International Economic Perspective 31 July 2009 Will the BoE cause a stir? Nicola Chadwick – Economist – +44 (0)20 7710 3918 – firstname.lastname@example.org Both the ECB and BoE will leave rates unchanged when they meet next week. The BoE could signal its intention to use the extra £25bn in QE funds, thereby utilizing the total £150bn. We wouldn’t rule out the BoE asking the Chancellor to approve more, but believe the odds have fallen. The BoE and When the Bank of England and European % % ECB maintained Central Bank met on rates last month, neither BOE BANK RATE 8 8 their policy bank provided much in the way of stimulation stances last for markets, with both opting to leave their month. policy settings unchanged. The ECB left its key policy rate at 1.0% and made no change to its 6 6 intended covered bond purchases totalling 60bn euro. Mr Trichet‟s press conference was uninspiring, with no notable adjustments to the 4 4 ECB‟s view on the economic outlook from June. The Bank of England meanwhile maintained the Bank Rate at 0.5% and made no adjustment to its Asset Purchase Facility (APF), which is 2 2 valued at £125bn under its current mandate (with just over £121bn in purchases having taken place to July 23). 0 0 Next week‟s monetary policy announcements Jan-00 Jan-02 Jan-04 Jan-06 Jan-08 by both central banks could well side step the Rates will be left history books once again. Both will unchanged next %pa UK MANUFACTURING Index undoubtedly leave their policy rates unchanged. 8 64 month, but the And the ECB (which, on a relative basis, hasn‟t Manufacturing production, %pa BoE could adjust done much to dispel its reputation for being its APF. conservative lately) is unlikely to adjust its intended asset purchases at this early stage of the game (only 3.7bn euros worth of the 0 51 intended 60bn in purchases have taken place). There is however some chance of a shake up from the BoE, which could well adjust the scale of its APF against the backdrop of a fresh set of -8 38 economic forecasts, to be revealed in the Bank‟s Inflation Report the following week. Manufacturing PMI (rhs) From the outset, see still favour the Monetary We favour the Policy Committee opting to pull the additional -16 25 BoE utilising the £25 billion in quantitative easing funds available Jan-92 Jan-96 Jan-00 Jan-04 Jan-08 to it into play, thereby utilising the entire £150bn additional £25bn allocation. It‟s certainly not a one-way bet, but but question UK HOUSE PRICES & RETAIL given a likely still benign inflation outlook whether it will ask %pa Index encompassed in their fresh forecasts and the 12 120 the Chancellor to relatively small amount relative to the approve more. purchases that have already taken place, we Retail Sales 3m/yoy (lhs) believe it‟s a question of “why not?. 8 65 The key question, however, is whether the Bank of England will ask the Chancellor to approve more funds. We certainly wouldn‟t rule it out, 4 10 but believe the odds have fallen. While some would argue there is no harm in having more funds approved and sitting on the sidelines in 0 -45 case it is required, it would send a signal to markets and the public that it believes more RICS House Prices , Adv needs to be done. While we continue to believe 4 mths (rhs) that further policy action would help the UK -4 -100 economy on what will be a long and unstable Jan-87 Jan-93 Jan-99 Jan-05 road to recovery, recent rhetoric from the bank 8 International Economic Perspective 31 July 2009 has suggested they are disinclined to deliver more stimulus. The magnitude and range of % UK UNEMPLOYMENT & EARNINGS % policy measures already delivered is huge, and 8 8 policy settings are unprecedentedly stimulatory. Throughout the crisis we‟ve been advocates of ILO unemployment rate unprecedented times justifying unprecedented 6 6 measures, but now the increasingly