1. ABC Global Research Asian Economics Paul Bloxham Chief Economist (Australia and New Zealand) HSBC Bank Australia Limited +61 (2) 435 966 522paulbloxham@hsbc.com.au Australia in the Asian century: Looking beyond the mining boom November 2012 View HSBC Global Research at: http://www.research.hsbc.comhttp://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. Company Logo Delete grid from slide master 2 Australia’s is now in its 21 st year of continuous growth Source: ABS; HSBC estimates

3. Company Logo Delete grid from slide master 3 Some signs of growth moderating into the second half of 2012 Source: ABS

4. Company Logo Delete grid from slide master 4 Timely measures of sentiment are around their average levels Source: Westpac-Melbourne Institute, NAB, Datastream

5. Company Logo Delete grid from slide master 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. Company Logo Delete grid from slide master 6 1.1) Asia is driving global growth: economic centre of gravity moving east Source: Quah (2010)

7. Company Logo Delete grid from slide master 7 1.2) China and India expected to overtake the US and Europe as the largest in the world

8. Company Logo Delete grid from slide master 8 1.3) Emerging economies already contributing more to global growth Source: HSBC estimates

9. Company Logo Delete grid from slide master 9 1.4) China is delivering 50yrs of US advance every decade (India 30 yrs)

10. Company Logo Delete grid from slide master 10 1.5) Europe is straining under the weight of debt Source: IMF

11. Company Logo Delete grid from slide master 11 1.6) Europe faces enormous challenges that will be with us for some time Source: Datastream

12. Company Logo Delete grid from slide master 12 1.7) Timely indicators suggest Europe is in recession Source: Eurostat and HSBC

13. Company Logo Delete grid from slide master 13 1.8) US is operating at well below its capacity Source: Thomson Reuters Datastream

14. Company Logo Delete grid from slide master 14 1.9) China’s PMI suggests around trend growth Source: HSBC; Bloomberg

15. Company Logo Delete grid from slide master 15 1.10) High commodity prices may be the new (old) normal? Source: Erten and O’Campo (2012); HSBC estimates

16. Company Logo Delete grid from slide master 16 1.11) But commodity demand still to be supported by emerging economies Source: GGDC, Brook Hunt, HSBC estimates, IMF

17. Company Logo Delete grid from slide master 17 1.12) Bulk of global population at commodity intensive stage of development Source: Total Economy Database; IMF; HSBC estimates

18. Company Logo Delete grid from slide master 18 1.13) Commodity intensive economies driving the bulk of global growth Source: Total Economy Database; IMF; HSBC estimates

19. Company Logo Delete grid from slide master 19 1.14) High AUD has been a key catalyst for slowdown in some sectors Source: RBA; HSBC

20. Company Logo Delete grid from slide master 20 2.1) Mining boom not over: just part way through second of three stages Source: HSBC

21. Company Logo Delete grid from slide master 21 2.2) Commodity prices have peaked, but remain historically high Source: RBA, HSBC

22. Company Logo Delete grid from slide master 22 2.3) Free kick to income growth from rising commodity price has now passed Source: ABS; RBA

23. Company Logo Delete grid from slide master 23 2.4) But terms of trade still at a very high level, making investment worthwhile Source: ABS, HSBC

24. Company Logo Delete grid from slide master 24 2.5) Mining investment should make large contribution to growth this year and next Source: ABS; HSBC estimates

25. Company Logo Delete grid from slide master 25 2.6) Much of the investment pipeline is for energy (LNG in particular) Source: BREE, HSBC

26. Company Logo Delete grid from slide master 26 2.7) Export ramp-up has yet to come Source: BREE

27. Company Logo Delete grid from slide master 27 3.1) Some rebalancing expected: after some sectors slowed to make way for mining Source: ABS; HSBC estimates

28. Company Logo Delete grid from slide master 28 3.2) Keep in mind that Australia’s economy is mostly services Source: ABS; RBA

29. Company Logo Delete grid from slide master 29 3.3) Growth needs to switch from being commodity-driven to credit-driven

30. Company Logo Delete grid from slide master 30 3.4) Credit growth has been weak, but domestic demand has been strong Source: ABS; RBA

31. Company Logo Delete grid from slide master 31 3.5) Financial system still works in Australia, so credit growth is lifting

32. Company Logo Delete grid from slide master 32 3.6) Lower rates mean that housing prices are picking up Source: Rismark

33. Company Logo Delete grid from slide master 33 3.7) Housing building cycle likely to have troughed Source: ABS; RBA; HSBC

34. Company Logo Delete grid from slide master 34 3.8) Households have already lifted their savings to elevated levels Source: ABS, RBA

35. Company Logo Delete grid from slide master 35 3.9) Household caution is reflected in easing housing prices Source: RP Data / Rismark

36. Company Logo Delete grid from slide master 36 3.10) Record number of outbound Australian tourists weakening domestic spending Source: ABS

37. Company Logo Delete grid from slide master 37 3.11) Exchange rate effect is starting to wear off Source: ABS

38. Company Logo Delete grid from slide master 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. Company Logo Delete grid from slide master 39 4.2) Chinese motor vehicle sales still have a lot of catching up to do

40. Company Logo Delete grid from slide master 40 4.3) China should account for over a quarter of global car sales by 2018

41. Company Logo Delete grid from slide master 41 4.4) Food intake rising in developed countries

42. Company Logo Delete grid from slide master 42 4.5) Higher incomes lead to higher meat consumption and less grain

43. Company Logo Delete grid from slide master 43 4.6) China is driving Australia’s tourist arrivals numbers Source: ABS

44. Company Logo Delete grid from slide master 44 5.1) Weak productivity growth remains Australia’s main challenge Source: ABS

45. Company Logo Delete grid from slide master 45 5.2) Growth has been driven by working harder, not necessarily smarter Source: ABS; HSBC

46. Company Logo Delete grid from slide master 46 5.3) Weak productivity partly reflects the mining boom

47. Company Logo Delete grid from slide master 47 5.4) Weak productivity boosted local inflation, but import prices have fallen Source: ABS, RBA

48. Company Logo Delete grid from slide master 48 5.5) Inflation low, largely due to AUD appreciation in 2009 and 2010 Source: ABS; RBA

49. Company Logo Delete grid from slide master 49 5.6) Wages growth remains solid Source: ABS; RBA

50. Company Logo Delete grid from slide master 50 5.7) RBA rates are well below neutral Source: RBA; HSBC

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