Geelong Chamber of Commerce

Geelong Chamber of Commerce August 1 Bill Evans Chief Economist

Current Forecasts August 1 Latest Dec-1 Jun-17 Dec-17 Dec-18 RBA Cash 1.75 1.5 1.5 1.5. 3 yr swap 1.5 1.75..5 3. AUD/USD.75.7.9.7.75

GDP growth: contributions (1) GDP Consumption Sources: ABS, Westpac Economics 1.7 3. Housing. Mining inv. -1. Dec-1f Non-mining inv. -.1 Public. Net exports. - -1 1 3 ppts 3

Confidence: consumer and business net bal. net bal. 13 1 monthly Consumer (lhs) Business * (rhs) * rebased to avg 3 11 1 1 9-1 8-7 Sources: Westpac MI, NAB, Westpac Economics Jun- Jun- Jun-1 Jun-1-3 -

State view: business conditions 3 net bal. mth avg NSW Victoria mth avg net bal. Latest obs n: 3 1 1-1 -1 - -3 Jun-9 Sources: NAB, Westpac Economics Jun-13 Latest obs n: Jun-9 WA Qld Jun-13 - -3 5

Company insolvencies by state 3 1-1 std. devn WA Vic NSW *seasonally adjusted, % working age population, std deviations from long run avg std. devn 3 1-1 - - -3 Sources: ABS, ASIC, Westpac Mar- Mar- Mar- Mar- Mar-8 Mar-1 Mar-1 Mar-1 Mar-1-3

Vic domestic demand, well ahead of pack 1 %ann %ann 1 8 8 - - Victoria Australia Sources: ABS, Westpac Economics - - Mar-9 Mar-9 Mar- Mar- Mar-8 Mar-1 Mar-1 - - 7

Population growth: recovery.5 % ann % ann.5. Vic (1.8%yr, +1k) Australia. 1.5 1.5 1. 1..5.5 Sources: ABS, Westpac Economics. Dec-8 Dec-91 Dec-9 Dec-1 Dec- Dec-11. 8

Vic population growth strong and on the rise 1 8 s natural increase net overseas migration net interstate migration s 1 8 - Sources: ABS, Westpac Economics - Dec-8 Dec-87 Dec-9 Dec-97 Dec- Dec-7 Dec-1 - - 9

Non-mining business investment cycles 18 index index 18 1 199s (Jun 91) s (Dec ) 1 1 1s (Dec 8) 1 1 1 1 1 8 8-8 - 8 1 1 8 3 quarters Sources: ABS, Westpac Economics 1

Australian household debt- not stabilising. 18 1 1 1 1 8 % % total (gross) debt total debt net of funds held in mortgage offset accounts* total debt net of all deposits* % annual household disposable income *RBA estimates +.7pts since peak 3.pts since peak pts since peak Sources: ABS, RBA, Westpac Economics - Dec-77 Dec-87 Dec-97 Dec-7 Dec-17 18 1 1 1 1 8-11

Consumer spending: fails to sustain momentum 8 % ann % ann qtrly chage Consumption, qtr chg annls'd Historic averages: 7:.5% 9 15:.7% Policy stimulus 8 Sources: ABS, Westpac Economics - Dec- Dec- Dec- Dec-8 Dec-1 Dec-1 Dec-1-1

Service exports leave iron ore in the dust 1 18 $bn/qtr Sources: ABS, Westpac Economics Services Coal Iron ore LNG $bn/qtr 1 18 15 1 Wedge: now $3bn annls d 15 1 9 9 3 3 Mar-1 Mar- Mar-7 Mar-1 Mar-13 Mar-1 13

International arrivals Asia dominates growth.5. mn Annual arrivals, financial years 15: total arrivals, 7.mn +3% vs 3 years ago mn Asia, excl. China.5. 1.5 Europe NZ 1.5 1. China 1..5 Other US.5. Sources: ABS, Westpac Economics 1991 1995 1999 3 7 11 15. 1

Tourists: state of longest stay, QLD is lagging 5 % total Vic NSW Qld % total 3yr projection based on trend last 5yrs 5 3 3 1 Sources: ABS, Westpac Economics Sep-9 Sep-98 Sep- Sep-1 Sep-1 1 15

International students : China and India 5% 1 1 8 China: * 37% of total foreign students * account for 1% of total increase over past years Commencements, Australian universities Total China India Sources: AEI.gov.au, Westpac Economics 1 1 8 8 1 1 1 1 1

Capital city dwelling prices to slow: now 5 3 % mth growth rates, annualised Sydney Melbourne Brisbane Perth * all dwellings, composite of all measures, annualised, seasonally adjusted % 5 3 1 1-1 -1 Sources: ABS, CoreLogic RP Data, APM, Residex, Westpac Economics - Jul- Jul- Jul-8 Jul-1 Jul-1 Jul-1 Jul-1-17

