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

2. Euro-area government bond spreads (to German bonds) 2

3. The two that matter have clearly improved (long-term bond yields (%)) 3

4. 4 2012 Growth Forecasts (%) Month of Forecast J-12F-12M-12A-12M-12J-12 A-12S-12O-12 Australia3.43.33.1 3.03.23.33.43.53.4 New Zealand 2.62.4 2.32.22.02.4 US2.2 2.3 2.22.12.2 2.1 Japan1.91.81.92.0 2.5 2.42.3 China8.4 8.38.1 7.97.7 Germany0.50.6 0.70.80.9 0.8 UK0.5 0.60.70.40.30.1-0.2-0.3-0.2 “World”2.6 2.52.6 2.5 Source: Consensus Economics

5. 5 2013 Growth Forecasts (%) Month of Forecast J-12F-12M-12A-12M-12J-12 A-12S-12O-12 Australia3.23.33.1 3.43.23.1 2.9 New Zealand 3.23.33.23.13.0 2.92.8 2.7 US2.5 2.62.5 2.42.32.1 2.0 Japan1.4 1.5 1.31.4 1.3 China8.6 8.5 8.4 8.38.1 Germany1.5 1.6 1.41.31.21.00.9 UK1.8 1.61.41.31.2 “World”3.2 3.1 3.02.9 2.8 Source: Consensus Economics

6. 6 Financial Market Forecasts Now (14 Nov) End-Dec 2012 End-June 2013 AUD/USD 1.042 1.000.93 Official cash rate (%) 3.25 3.00 10 Year Bond yield (%) 3.06 3.303.70 ASX 200 4385 45504850

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

8. 8 Australian dollar against Asian share markets Source: Datastream $AAsian Emerging Markets Index Asian Emerging Markets Index (RHS) $A (LHS)

9. 9 Australian Sharemarket Performance – ASX200 Source: Bloomberg

10. The Australian market is still a little cheap (p/e ratio) 10

11. P/Es by sector 11

12. World share markets are cheap (P/E ratio) 12

13. 13 Real GDP growth in Australia and the US Source: Datastream Year to % change

14. It’s the developing world, stupid 14

15. Australia’s Terms of trade (Index 1900-01 to 1999-00 = 100) Source: ABS Catalogue Number 5206.0, RBA and Treasury. 60 80 100 120 140 160 180 200 60 80 100 120 140 160 180 200 1869-701894-951919-201944-451969-701994-952019-20 Index Budget forecasts/ projections 5-year centred moving average

16. Chinese steel and iron ore spot prices 16

17. 17 Employment growth has been slow Source: ABS 000’s% Employment (LHS) Unemployment Rate (RHS)

18. Contributions to jobs growth (year to August 2012, thousands) 18

19. 19 Australian Inflation Source: ABS % BT Forecasts GST Effect

20. Interest rate changes do make a difference! 20

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

22. We are very expensive compared with the United States  22

23. But not otherwise! 23

24. Prices have fallen everywhere but they may be turning 24

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

26. 26 Mining investment will peak soon

27. 27 Source: Consensus Economics GDPInflation Australia3.02.6 Norway2.71.9 New Zealand2.62.3 United States2.52.3 Sweden2.21.7 Canada2.12.0 United Kingdom1.82.8 Netherlands1.62.2 Switzerland1.61.1 Spain1.62.1 France1.41.9 Germany1.42.1 Eurozone1.12.0 Japan1.10.7 Italy0.52.1 Global Medium-Term Economic Growth and Inflation Prospects (2012-2022)

28. 28 Asia-Pacific Medium-Term Economic Growth and Inflation Prospects (2012-2022) GDPConsumer Prices India7.25.9 China7.13.0 Indonesia6.15.7 Philippines5.24.4 Malaysia4.82.3 Thailand4.43.0 Singapore4.02.7 Taiwan3.42.1 South Korea3.42.7 Hong Kong3.33.1 Australia3.02.6 New Zealand2.62.3 Japan1.10.9 Source: Consensus Economics

29. 29 Morgan Stanley Capital Indexes Source: Datastream Developed IndexAsian Emerging Markets Index Asian Emerging Markets Index (RHS) World Developed Index (LHS)

30. 30 Summary  Eurozone debt is a serious issue; it will drag on for a long time but is unlikely to end in catastrophe. We will always worry about China.  The Australian economy should continue to experience moderate but unbalanced growth, led by mining investment. The mining boom will, of course, end eventually.  The cash rate is likely to fall again.  The exchange rate is above fair value. The rest of the world is still on sale for Australians.  Share markets are cheap.

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