Milk – Consumption and Use

Source: ABARES, Dairy Australia

Shifting Ground

New thinking in a world of lower

growth

Financial Review Retail Summit

28 September 2016

Peter Crone Chief Economist

An economic situation we haven’t seen in 40 years

Low interest rates Low inflation Low growth

0%

6%

12%

18%

1980 1990 2000 2010

Inflation - OECD

-6%

0%

6%

12%

18%

24%

1970 1980 1990 2000 2010

Nominal GDP - OECD

0%

6%

12%

18%

1980 1990 2000 2010

Inflation - Australia

Source: Stats.oecd.org & ABS 6401.0

-6%

0%

6%

12%

18%

24%

1970 1980 1990 2000 2010

Nominal GDP - Australia

Source: Stats.oecd.org & ABS 5204.0

0%

3%

6%

9%

12%

1995 2000 2005 2010 2015

Interest Rates - Australia

10 year bond

Policy Rate

Source: RBA (G3 Policy - Fed BOJ ECB) ; (10 year - US JAP GER)

0%

2%

4%

6%

1995 2000 2005 2010 2015

Global Interest Rates

10 year bond

G3 Policy Rate

Do the developed economies become Japan?

-12%

-8%

-4%

0%

4%

8%

1995 2005 2015

GDP - Japan

Real

Nominal

-12%

-8%

-4%

0%

4%

8%

1995 2005 2015

Household Consumption - Japan

Real

Nominal

-12%

-8%

-4%

0%

4%

8%

1995 2005 2015

Wages and Inflation - Japan

Wages

Inflation

-12%

-8%

-4%

0%

4%

8%

1995 2005 2015

Real Wages - Japan

Source: Japan Cabinet Office

Global headwinds

Debt hangover

Not enough investment

Lack of confidence

Global Headwinds

0 100 200 300 400

Germany

Korea

Australia

United Kingdom

United States

Italy

China

Spain

France

Canada

Japan

Global Debt Levels - % of GDP

Households

N-F Corporate

Government

Source: BIS Statistical Bulletin Source: Nielsen

Are economies becoming more ‘capital light’?

Source: visualcapitalist.com

Reading the play locally

90

100

110

120

130

140

150

2005 2007 2009 2011 2013 2015 2017

Private Demand

Investment

ABS Cat No 5206.0

90

100

110

120

130

140

150

2005 2007 2009 2011 2013 2015 2017

Private Demand

Consumption

Reading the play locally

90

100

110

120

130

140

150

2005 2007 2009 2011 2013 2015 2017

Private Demand

2

6

10

14

18

1990 1996 2002 2008 2014

Labour Force Per cent

Under-utilisation Rate

Underemployment

Unemployment Rate

ABS Cat No 5206.0 ABS Cat No 6202.0

Loss of spending power

-4%

-2%

0%

2%

4%

6%

8%

2005 2007 2009 2011 2013 2015

Earnings Growth

Real Wages

Average Earnings

-15%

0%

15%

30%

-6%

-2%

2%

6%

10%

2005 2007 2009 2011 2013 2015

Household Disposable Incomes

Real Household Disposable Income per Capita (LHS)

Five year change in living standards (RHS)

ABS Cat No 5206.0 ABS Cat No 5206.0, NATSEM

Real wages and spending

-2%

0%

2%

4%

6%

1980 1990 2000 2010

Per Capita Consumption - Total Retail

1.0% 2.8% 3.0% 2.0%

ABS Cat No 5206.0 ABS Cat No 8501.0

-3%

0%

3%

6%

1980 1990 2000 2010

Real Wages

0.7% 1.2% 1.6% 0.3%

Real wages and spending

-3%

0%

3%

6%

1980 1990 2000 2010

Real Wages

0.7% 1.2% 1.6% 0.3%

ABS Cat No 5206.0 ABS Cat No 8501.0, Deloitte Access Economics

-2%

0%

2%

4%

6%

1980 1990 2000 2010

Per Capita Consumption - Food

0.6% 1.4% 2.6% 0.7%

Population Growth

ABS 3101.0 ABS 3222.0

0.0%

1.0%

2.0%

3.0%

1990 1995 2000 2005 2010 2015

Population Growth

Net Overseas Migration

Natural Increase

16

20

24

28

32

36

16

20

24

28

32

36

2016 2021 2026 2031 2036

Projected Population Growth Million

Food Price Deflation

-6%

-3%

0%

3%

6%

9%

2008 2010 2012 2014 2016

Food Price Inflation

ABS - Food & Non-alcoholic beverages

Coles - Food & Liquor

120

160

200

240

280

2008 2010 2012 2014 2016

Global Food Prices 2002-04 = 100

FAO Food Price Index ABS Cat No 6401.0, Coles

Constrained household budgets

Weekly Household Expenditure on Food – by Quintile (2009-10)

Lowest Fourth Second Third Highest All

$102 $246 $149 $196 $328 $204

ABS Cat No 6530.0

Outer-metro cost of living

Penrith

Broadway

Campbelltown

Bread:

Penrith 33% Campbelltown 49% Broadway 27%

Pasta:

Penrith 32% Campbelltown 39% Broadway 26%

Milk:

Penrith 58% Campbelltown 56% Broadway 43%

Source: Coles

Outer-metro cost of living

Bread:

Werribee 52% Cranbourne West 63% Chadstone 34%

Pasta:

Werribee 40% Cranbourne West 49% Chadstone 23%

Milk:

Werribee 59% Cranbourne West 59% Chadstone 40%

Cranbourne West

Chadstone Werribee

Source: Coles

Wannero

o Bread:

Wanneroo 31% Gosnells 37% East Victoria Park 25% Pasta:

Wanneroo 34% Gosnells 45% East Victoria Park 23%

Milk:

Wanneroo 47% Gosnells 53% East Victoria Park 34%

Outer-metro cost of living

Wanneroo

Victoria Park East

Gosnells

Source: Coles

Outer-metro cost of living

Caboolture

Morayfield

Toombul

Bread:

Caboolture 65% Morayfield 60% Toombul 38% Pasta:

Caboolture 50% Morayfield 48% Toombul 28%

Milk:

Caboolture 54% Morayfield 51% Toombul 43%

Morayfield

Caboolture

Toombul

Source: Coles

Confidence with her magic wand

60

80

100

120

140

2000 2004 2008 2012 2016

Consumer Sentiment

-30

-15

0

15

30

2000 2004 2008 2012 2016

Business Confidence

Westpac-Melbourne Institute National Australia Bank Monthly Business Survey

The future will be different from the past

How to face the next economic downturn with already low interest rates and high debt?

Borrow for infrastructure

Money financed fiscal programs

A new style of play

Slow growth world won’t be fixed by yesterday’s policies

A new economics in the making - shifting boundaries between economics & politics

Australia better placed, but not immune from global trends