Craig JamesChief Economist, CommSec, July 2011

The Australian & Global Economy

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appropriateness to your circumstances and, if necessary, seek

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Examples used in this presentation are for illustrative purposes only.

The Big Picture

Global economy growing…Emerging nations lead the way…

Global economySo What?Exchange rates, trade, sharemarket, interest rates

Drivers of world economy - Contribution to growth 2011

China 0.81%

United States 0.74%

India 0.18%

Japan 0.14%

Newly Industrialised Asia* 0.13%

Germany 0.13%

ASEAN 5 # 0.12%

Brazil 0.11%

Russia 0.10%

United Kingdom 0.08%

France 0.07%

Canada 0.05%

Other countries 1.70%

World 4.30%

Source: IMF & CommSec* Newly industrialised Asia – Hong Kong, Taiwan, Singapore and South Korea# ASEAN 5 – Indonesia, Malaysia, Thailand, Philippines and Vietnam

Ascent of China

China awakes

Land of 1.3 billion people industrialises…Major resource demands…

www.thenewmans.id.au

Australian focus is trade

Three-quarters of exports to Asia…But driven by China and India…

China industrialises

China is our number 1 trading partner…Huge gains, potential to grow further…

Demand for Aussie Raw Materials

Commodity price perspectives

Commodity prices hit 100-year low in 2002….and then came China…Australia is a key winner

Mining boom

Not just miningSo What?Interest rates, investment, economic policy

Drivers of the Australian economy 2007 – 2010, % contribution to the change in GDP

Mining 17.4%

Professional, scientific and technical services 11.9%

Construction 11.6%

Financial and insurance services 10.8%

Agriculture, forestry and fishing 10.8%

Healthcare and social assistance 9.7%

Education and training 5.1%

Public administration and safety 5.1%

Transport, postal and warehousing 3.8%

Wholesale trade 3.5%Source: ABS & CommSec

Big Picture Economy slides due to floods…but underlying position is soft…

Conservative Consumers

Consumers remain cautious……and more inclined to save

Housing Building approvals flat……and house prices fall for four months

Tight job market Unemployment remains low……wages up, especially in the mining sector

Interest rates

Cash rate still below average……but what matters are lending rates…

Inflation

Headline inflation boosted by petrol, fruit & veg……but underlying rate held down by discounting

Reserve Bank views

Underlying inflation contained……but RBA expects stronger growth ahead

RBA Output & Inflation ForecastsDec 13Jun 13Dec 12Jun 12Dec 11Jun 11Dec 10

-4.004.003.753.753.503.50GDP - Nov 10-4.004.003.754.253.252.75GDP - Feb 11

3.753.753.754.254.252.502.70GDP - May 11

-3.003.002.752.752.502.50Underlying CPI - Nov 10-3.003.002.752.752.252.25Underlying CPI - Feb 11

3.253.003.003.003.002.502.25Underlying CPI - May 11

Source: Reserve Bank, CommSec

Aussie dollar

High Aussie dollar keeping inflation down……as well as keeping a cap on growth…

Outlook & Issues

European debt

US economic recovery

China expansion

Carbon tax

Mining Tax

Structural change

‘New conservatism’

CommSec forecasts

ForecastsEconomic growth 2.40% in 2010/11 4.10% in 2011/12

Inflation 3.10% in 2010/11 3.10% in 2011/12

Unemployment 4.50-4.75%, end 2011 4.25-4.50%, end 2012

Cash rate 5.00-5.25%, end 2011 5.50-5.75%, end 2012

Sharemarket (Australian)

5,000 points, end 2011 5,500 points, end 2012

Australian dollar US104c in Dec 2011 US95c in December 2012

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