Rental markets: vacancy rates show oversupply 8 7 % Sydney Melbourne Brisbane Perth % 8 7 5 national avg since 198 5 3 3 1 *qtly, seasonally adjusted by Westpac Source: REIA, Westpac Economics Mar-9 Mar-95 Mar- Mar-5 Mar-1 Mar-15 1 18

House prices: Geelong outpaces rest of Victoria 8 7 5 3 index Melbourne Geelong Rest of Vic index +1% *indexes based on weighted avg of postcode median prices (all dwellings); +5% Mar-93=1, all figures to Mar 1 +5% 8 7 5 3 1 1 Sources: APM, Westpac Economics Mar-93 Mar-98 Mar-3 Mar-8 Mar-13 Mar-18 19

Melbourne dwelling prices (logs):now a breather.5. 5.5 index * all dwellings, composite measure #months real price growth >5% (avg 9) #months real price growth <5% (avg ) index.5. 5.5 5. 5..5.5. 3.5 Sources: ABS, CoreLogic RP Data, APM, Residex, Westpac Economics. 3.5 55 18 3 1 9 83 3 1 115 3 3. Oct-78 Oct-83 Oct-88 Oct-93 Oct-98 Oct-3 Oct-8 Oct-13 31 3.

Sydney dwelling prices: log scale.5. 5.5 index * all dwellings, composite measure #months real price growth >5% (avg 35.5) #months real price growth <5% (avg 91.3) index.5. 5.5 5. 5..5.5. 3.5 Sources: ABS, CoreLogic RP Data, APM, Residex, Westpac Economics. 3.5 73 91 8 11 31 3. May-78 May-83 May-88 May-93 May-98 May-3 May-8 May-13 3. 1

Los Angeles dwelling prices(logs): rollercoaster!. 5.5 index * all dwellings, composite measure #months real price growth >5% (avg ) #months real price growth <5% (avg 78) index 5.5 5. 5..5. 3.5 Sources: ABS, CoreLogic RP Data, APM, Residex, Westpac Economics.5. 3.5 57 3 8 93 15 78 39 3. 3. Sep-75 Sep-8 Sep-85 Sep-9 Sep-95 Sep- Sep-5 Sep-1 Sep-15

5.. 3.. 1. Dwelling approvals: Syd, Melb, Geelong & Ballarat 's Sydney (5%yr, lhs) Geelong (8%yr, rhs) *mth average Sources: ABS, Westpac Economics Melbourne (flat%yr, lhs) Ballarat ( 7%yr, rhs) s.5.5..35.3.5..15.1.5.. Jun-9 Jun-95 Jun-98 Jun-1 Jun- Jun-7 Jun-1 Jun-13 Jun-1 3

Dwelling approvals: Geelong (up 8% in 7 years).3.5 's Geelong (8%yr, lhs) Ballarat ( 7%yr, rhs) s.3.5...15.15.1.1.5 *mth average.5 Sources: ABS, Westpac Economics.. May-1 May- May-7 May-1 May-13 May-1

Foreign demand Victoria may be over exposed 35 % % 35 3 number value 3 5 15 1 5 *FIRB approvals, 1-15, %total sales NSW Vic Qld WA SA 5 15 1 5 5

Wages fail to respond to lift in employment 3 % chg, qtrs % chg, qtrs ann Sources: ABS, Westpac Economics.7. 1 3.7 3..7-1 Trend full-time employ (lhs) WPI (rhs) - Mar- Mar-7 Mar-1 Mar-13 Mar-1. 1.7

Rents & now dwellings holding back non-traded 8 %yr dwelling purchases rents %yr Sources: ABS, Westpac Economics 8 non-tradeables Mar- Mar- Mar-8 Mar-1 Mar-1 Mar-1 Mar-1 7

Headline below, core at the base of the band 9 8 7 5 3 1 %yr avg RBA core CPI* %qtr (rhs) avg RBA core CPI* %yr (lhs) * average of s.a. trimmed mean & weighted median CPI. Sources: ABS, Westpac Economics %qtr -1 Mar-9 Mar-9 Mar-98 Mar- Mar- Mar-1 Mar-1.7. 1.7 1..7. -. 8

Households/ housing, service exports = jobs %yr %yr - Sources: ABS, Westpac Economics employment (lhs) household demand+dwellings+net service exports (rhs, adv qtrs) - Mar-8 Mar-89 Mar-9 Mar-99 Mar- Mar-9 Mar-1 - - 9

Unemployment vs underutilisation- still way too high 1 1 1 1 8 % % unemployment rate underutilisation rate 1 1 1 1 8 Sources: ABS, Westpac Economics Jun- Jun- Jun-8 Jun-1 Jun-1 3

Gross government debt as % of GDP: relative to peers % Gross public debt % 5 Australia Aaa Median forecasts 5 3 Source: Moody s, budget papers, Westpac Economics 3 1 1 7 8 9 1 11 1 13 1 15 1 17 18 19 31

