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Asian Economics

Asian Economics. Australia in the Asian century: Looking beyond the mining boom. November 2012. Paul Bloxham Chief Economist (Australia and New Zealand) HSBC Bank Australia Limited +61 (2) 435 966 522 paulbloxham@hsbc.com.au. View HSBC Global Research at: http://www.research.hsbc.com

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Asian Economics

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  1. Asian Economics Australia in the Asian century: Looking beyond the mining boom November 2012 Paul Bloxham Chief Economist (Australia and New Zealand) HSBC Bank Australia Limited +61 (2) 435 966 522 paulbloxham@hsbc.com.au View HSBC Global Research at: http://www.research.hsbc.com Issuer of report: HSBC Bank Australia Limited Disclosures and Disclaimer This report must be read with the disclosures and the analyst certifications in the Disclosure appendix, and with the Disclaimer, which forms part of it

  2. Australia’s is now in its 21st year of continuous growth Source: ABS; HSBC estimates

  3. Some signs of growth moderating into the second half of 2012 Source: ABS 3

  4. Timely measures of sentiment are around their average levels Source: Westpac-Melbourne Institute, NAB, Datastream 4

  5. Australia in the Asian century 1) Asia is driving global growth, which is benefiting Australia 2) Mining boom not over yet: more investment and export ramp-up yet to come 3) Local economy will rebalance, with lower rates supporting housing and retail sales 4) Asia presents medium-term opportunities beyond just mining for Australia 5) Lifting productivity is the main challenge and important for inflation and rates outlook

  6. 1.1) Asia is driving global growth: economic centre of gravity moving east Source: Quah (2010)

  7. 1.2) China and India expected to overtake the US and Europe as the largest in the world

  8. 1.3) Emerging economies already contributing more to global growth Source: HSBC estimates

  9. 1.4) China is delivering 50yrs of US advance every decade (India 30 yrs)

  10. 1.5) Europe is straining under the weight of debt Source: IMF

  11. 1.6) Europe faces enormous challenges that will be with us for some time Source: Datastream

  12. 1.7) Timely indicators suggest Europe is in recession Source: Eurostat and HSBC

  13. 1.8) US is operating at well below its capacity Source: Thomson Reuters Datastream

  14. 1.9) China’s PMI suggests around trend growth Source: HSBC; Bloomberg

  15. 1.10) High commodity prices may be the new (old) normal? Source: Erten and O’Campo (2012); HSBC estimates

  16. 1.11) But commodity demand still to be supported by emerging economies Source: GGDC, Brook Hunt, HSBC estimates, IMF

  17. 1.12) Bulk of global population at commodity intensive stage of development Source: Total Economy Database; IMF; HSBC estimates

  18. 1.13) Commodity intensive economies driving the bulk of global growth Source: Total Economy Database; IMF; HSBC estimates

  19. 1.14) High AUD has been a key catalyst for slowdown in some sectors Source: RBA; HSBC

  20. 2.1) Mining boom not over: just part way through second of three stages Source: HSBC

  21. 2.2) Commodity prices have peaked, but remain historically high Source: RBA, HSBC

  22. 2.3) Free kick to income growth from rising commodity price has now passed Source: ABS; RBA

  23. 2.4) But terms of trade still at a very high level, making investment worthwhile Source: ABS, HSBC

  24. 2.5) Mining investment should make large contribution to growth this year and next Source: ABS; HSBC estimates

  25. 2.6) Much of the investment pipeline is for energy (LNG in particular) Source: BREE, HSBC

  26. 2.7) Export ramp-up has yet to come Source: BREE

  27. 3.1) Some rebalancing expected: after some sectors slowed to make way for mining Source: ABS; HSBC estimates

  28. 3.2) Keep in mind that Australia’s economy is mostly services Source: ABS; RBA

  29. 3.3) Growth needs to switch from being commodity-driven to credit-driven

  30. 3.4) Credit growth has been weak, but domestic demand has been strong Source: ABS; RBA

  31. 3.5) Financial system still works in Australia, so credit growth is lifting

  32. 3.6) Lower rates mean that housing prices are picking up Source: Rismark

  33. 3.7) Housing building cycle likely to have troughed Source: ABS; RBA; HSBC

  34. 3.8) Households have already lifted their savings to elevated levels Source: ABS, RBA

  35. 3.9) Household caution is reflected in easing housing prices Source: RP Data / Rismark

  36. 3.10) Record number of outbound Australian tourists weakening domestic spending Source: ABS

  37. 3.11) Exchange rate effect is starting to wear off Source: ABS 37

  38. 4.1) Growing Asian middle class will bring opportunities beyond mining - Increased demand for housing and consumer durables; - Increased demand for more and better quality food; - Increased demand for education services; - Increased demand for holidays; - Increased demand for financial services

  39. 4.2) Chinese motor vehicle sales still have a lot of catching up to do

  40. 4.3) China should account for over a quarter of global car sales by 2018

  41. 4.4) Food intake rising in developed countries

  42. 4.5) Higher incomes lead to higher meat consumption and less grain

  43. 4.6) China is driving Australia’s tourist arrivals numbers Source: ABS

  44. 5.1) Weak productivity growth remains Australia’s main challenge Source: ABS

  45. 5.2) Growth has been driven by working harder, not necessarily smarter Source: ABS; HSBC

  46. 5.3) Weak productivity partly reflects the mining boom

  47. 5.4) Weak productivity boosted local inflation, but import prices have fallen Source: ABS, RBA

  48. 5.5) Inflation low, largely due to AUD appreciation in 2009 and 2010 Source: ABS; RBA

  49. 5.6) Wages growth remains solid Source: ABS; RBA

  50. 5.7) RBA rates are well below neutral Source: RBA; HSBC

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