A global economic and market outlook

1. A global economic and market outlook Dr Chris Caton February 2015

2. 2015 Growth Forecasts (%) Month of Forecast Source: Consensus Economics

3. Resources investment (% of GDP)

4. The terms of trade have come down a long way (index, 2012/13=100)

5. Mining exports have been growing rapidly

6. Financial Market Forecasts

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

8. Australian Share market Performance – ASX200 Source: Bloomberg

9. The Australian market is close to fair value (forward p/e ratio)

10. The resources sector has been a massive drag on the market

11. Australia has kept pace with the developed world ex US

12. The labour market data are still soft and unemployment is still rising 000’s % Employment (LHS) Unemployment Rate (RHS) Source: ABS

13. House Prices - Australia v Brisbane Index (1987 = 100) Source: ABS

14. Australian houses are the biggest in the world (sq m per capita)

15. Prices have been rising rapidly in just two cities in the past year (% increase year to January 2015)

16. Where’s the bubble? Average house price increase in the past ten years

17. The investors are now in charge

18. Investors have been piling in in New South Wales

19. Summary • The question in the US has shifted from tapering of QE to when will rates begin to rise and how quickly? • The Eurozone is battling deflation. • We will always worry about China. • The Australian economy should continue to experience only moderate growth. The mining investment boom has ended with no significant pickup to date in non-mining capex. • The cash rate is likely to fall again. • The exchange rate may fall further. • The Australian share market is close to fair value.

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