material/Speaker Resources/Craig James TwoSpeed

Return of the Two Speed Economy: Australia & the World

Craig James Chief Economist, CommSec, May 2010

Important information This presentation has been prepared without taking account of the objectives, financial situation or needs of any particular individual. Before acting on the information in this seminar, you should consider its appropriateness to your circumstances and, if necessary, seek appropriate professional advice. Commonwealth Securities Limited ABN 60 067 254 399 AFSL 238814 (CommSec) is a wholly owned but non-guaranteed subsidiary of Commonwealth Bank of Australia ABN 48 123 123 124 and a Participant of the ASX Group. Examples used in this presentation are for illustrative purposes only.

Overview: Butterflies, China and a No-frills Budget   Global healing process… …beware the butterfly effect   Two-speed global economy   China hogs the spotlight   Australia’s No-frills Budget   World focus is on debt   Australia’s focus is on sustainable prosperity

Why Butterflies?   Butterfly effect…globalisation at work Greece, volcanic ash, oil spill, Goldman Sachs…

The Big Picture

Asia leads the way…   Outlook positive for Asia… but major hopes rest with China…

www.flixsnips.com/hong-kong-advertisment-skyline/

All eyes on China   Important to Australia, important to world …risks & opportunities

www.novinite.com

Australia’s Budget: China, Commodities   Focus on resource tax   China is central   Risks & opportunities   New commodity boom?   Australia is big winner   Share in spoils

So What? Inflation, changes in spending power

Australia in 2010   No recession, population, China, construction… But not all states/industries equal…

media.merchantcircle.com

Two speed economy “Yes, I think it is going to be a twospeed economy. I have said publicly that I think all those issues of geographical differences and industry differences are likely to re-emerge with a vengeance…” Reserve Bank Governor, Glenn Stevens February 19 2010 to House Of Standing Committee on Economics

Long & short-run trends   NSW has lost dominance over time… Acceleration over noughties…

www.indexoz.com

Exports & investment   Resources states dominate… Exposed to Chinese market…

So What? Rationing of projects? Costs. Flow-on effects.

More than Two-Speed Key issues   Population growth   Housing under-supply   Tight job market   Capacity issues   “New conservatism”   High dollar/high rates

Housing issues

So What? Home prices to rise 5-8% in 2010

  High prices?…demand & supply… but is housing really unaffordable?

Outlook for jobs

So What? Skilled staff in demand; wage costs to rise

  Firms didn’t fire, didn’t hire… Flexible work practices to continue…

Outlook for interest rates

So What? More rate hikes in 2010; Fix Vs Variable

  Rates back to ‘normal’…RBA nominates 5% cash rate Savers are key winners…

Aussie dollar

So What? Impact on industries; Budgeting, exports

  Aussie may ease, but still above-average…

Outlook: The World has changed Winners   Mining, Mining services   Support services, infrastructure   Local businesses Losers/Challenges   Tourist operators/regions   Manufacturing   Macroeconomic policy

Codrington, Stephen. Planet Geography 3rd Edition (2005)

CommSec forecasts

www.uml.edu

www.despair.com