michael blythe- resources & energy symposium 2012
TRANSCRIPT
CEO ConferenceCEO ConferenceCEO ConferenceCEO Conference
A Macro Look at Resources Resources & Energy Symposium
Michael BlytheMichael Blythe Chief Economist(612) 9118 [email protected]
May 2012
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The Big Picture
REAL GDP(annual % change)% %
Outperforming & underachieving!
REAL GDP(Sep'08= 100)Index Index
66(annual % change)
105
110
105
110( p )
AustraliaLehman collapse
44Trend
100
105
100
105
US
22
95
100
95
100
UKNZ
0090
95
90
95
JapanEurope
The Australian economy continues to outperform other advanced economies.
But domestic growth is running below trend (3¼% per annum)
Sep-98 Sep-01 Sep-04 Sep-07 Sep-10Mar-08 Mar-09 Mar-10 Mar-11 Mar-12
3
But domestic growth is running below trend (3¼% per annum).
Resources & The Big Picture
Bigger than Ben Hur
%MINING INVESTMENT
(% of GDP) %COMMODITY PRICES(log scale 1860=100)
USDindex
USDindex
8
10
8
10
CBA(f)
Source: RBA/CBA
(% of GDP)50005000
(log scale, 1860=100)Source: The Economist
index index
"China"
66
(f)
500500 A i
OPECII
44Previousbooms
500500 AmericanCivil War
WWI
KoreanWar
OPEC I
0
2
0
2
5050
WWII
The emergence of China and the commodity boom is the key defining feature of the economic landscape.
1861 1881 1901 1921 1941 1961 1981 20011860 1880 1900 1920 1940 1960 1980 2000
4
p
Resources & The Economy
The commodity story is an income story.
The good – income
COMMODITY INCOME BOOST* story.
The numbers:44
COMMODITY INCOME BOOST*(% of GDP) %%
– the income injection fro higher commodity prices has been worth 1 2% of GDP pa over the past
44
1-2% of GDP pa over the past eight years;
– incomes are $7,100 per person
22
per annum higher than otherwise;
– a ship load of iron ore “bought” 2 200 flat screen TV’s in 2005 –
00
2011/12to
2012/13*Source: CBA calculations2,200 flat screen TV s in 2005 now buys 22,000!.
Source: RBA Governor Glenn Stevens Nov’10
-2-21994/95 1998/99 2002/03 2006/07 2010/11
5
Resources & The Economy
Consensus has trend GDP growth ECONOMIC ACTIVITY
The bad – a “patchwork” economy
over next few years and resources accounting for ½-⅔ of that growth.
Implications:
145145
ECONOMIC ACTIVITY(2010/11 = 100) Index
Source: RBA , CBA
Index
Implications:
– mining-related economy to expand at ≈9-16%pa over next two years;130130
MiningGDP
– non-mining economy to grow at just 1½-2%pa if overall economy to be kept within the “speed limits”.115115 Non-mining p p
GDP
GDP
1001002010/11 2011/12 2012/13
6
Resources & The Economy
95
AUD EXPECTATIONS(average for the next 10 years)
ESTABLISH FOREIGN OPERATIONS?(% of respondents)
The ugly – a high AUD
90
95
Average of
UScents Source: CBA AUD Barometer
Financials
Total
85
Average of past ten years
Consumer
Other
75
80
M t i l
Industrials
70
75
Importer Exporter Both imp. &
Resources
Materials
*Source: CBA AUD Barometer
Most businesses now believe the Aussie will be permanently higher
Hi h AUD i h i i t d l b hi i l
Importer Exporter Both imp. & export 0 15 30 45%
7
High AUD is having an impact on capex and labour hiring plans.
Maximise The Benefits
Minimising domestic constraints - exports
COAL EXPORT CAPACITYCAPEX & PROJECT STATUS% of
450450
MtpaMtpa
Committedcapacity
40024% ofGDP
Index
Underconsideration*
(adv 2-years, rhs)
350350200
300
16
20
Businesscapex
250250
Exports
Capacity
100
200
12
16 capex(lhs)
150150Source: RBA/BREE
0
100
8
12
*Source: ACCESS Economics
The peak impact of the mining construction boom is still some way off.
A th d i ill b d d t ll t d t i
1501502005 2007 2009 2011 2013 2015Mar-02 Mar-05 Mar-08 Mar-11
8
A new growth driver will be needed eventually – resource exports need to rise.
Maximise The Benefits
Heavy construction focus raises cost
Minimising domestic constraints - costs
CONSTRUCTION WAGESy
risks in an environment of skill shortages and pressures on materials.