convincing green shoots in the data, alongside escalating market concerns over the inflationary impact of more stimulus, will likely carry a lot of weight in 4 4 deterring the Bank of England from delivering more. Average earnigs Excl bonuses 2 2 While additional stimulus is looking less likely given recent green shoots and rising market inflation worries, we continue to believe that the Even if additional stimulus in play will remain for some time. Even 0 0 stimulus is not in spite of a drop in the estimate for potential Jan-00 Jan-02 Jan-04 Jan-06 Jan-08 delivered beyond GDP growth in the 2009-2010 period to 1.3% the £150bn asset from 2.2% in 2006-2008, the OECD still estimates the UK output gap will stand at -6.4% BOE INFLATION FORECASTS purchases, policy (May Inflation Report) stimulus will be of GDP in 2010, above the OECD total of - retained for a 5.7%. There is a good chance that we see a growth spurt heading into 2010, given the prolonged period extent to which production and spending have of time. fallen. But we believe growth increases will ease off thereafter, on back of medium term damage to investment prospects, increased savings and reduced credit availability. We continue to believe that the UK recovery will be tepid and prolonged relative to past recoveries. In this sort of environment the BoE will have little to worry about on the inflation front for some time; indeed its projections in its August Inflation Report are likely to once again show CPI inflation undershooting its 2% inflation target at its medium term horizon. We don‟t look for the BoE to start to tighten policy until the second half of next year. 9 The Week Ahead 31 July 2009 Calendar – Australasia, Japan and China Time Forecast Date AEST Econ Event Period Unit Last Market CBA Mon 3 Aug 09.30 AU AiGroup PMI Jul Index 38.4 ~ ~ 11.30 AU Job advertisements Jul m%ch -6.7 ~ ~ 11.30 JN Labour cash earnings Jun y%ch -2.5 ~ ~ 15.30 AU RBA commodity price index Jul y%ch -29.3 ~ ~ Tue 4 Aug ~ AU CBA/ACCI Business survey QII Index 31.7 ~ ~ 08.45 NZ Wages including overtime QII q%ch 0.6 ~ 08.45 NZ Wages excluding overtime QII q%ch 0.5 ~ 0.6 08.45 NZ Average hourly earnings QII q%ch 1.1 ~ 0.6 11.30 AU House prices QII q%ch -2.2 ~ ~ y%ch -6.9 ~ ~ 11.30 AU Retail sales Jun m%ch 1.0 ~ 0.2 14.30 AU RBA announce rates Aug % 3.00 3.00 3.00 Wed 5 Aug 09.30 AU CBA/AiGroup PSI Jul Index 50.2 ~ ~ 11.30 AU Trade balance Jun A$mln -556 ~ -0.8 Thur 6 Aug 08.45 NZ Employment change QII q%ch -1.1 ~ -1.3 y%ch 0.8 ~ ~ 08.45 NZ Participation rate QII % 68.4 ~ 67.6 08.45 NZ Unemployment rate QII % 5.00 ~ 5.50 11.30 AU Employment change Jul 000 -21.4 ~ -20 11.30 AU Participation rate Jul % 65.3 ~ 65.2 11.30 AU Unemployment rate Jul % 5.8 ~ 5.9 15.00 JN Leading index (p) Jun Index 76.9 ~ ~ 15.00 JN Coincident index (p) Jun Index 87.1 ~ ~ Fri 7 Aug 09.30 AU AiGroup PCI Jul Index 42.6 ~ ~ 11.30 AU RBA Quarterly Statement on Monetary Policy Sat 9 Aug ~ NZ QV house prices Jul y%ch -7.1 ~ ~ 10 The Week Ahead 31 July 2009 Calendar – North America & Europe Please note all days and times are UK time, not local release day/times UK Forecast Date time Econ Event Period Unit Last Market CBA Mon 3 Aug 08.55 GE PMI manufacturing (f) Jul Index 45.2 ~ ~ 09.00 EC PMI manufacturing (f) Jul Index 46 ~ ~ 09.30 UK PMI manufacturing Jul Index 47 ~ ~ 15.00 US ISM manufacturing Jul Index 44.8 46.5 ~ 15.00 US ISM prices paid Jul Index 50 50.5 ~ 15.00 US Construction spending Jun m%ch -0.9 -0.6 ~ Tue 4 Aug 09.30 UK PMI construction Jul Index 44.5 ~ ~ 10.00 EC PPI Jun ~ ~ ~ ~ 13.30 US Personal income Jun m%ch 1.4 -1.0 ~ 13.30 US Personal spending Jun m%ch 0.3 0.2 ~ 13.30 US Core PCE Jun m%ch 0.1 0.2 ~ y%ch 1.8 1.7 ~ 15.00 US Pending home sales Jun m%ch 0.1 0.3 ~ Wed 5 Aug 08.55 GE PMI Services (f) Jul Index 48.4 ~ ~ 09.00 EC PMI composite (f) Jul Index 46.8 ~ ~ 09.30 UK PMI services Jul Index 51.6 ~ ~ 09.30 UK Industrial production Jun m%ch -0.6 ~ ~ y%ch -11.9 ~ ~ 10.00 EC Retail sales Jun m%ch -0.4 ~ ~ y%ch -3.3 ~ ~ 13.15 US ADP employment Jul 000 -473 -330 ~ 15.00 US ISM non-manufacturing Jul Index 47 48 ~ 15.00 US Factory orders Jun m%ch 1.2 0.5 ~ Thu 6 Aug 00.01 UK NIESR GDP estimate Jul % -0.4 ~ ~ 12.00 UK BoE announce rates Aug % 0.5 0.5 0.5 12.45 EC ECB announce rates Aug % 1.0 1.0 1.0 13.30 CA Building permits Jun m%ch 14.8 1.0 ~ 13.30 US Initial and continuing claims Fri 7 Aug 07.00 GE Trade balance Jun €bln 9.6 ~ ~ 07.00 GE Current account Jun €bln 3.7 ~ ~ 07.00 GE Industrial production Jun m%ch 3.7 ~ ~ 09.30 UK PPI Jul ~ ~ ~ ~ 12.00 CA Change in Employment Jul 000 -7.4 -20 ~ 12.00 CA Unemployment rate Jul % 8.6 ~ ~ 13.30 US Non-farm payrolls Jul 000 -467 -325 ~ 13.30 US Unemployment rate Jul % 9.5 9.6 ~ 15.00 CA Ivey PMI Jul Index 58.2 ~ ~ 20.00 US Consumer credit Jun $bln -3.2 -4.2 ~ 11 The Week Ahead 31 July 2009 Calendar – Key Events To Watch Sara Hoenig – Economist – 612 9118 1107 – email@example.com Chris Tennent-Brown – NZ Economist - 649 374 8819 – firstname.lastname@example.org Australia and New Zealand Tuesday 4 August % % NZ WAGE ANNUAL GROWTH NZ Wages, QII 6 5 Private sector wages (excl. overtime), q%ch, (f) 0.6 LCI -Wage Rate P er Jo b (rhs) QES wages, q%ch, (f) 0.6 4 Source: Stats NZ The balance of the labour market has swung sharply 4 over the past year in response to the ongoing recession. 3 Hiring has dropped off and unemployment has started to rise more noticeably. These influences are now starting 2 to show through in moderating wage growth after a 2 sustained period of skill shortages and strong wage growth. We expect the closer-watched LCI (private QES - Wage Rate P er Emplo yee 1 sector, ordinary time) to register a 0.6% increase in QII, (lhs) pulling the annual rate down to 3.2%. We expect the 0 0 equivalent measure in the more volatile Quarterly M ar-93 M ar-96 M ar-99 M ar-02 M ar-05 M ar-08 Employment Survey to also register a 0.6% increase in the quarter, which would drop the annual rate sharply down to 3.7%. Anecdotally, wage freezes are becoming more commonplace, and as these take effect wage growth is likely to slow more moderately. The QES survey also contains job-related figures. These may give some steer as to the strength of employment, though there has been considerable divergence recently between the QES job figures and the HLFS measure of employment. Tuesday 4 August RETAIL SPENDING AU Retail sales, Jun, m%ch (f) 0.2 (annual % change) 16 % 16 % A flurry of economic policy incentives has supported the Australian retail sales sector over the course of the economic downturn. Whilst some of the once-off impacts 12 12 Essential of stimulus have worn off, the positive influence of lower interest rates remain. In addition, consumer confidence 8 8 bounced back over the month. In the minutes of their 7 July meeting, the RBA indicated that retailers had 4 4 indicated sales had remained strong in June. Over the June quarter, we expect retail sales volumes were up 1.0% and should contribute 0.25ppts to the QII GDP 0 0 result. Discretionary -4 -4 Jan-03 Jan-05 Jan-07 Jan-09 12 The Week Ahead 31 July 2009 Tuesday 4 August RBA CASH RATE AU RBA cash rate, %, (f) no change at 3.00% % % 8 8 The RBA has begun to prepare markets for the end of the easing cycle. Their statements and verbal commentary have turned more optimistic over recent months, highlighting the surprising resilience of the 6 6 Australian economy. We expect the August statement will follow suit, but may keep the option for further rate cuts down the track in their commentary. Given we expect no change in the RBA‟s monetary policy settings 4 4 at this meeting, the market may chose to pay more attention to the quarterly Statement on Monetary Policy which will be released on Friday. 