1. Bill Evans Managing Director Economics & Research ABARE CONFERENCE March 2010

2. Global IP: level is getting back to trend

3. New lending in China : withdrawing boom

4. Chinese inflation: contained this time!

5. Australia & US growth: stark comparison

6. Terms of trade – heading back to highs

7. Australia: the domestic growth mix

8. Domestic demand & employment growth

9. Debt servicing – signals rate pause

10. The unemployment rate- close to NAIRU

11. CPI: demand pressures rising

12. CPI inflation: headline & core forecasts

13. The RBA to pause in second half of 2010

14. FX exposure & hedging by sector

15. AU Banks and Global Risk Index

16. Global regulation will affect supply of credit - Potential new bond purchase by banks

17. Credit growth-weaker in future cycles

18. RISK OFF over next few Months Global investors will seek to lower risk over next few months. Uncertainty about recovery pace and policy response in the US. Major doubts about China’s capacity to engineer a soft landing. Contagion in sovereign risk in Europe and European banks. Issues about global regulatory regimes. Risks of premature policy tightening by fiscal and monetary authorities. A risk off period will favour USD and Yen. Reversal will come with Chinese appreciation of RMB; weak US data avoiding a FED tightening; confidence that China can achieve a soft landing.

19. US dollar performance by bloc

20. Conclusion The global economic recovery will be sustained by the developing world in 2010. Credit restrictions ; weak household balance sheets; high unemployment and fiscal restraint will limit the recovery pace of the developed economies in 2010 and 2011. Despite considerable scepticism China’s attempts to affect a soft landing are likely to be successful. Australia’s terms of trade are likely to return to the extreme levels of 2008 in 2011. Key drivers for Australia’s growth prospects will be rising terms of trade ;higher export volumes; strong business investment and rising house prices. Falling unemployment will support consumer confidence and income growth Australia’s growth will return to trend in 2010 and 2011 although more subdued recovery than in previous recovery periods. Banks will continue to be pressured by expensive funding costs and increased regulation. Restrictions on credit availability will constrain the pace of economic recovery. With the pace of recovery being more muted than usual expected interest rates will remain lower than in previous recovery cycles.RBA cash rate is likely to only reach around 5.5% by end 2011. Uncertainty about China; US and Europe will support the USD with AUD down to USD 0.85 prior to a further rise in the AUD in 2010H2 with a likely peak of USD 0.95.

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