Net foreign debt to GDP: Australia relative to Aaa peers 1 8 % Source: DX Data, IMF Australia Aaa Median % 1 8 7 8 9 1 11 1 13 1 15 3

Savings measures: Budget 1 ; 15; 1 $bn (Net) Savings years $bn $3bn Sources: Budget papers, PBO, Westpac Economics 3 stuck in Senate: ~$13bn 3 1/17: spending, $3.1bn 19/: savings, $5.9bn 1 $1.bn $1.7bn 1 1 15 1 33

18 1 1 1 1 8 Tax Costs (15/1)- estimates $bn $bn Source: Australian Government Food (.8) Other (11.15) GST Super Contr. Super Earn. CGT Other 15 1 5 3

ASX by sector, forward P/E s some value pts 18 15 1 9 3-3 - deviation from long-run average financials materials Sources: Bloomberg, Westpac Economics -9 5 7 9 11 13 15 pts 18 15 1 9 3-3 - -9 35

8 7 5 3 1-1 - World economy: another lack-lustre year % the rest China developed economies indicative potential new normal = persistent underperformance Sources: Westpac, IMF Westpac f/c 8 1 1 1 1 8 7 5 3 1-1 - 3

Non-Financial Sector Debt Japan As % of GDP, end 15 China US Australia Corporate Debt Household Government Germany Source: BIS 1 3 37

Labour market slack has fallen considerably 18 1 1 1 1 8 % Unemploment rate *Includes marginally attached and part time for economic reasons. Sources: Datastream, Westpac Economics U measure* 199 1999 9 1 % 18 1 1 1 1 8 38

Underlying inflation pressures persist 5 mth %chg annualised Core CPI Core PCE mth %chg 5 Dallas Fed PCE TM 3 3 1 Sources: Datastream, Westpac Economics 199 1995 5 1 15 1 39

DXY post December 13 taper announcement 13 index Sources: Bloomberg, Westpac Economics index 15 1 115 11 15 1 *index 1 on day of taper announcement, 18 December 13 15 115 15 95 Dec-13 Jun-1 Dec-1 Jun-15 Dec-15 Jun-1 95

35 3 5 15 1 North Atlantic central bank balance sheets % of GDP balance sheet % of GDP BOE ECB Federal Reserve 35 3 5 15 1 5 Source: BoE, ECB, Westpac Economics 9 1 11 1 13 1 15 1 5 1

Australian 1yr following global trend lower 7 5 % US 1yr yield Australia 1yr yield German 1yr yield ECB asset purchase program % 7 5 3 3 1 1 Sources: Bloomberg, Westpac Economics. -1 11 1 13 1 15 1-1

Australian 3yr following global trend lower 5 % US 3yr yield Australia 3yr yield German 3yr yield ECB asset purchase program % 5 3 3 1 1 Sources: Bloomberg, Westpac Economics. -1 11 1 13 1 15 1-1 3

Measures of Chinese inflation 1 %yr Sources: CEIC, Westpac Economics. %yr 1 9 9 3 3-3 Consumer price index -3 - Producer price index - -9-9 Mar- Mar- Mar-8 Mar-1 Mar-1 Mar-1 Mar-1

RMB TWI +35% over 1 years to Q1 15 peak 1 11 RMB CFETS Index 1 9 8 7 Source: Bloomberg, Westpac 8 1 1 1 1 5

China s stock of FX reserves- stabilising OK! $trn.5. 3.5 3..5. 1.5 1..5 Sources: CEIC, Westpac Economics.. Jan-1 Jan-3 Jan-5 Jan-7 Jan-9 Jan-11 Jan-13 Jan-15 $trn.5. 3.5 3..5. 1.5 1..5.

China s trade position 1 % GDP net balance % GDP 1 8 Goods balance Services balance 8 - Sources: CEIC, Westpac Economics - Mar- Mar-3 Mar- Mar-9 Mar-1 Mar-15 - - 7

China capital outflows (15) 5 (US$ bn) (US$ bn) 5 Hot Money 15 Corporate 15 1 1 5 5-5 Source: J.P Morgan Chase Q1 Q Q3 Q -5 8

New house prices: growth by tier 35 3 5 15 1 5-5 %yr Sources: CEIC, Westpac Economics First Second Third and below %yr -1 Jun-1 Jun-13 Jun-1 Jun-15 Jun-1 35 3 5 15 1 5-5 -1 9

Conclusions Global backdrop remains unsettled: low inflation seems entrenched into global system. Australian economy outperforming on growth: terms of trade drag to ease; no sign of lift in investment. Inflation outlook central to RBA view: one more cut at least but asset prices will be a constraint. Residential property settling after abrupt slowdown, risk of renewed optimism with lower rates, although oversupply looms in parts of Melbourne. NSW and VIC have been the strongest states boosted by construction; services exports and population growth. 5

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