1. An Economic and Business Outlook October 2011 Presented by Dr Chris Caton

2. 2 US Housing starts are bumping along the bottom Source: Datastream (Millions)

3. Government debt (% of GDP) 3

4. 4 2011 Growth Forecasts (%) Month of Forecast J-11F-11M-11A-11M-11J-11 A-11S-11 Australia3.12.9 2.7 2.01.91.71.8 New Zealand 2.92.71.1 1.2 1.42.1 US3.2 3.12.92.72.5 1.81.6 Japan1.21.51.40.30.0-0.7 -0.5 China9.29.39.49.3 9.2 9.1 Germany2.5 2.62.72.83.33.4 2.9 UK2.11.9 1.81.6 1.51.31.2 “World”3.43.5 3.33.2 3.13.0 Source: Consensus Economics

5. 5 2012 Growth Forecasts (%) Month of Forecast J-11F-11M-11A-11M-11J-11 A-11S-11 Australia3.53.7 3.8 4.0 3.83.7 New Zealand 2.93.13.83.9 3.7 US3.3 3.23.13.02.42.1 Japan2.0 2.12.72.83.23.1 2.4 China8.9 9.08.9 8.8 8.6 Germany1.8 1.9 2.01.9 1.3 UK2.12.22.12.2 2.12.22.01.8 “World”3.6 3.73.6 3.53.2 Source: Consensus Economics

6. 6 Real GDP growth in Australia and the US Source: Datastream Year to % change

7. It’s the developing world, stupid 7

8. What goes up... 8

9. 9 The Labour market has done well but employment growth has slowed dramatically Source: ABS 000’s% Employment (LHS) Unemployment Rate (RHS)

10. Retail spending has slowed 10

11. And here’s one reason..household saving has risen 11

12. 12 Australian Inflation Source: ABS % BT Forecasts GST Effect

13. Interest rate changes do make a difference! 13

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

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

16. Prices have fallen everywhere 16

17. 17 Gross Domestic Product Source: ABS % BT Forecasts GST Effect

18. Coal exports are recovering but still have a way to go 18

19. 19 Mining investment (share of GDP)

20. 20 Source: Consensus Economics GDPInflation Australia3.22.7 Norway2.92.3 United States2.82.2 New Zealand2.82.6 Canada2.52.1 Sweden2.42.1 United Kingdom2.22.6 Spain2.1 Switzerland2.01.4 Netherlands1.81.6 Germany1.71.8 France1.72.0 Eurozone1.62.1 Japan1.30.9 Italy1.12.0 Global Medium-Term Economic Growth and Inflation Prospects (2011-2021)

21. 21 Asia-Pacific Medium-Term Economic Growth and Inflation Prospects (2011-2021) GDPConsumer Prices India8.56.1 China7.83.5 Indonesia6.25.5 Malaysia5.13.1 Philippines5.04.7 Thailand4.83.4 Singapore4.62.8 Taiwan4.42.3 South Korea4.03.1 Hong Kong3.83.3 Australia3.22.7 New Zealand2.82.6 Japan1.30.9 Source: Consensus Economics

22. 22 Financial Market Forecasts Now (4 Oct) End-Dec 2011 End-June 2012 AUD/USD 0.952 0.910.88 Official cash rate (%) 4.75 4.50 10 Year Bond yield (%) 4.09 4.404.80 ASX 200 3872 42504750

23. 23 The Australian Dollar and US Trade Weighted Index Source: Datastream IndexAUD/USD US TWI inverted (LHS) AUD/USD (RHS)

24. 24 Australian Sharemarket Performance – ASX200 Source: Bloomberg

25. Shares are cheap here and elsewhere 25

26. 26 All sectors are looking cheap Source: IBES, MSCI, Datastream, Citi Investment Research and Analysis Major Sector PE Ratios on 12 Month Forward Consensus Earnings

27. 27 It makes a difference when you buy

28. 28 Morgan Stanley Capital Indexes Source: Datastream Developed IndexAsian Emerging Markets Index Asian Emerging Markets Index (RHS) World Developed Index (LHS)

29. 29 Summary  The threat of a double-dip recession in the US is exaggerated. Eurozone debt is a serious issue, but unlikely to be a game-changer.  The Australian economy should resume strong growth, led by mining investment.  The cash rate is likely to be cut next month.  The exchange rate is still above fair value. The rest of the world is on sale for Australians.  Share markets are cheap.

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