME business conditions by industry sector SME s still multi-speed with some sectors - particularly services - (eg. Property & Finance) outperforming while others (eg. Retail, Manufacturing, Wholesale) still doing it tough. Health on watch! SME Conditions by Industry sector 25 2 Property 15 Accommodation, cafes & restaurants 5-5 Retail Manufacturing Wholesale Construction Health Business Transport Finance - -15? -2-25 19-3 Sep-12 Jun-13 Sep-13 Source: NAB Quarterly SME Business Survey

Will consumers remain cautious? Yes! Consumers still saving to repair balance sheets. Lower interest rates & higher equity & house prices will help, but higher unemployment will affect job security. Household saving rate Per cent of net household disposable income 14 12 8 6 4 2-2 Jun 25 Jun 27 Jun 29 Jun Jun 211 213 Seasonally adjusted Source: ABS & NAB calculations Trend 2

NAB Online Retail Sales Index Australians spend >$14bn a yr online (6.3% of retail excl. food). Growing fast but has slowed. Around 7% of online spend domestic. Average spend around $4 per transaction. 28 26 24 22 2 18 16 14 12 8 Jan- Oct- Jul-11 Apr-12 Jan-13 21 Online sales vs. Retail sales (monthly) Online Index (nsa) Online Index (sa) ABS Retail Sales (nsa) ABS Retail Sales (sa) We tend to overestimate the effect of a technology in the short run and underestimate the effect in the long run.. Roy Amara, American futurologist.

Where to from here for retail? The future of retail is multi-channel, building brands & multiple touch-points. Stores have to become FUN to visit. Every morning, at opening time, the crew picks one child to unlock imagination with an over-sized key to open the store for the day! 22

Manufacturing Australian manufacturing has shifted up the global cost curve (esp. against other advanced economies). The future? Leverage our digitally-driven infrastructure, customisation and focus on sustainability. Australia United States 23

Chinese firms also moving up the cost curve Shifting demographics & higher cost structure has seen China lose some allure as base for multinationals. 24

''It is one thing to sell a homogenous minerals commodity to a minerals-hungry industrialist in China, and another thing entirely to design and market a sophisticated personal service to someone living in that culture.'' Former Treasury secretary & lead author of the White Paper on Australia in the Asian Century, Dr Ken Henry.

Health in Focus

Government finances & health expenditure The problem for Government is on the spending side. And against the backdrop of demographic forces & ongoing global economic uncertainty, the cost of healthcare continues to rise. Total Australian government health expenditure with & without nondemographic growth (in 29- $ s) 27

ASX S&P 2 v Healthcare & Property returns The healthcare sector has been the standout performer on the Australian stock exchange. Healthcare property also mitigates downside risk - underperforms pre-gfc & outperforms during and post GFC. 2 18 ASX 2 vs ASX 2 Healthcare Price Index (5-Jan-27 =, weekly) ASX 2 ASX 2 - Healthcare 2 18 16 16 14 14 12 12 8 8 6 6 4 4 Jan-7 Jun-7 28 Oct-7 Mar-8 Aug-8 Jan-9 Jun-9 Oct-9 Mar- Aug- Jan-11 Jun-11 Nov-11 Mar-12 Aug-12 Jan-13 Jun-13 Nov-13 Source: IPD

Most efficient healthcare countries Australia already has one of the OECD s most efficient health systems, in terms of life expectancy achieved for dollars spent. 29 Source: Bloomberg

Nab business survey - health v economy Business conditions from our external business survey shows that the health care sector consistently outperforms the broader economy. 6 Business Conditions (net balance, s.a.) 5 4 3 2 - -2-3 -4 Sep-6 Sep-7 Sep-8 Sep-9 Sep- Sep-11 Sep-12 Sep-13 3 Range of All other Industries Health All Industries

Nab business survey - health v economy However, health lags the economy for confidence. Gap between confidence in heath and the broader economy is now at its widest point in history of the SME survey. 4 Business Confidence (net balance, s.a.) 3 2 - -2-3 -4 Sep-6 Dec-6 Mar-7 Jun-7 Sep-7 Dec-7 Mar-8 Jun-8 Sep-8 Dec-8 Mar-9 Jun-9 Sep-9 Dec-9 Mar- Jun- Sep- Dec- Mar-11 Jun-11 Sep-11 Dec-11 Mar-12 Jun-12 Sep-12 Dec-12 Mar-13 Jun-13 Sep-13 31 Source: Group Economics, NAB min Range of All other Industries Health All Industries

NAB Wellbeing Index National wellbeing deteriorated slightly in Q3 in line with more subdued economic conditions with significant fall in WA driven by much higher levels of anxiety! Not at all Completely 9 8 7 6 5 4 3 Overall Wellbeing Index Mar-13 Jun-13 Sep-13 Overall Wellbeing Satisfied Life Worthwhile Life Happy Yesterday Not Anxious Yesterday In Q3 213, wellbeing was typically highest for those who: resided in a rural towns/bush; earned >$75,; were aged 5+ and female; were married or widowed; were without children; lived in a 2 person household; had a diploma or tertiary qualifications; were retired; lived in Tasmania. 32 Source: Group Economics, NAB

The Business of Selling Happiness Happiness is not a goal, it s a by-product, Eleanor Roosevelt. 33

NAB Consumer Anxiety Index Consumer anxiety still greatest around rising cost of living. Consumers are becoming more concerned about their ability to fund their health needs. Nil Extremely 9 8 7 6 5 4 Overall Consumer Anxiety Index Jun-13 Sep-13 34 3 Overall Anxiety Job Security Health Ability to Fund Retirement Source: Group Economics, NAB Cost of Living Government Policy

Are we a nation of whingers & worriers? The challenge is to capture how people define quality of life & cost of living. But what is clear is health spending will rise, however much costs fall! 35

36 thank you

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