13001300
CONSTRUCTION WAGES$/wk $/wk
QIV - 2011
A theme in recent RBA commentary 1100
1200
1100
1200
is the need to contain nominal labour cost growth and boost productivity growth.
10001000
800
900
800
900Real wages
8008006 7 8 9 10
Share of labour market
9
Maximise The Benefits
The non-mining economy and the
Getting policy right – Pt I
HOUSEHOLD SPENDING household component of it are bearing the brunt of structural adjustment.
P li k h l t l
6666
HOUSEHOLD SPENDING (% of GDP) %%
Policy makers have a role to play:
– lower interest rates will help;
t ti l iddl i d ll6363
– targeting low-middle incomes and small business for support will help;
– need to get tax policy right – scrapping 6060
6%of GDP
g p y g pp gcompany tax cut and 50% discount on interest earnings is disappointing;
changing superannuation rules (again)– changing superannuation rules (again) is disappointing;
5757Sep-59 Sep-68 Sep-77 Sep-86 Sep-95 Sep-04
10
Maximise The Benefits
Getting policy right – Pt II
RANKING OF COUNTRIES FOR MINING INVESTMENT BY KEY DECISION CRITERIA: 2011(highest ranking for each category is 10 so maximum score is 70) Source: Behre Dolbear Mining Survey
Table on
(highest ranking for each category is 10 so maximum score is 70) Source: Behre Dolbear Mining Survey
RANK COUNTRY ECONOMICSYSTEM
POLITICALSYSTEM
SOCIALISSUES
PERMITTINGDELAYS
CORRUPTION CURRENCYSTABILITY
TAXREGIME
TOTALPOINTS
1 A t li 9 8 8 8 10 9 5 57location drivers
1 Australia 9 8 8 8 10 9 5 57
2 Canada 9 9 4 4 10 9 7 52
3 Chile 9 9 7 6 8 8 4 51
4 Brazil 7 8 5 5 5 9 6 454 Brazil 7 8 5 5 5 9 6 45
5 Mexico 8 8 2 7 6 6 7 44
6 USA 8 9 3 1 10 7 3 41
7 Colombia 6 7 6 6 5 5 4 39
8 Tie Botswana 6 5 5 5 5 5 6 37
8 Tie Peru 6 6 4 4 5 7 5 37
↕
Global investment decisions depend on more than tax regimes.
Even if Australia dropped to “1” for tax regime would still rank No 2 globally
25 Russia 1 1 3 3 1 2 5 16
11
Even if Australia dropped to 1 for tax regime, would still rank No. 2 globally.
Maximise The Benefits
Households are unhappy.
Selling the story – the unhappy consumer
PERSONAL CIRCUMSTANCESGeneral feeling that the “benefits” of the resources boom are not being
h d d hil th “ t ”
4040%%
PERSONAL CIRCUMSTANCES(net % of respondents)
shared around while the “costs” are:
– no tax cuts - carbon tax and flood levy instead;
2020Better in six months time y ;
– high Aussie dollar hurting some key sectors;
00 Better than six months
ago
– household budgets under pressure (utilities, health etc);
retirement savings struggling;
-20-20
Source: CBA Viewpoint – retirement savings struggling;
– job security fears.-40-40
Apr 09 Jan 10 Oct 10 Jul 11 Apr 12
Source: CBA Viewpoint
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Maximise The Benefits
Selling the story – sharing the spoils
SHARING THE COMMODITY BOOM(cents per $ of revenue)
SALARIES: WHERE SPENT(% of total earned in region)
Payment to
Leakage offshore
( p $ )
100
%(% of total earned in region)
Payment of royalties & taxes
Payment to domestic
shareholders 75
Stays in
Buying domestic services & imports
into resources sector
& taxes 50-60c of every $ of income
remains inAustralia 25
50y
regionLeaves region
0 15 30 45
Paying domestic labour
0
Northern WA Central Qld
RBA calculations are that 50-60¢ of each $ of resources revenue remains in Aust.
The benefits of the boom do spread through the broader economy
0 15 30 45Source: RBA
Northern WA Central QldSource: CBA Viewpoint
13
The benefits of the boom do spread through the broader economy.
