1. A Global Economic and Market Outlook March 2012 Presented by Dr Chris Caton

2. European tensions are lessening? (bond yields(%)) 2

3. Back to the future? (spread to German bunds) 3

4. Government debt (% of GDP)– Greece has the biggest problem by far 4

5. 5 US Housing starts are showing some signs of life Source: Datastream (Millions)

6. 6 2012 Growth Forecasts (%) Month of Forecast M-11J-11 A-11S-11O-11N-11D-11J-12F-12 Australia3.84.0 3.83.73.5 3.43.3 New Zealand 3.9 3.73.22.92.82.62.4 US3.23.13.02.42.11.92.1 2.2 Japan2.83.23.1 2.42.22.12.01.91.8 China8.98.8 8.68.5 8.38.4 Germany1.92.01.9 1.31.00.80.5 0.6 UK2.22.12.22.01.81.51.10.70.5 “World”3.6 3.53.23.02.92.72.6 Source: Consensus Economics

7. 7 Real GDP growth in Australia and the US Source: Datastream Year to % change

8. It’s the developing world, stupid 8

9. What goes up... 9

10. ...must come down (RBA’s forecast of terms of trade) 10

11. Commodity prices have already peaked 11

12. 12 The labour market went sideways in 2011 Source: ABS 000’s% Employment (LHS) Unemployment Rate (RHS)

13. Retail spending has slowed (volumes, index, March qtr 2007=100) 13

14. And here’s one reason..household saving has risen 14

15. 15 Australian Inflation Source: ABS % BT Forecasts GST Effect

16. Interest rate changes do make a difference! 16

17. House Prices - Australia v Sydney Source: ABS Index (1987 = 100)

18. House Prices - Australia v Melbourne Source: ABS Index (1987 = 100)

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

20. If there is a bubble it’s been there for a while 20

21. Prices have fallen everywhere 21

22. Value of new approvals (net of refinancing) 22

23. Housing credit growth has slowed significantly 23

24. This isn’t good news either  24

25. 25 Gross Domestic Product Source: ABS % BT Forecasts GST Effect

26. 26 Mining investment is set to soar

27. We’ve never been here before—mining investment as a share of GDP 27

28. 28 Source: Consensus Economics GDPInflation Australia3.02.8 New Zealand2.7 Norway2.62.2 United States2.52.3 Sweden2.42.1 Canada2.32.1 United Kingdom2.02.9 Spain1.92.1 Switzerland1.71.3 Netherlands1.72.1 France1.72.0 Germany1.51.8 Eurozone1.52.1 Japan1.10.6 Italy0.82.1 Global Medium-Term Economic Growth and Inflation Prospects (2011-2021)

29. 29 Asia-Pacific Medium-Term Economic Growth and Inflation Prospects (2011-2021) GDPConsumer Prices India8.15.8 China7.73.9 Indonesia6.25.3 Singapore5.22.6 Philippines4.94.5 Malaysia4.72.9 Thailand4.53.4 Taiwan4.12.1 South Korea3.93.1 Hong Kong3.93.4 Australia3.02.8 New Zealand2.7 Japan1.10.6 Source: Consensus Economics

30. 30 Financial Market Forecasts Now (8 Mar) End-June 2012 End-Dec 2012 AUD/USD 1.062 0.970.90 Official cash rate (%) 4.25 4.00 10 Year Bond yield (%) 4.15 4.204.40 ASX 200 4171 44004700

31. 31 The Australian Dollar and US Trade Weighted Index Source: Datastream IndexAUD/USD US TWI inverted (LHS) AUD/USD (RHS)

32. The $A against an index of Chinese activity 32

33. The $A against Asian share markets 33

34. 34 Australian Sharemarket Performance – ASX200 Source: Bloomberg

35. The Australian market is cheap (P/E ratio) 35

36. 36 Valuations have deflated to reflect soft outlook Major Sector PE Ratios on 12 Month Forward Consensus Earnings Source: IBES, MSCI, Datastream, Citi Investment Research and Analysis

37. World share markets are cheap (P/E ratio) 37

38. 38 Morgan Stanley Capital Indexes Source: Datastream Developed IndexAsian Emerging Markets Index Asian Emerging Markets Index (RHS) World Developed Index (LHS)

39. 39 Summary  The threat of a double-dip recession in the US has gone. Eurozone debt is a serious issue; it will drag on for a long time but is unlikely to end in catastrophe.  The Australian economy should experience strong but unbalanced growth, led by mining investment.  The cash rate will probably fall again.  The exchange rate is above fair value. The rest of the world is on sale for Australians.  Share markets are cheap.

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