Global Issues
Demand matters
CHINA: STEEL & POLICYCHINA: CONSTRUCTION & POLICYCHINA: GDP & POLICY
-3.560
CHINA: STEEL & POLICY (change)%pa %pts
Crude steelproduction
(ann ch in growth, lhs)
-3.540
CHINA: CONSTRUCTION & POLICY (change)%pa %pts
Ch in reservesrequirement ratio(6 mnth change
-3.56.0(annual % change)%pa %pts
GDP(ch in annual
-1.4
0 80
30
( g , )
-1.4
0 80
20(6 mnth change,
adv 12 months, rhs)-1.4
0 80 0
3.0 growth rate, lhs)
0.8
2.9-30
0
Ch i
0.8
2.9-20
00.8
2.9-3.0
0.0
Ch in reservesrequirement ratio(6 mnth change,d 14 th h )
5.0-60Jan-02 Jan-04 Jan-06 Jan-08 Jan-10 Jan-12
Ch in reservesrequirement ratio(6 mnth change,
adv 8 months, rhs)5.0-40
Jan-02 Jan-04 Jan-06 Jan-08 Jan-10 Jan-12
Floor spaceunder construction
(ann ch in growth, lhs)5.0-6.0
Jan-02 Jan-05 Jan-08 Jan-11
adv 14 months, rhs) QI
Even if domestic settings are right, our ability to maximise the benefits will depend on offshore events beyond our control.
14
Global Issues
So does the composition of growth
TRADE & PRODUCTION(Jan'08=100)
I d IndexCHINA & EXPORTS
(% of a country's exports that remain in China)
130
150
130
150( )
Index Index
Emerging Asiaindustrial
production
90(% of a country s exports that remain in China)%
Source: HKMA
110
130
110
130
Advanced
60
90
110
90
110 Advanced economyimports
30
70
90
70
90
Source: BEPA 0
Asian growth is increasingly domestically driven.
Australia is more exposed to the Asian domestic story
Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Phil. Thai. Mal. Sing. Kor. Jap. NZ Indo. Aus.
15
Australia is more exposed to the Asian domestic story.
The Long Run
Middle income consumers
CONSUMPTION SHARE & INCOME The Chinese consumer is set to become an important economic driver.
100
CONSUMPTION SHARE & INCOMEConsumption(% of GDP)
Incomes at the point where the consumption share typically lifts.75
Expanding global middle class to underwrite consumer demand for:
larger and better quality housing;50
USA
Japan
– larger and better quality housing;– more and better quality food;– more consumer durables;China Source: IMF
SouthKorea
– more education services;– more holidays.
250 20 40 60
GDP/capita (PPP)
16
A Look into the Abyss
IMF defines stabilisation as achieved
More volatility?
GENERAL GOVERNMENT DEBT IMF defines stabilisation as achieved when advanced economy gross debt at 60% of GDP (pre-crisis median). 120120
Title% ofGDP
GENERAL GOVERNMENT DEBT(advanced economies)
% ofGDP
Adjustment is a lengthy process – IMF scenarios stretch out to 2030
Extended timeframe indicates financial8080
Extended timeframe indicates financial market volatility will be an enduring feature.
4040
You are
here
“Asia” determines Australian growth and incomes. “North Atlantic” economies drive sentiment and
4040
Source: IMFfinancial markets.00
2007 2012 2017 2022 2027
Source: IMF
17
CBA Economic Forecasts
Economy 2009/10(a)
2010/11(a)
2011/12(f)
2012/13(f)
GDP (% ch) 2.3 2.0 2.8 3.3
Of which: Consumer spending (% ch) 2.5 3.1 3.3 2.9
Business Investment (% ch) -5.2 6.4 20.1 12.3
Unemployment (%) 5.5 5.1 5.3 5.5
CPI (% ch) 2.3 3.1 2.3 2.6
Wage Price Index (% ch) 3.1 3.8 3.7 3.9
T f T d 4 1 20 8 4 1Terms-of-Trade -4.1 20.8 4.5 1.5
Current account balance (% of GDP) -4.3 -2.4 -2.4 -2.8
Underlying Budget balance (% of GDP) 4 2 3 7 2 8 0 2Underlying Budget balance (% of GDP) -4.2 -3.7 -2.8 0.2
18
CBA Market Forecasts
Markets Jun’12 Sep’12 Dec’12 Mar’13
Australia Official cash 3¾ 3½ 3½ 3½
90-day bills 3.8 3.6 3.6 3.6
3-year bonds 2.7 2.7 2.8 2.9
10-year bonds 3.5 3.6 3.8 3.9
3-year swap 3.4 3.4 3.4 3.5
10-year swap 4.3 4.4 4.6 4.6
USA Fed funds 0-¼ 0-¼ 0-¼ 0-¼
2-year bonds 0.2 0.3 0.4 0.4
10 b d 2 0 2 2 2 210-year bonds 2.0 2.2 2.5 2.7
Spreads AUS-US 10 yr 150 140 130 120
AUS 3-10 yr 80 90 100 100
FX AUD 0.98 1.01 1.03 1.04
TWI 73 9 75 8 76 8 77 1
19
TWI 73.9 75.8 76.8 77.1
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