2 2 Jul-92 Jul-95 Jul-98 Jul-01 Jul-04 Jul-07 Jul-10 Wednesday 5 August Index CBA - Ai GROUP PSI Index AU CBA/AiGroup PSI, Jul, Index, (prev.) 50.2 70 70 The CBA Australian PSI crossed the key 50 boom-bust Expansion level in June (to touch 50.2). This result signifies that the Australian services sector expanded for the first month 60 60 since March 2008. The July instalment of their PSI will give markets further information on the services sector recovery currently underway. 50 50 40 40 Contraction 30 30 Jan-03 Jan-05 Jan-07 Jan-09 Wednesday 5 August CLOSING THE GAP AU Trade balance, Jun, A$mln, (f) -0.8 $b $b 32 32 The Australian trade balance has slipped into deficit as the strong support of high commodities prices dribbles 28 28 away. As occurred when higher commodities contract prices came into effect, the lower contract prices will 24 24 continue to drip feed the data and we are likely to see Imports further downward revisions to the trade balance. The 20 20 imports side of the ledger is showing a slower pace of imports declines as consumer and business confidence 16 16 improves. We expect the Australian trade balance will Exports have eased further into deficit over the month of June, to 12 12 A$0.8 million. 8 8 Jan-00 Jan-02 Jan-04 Jan-06 Jan-08 13 The Week Ahead 31 July 2009 Thursday 6 August % EMPLOYMENT & UNEMPLOYMENT % NZ Household Labour Force Survey, QII 6 12 Employment, q%ch, (f) -1.3 A nnual Emplo yment Gro wth (lhs) Unemployment rate, %, (f) 5.5% 4 9 The HLFS employment figures have only recently started to reflect the impact of the prolonged recession NZ has been in since the start of 2008. We expect QII 2 6 to register a substantial (1.3%) decline in employment, in keeping with the sharper focus businesses have brought to downsizing their operations since the 0 3 financial crisis erupted late last year. As employment prospects have deteriorated and employment begun Unemplo yment Rate Source: Stats NZ (rhs) falling, labour participation has started to drop. We -2 0 expect a repeat in QII, with the labour participation rate M ar-93 M ar-96 M ar-99 M ar-02 M ar-05 M ar-08 falling to 67.6% of the labour force (from 68.4%). Reduced participation will blunt the impact of fewer jobs on the unemployment rate, which we expect will increase to 5.5% (currently 5%). Thursday 6 August LABOUR MARKET AU Labour force, Jul % 6.0 '000 120 Employment change, 000, (f) -20 Employment Participation rate, %, (f) 5.9 growth (rhs) Unemployment rate, %, (f) 65.2 5.5 60 The Australian labour market has outperformed expectations over the course of the economic downturn. However, the unemployment rate has continued to edge 4.9 0 higher as the participation rate has remained at high levels but job losses continue. However, the relatively low levels of job losses indicate that companies are still 4.4 -60 Unemployment attempting to retain their staff, conginsant of the rate (lhs) difficulties they had recruiting just over a year ago. We suspect a further 20,000 jobs will have been lost over 3.8 -120 July, dragging the unemployment up to 5.9%, its highest Jul-07 Mar-08 Nov-08 Jul-09 level since July 2003. Friday 7 August RBA SMP FORECASTS AU RBA Statement on Monetary Policy % (real GDP, % change) % 4 4 The RBA‟s quarterly Statement on Monetary Policy is the RBA‟s opportunity to give a more detailed discussion RBA Forecasts on their expectations for the Australian economy going forward. In particular, the quarterly report is their chance 2 2 CBA to update their economic forecasts. This section of the Forecast report will be closely watched by markets for any shift in the RBA‟s outlook. The RBA‟s tone in their statements Post QI GDP and minutes has become noticeably more optimistic and 0 0 a lift in their GDP forecasts (at least) should be RBA's May SMP delivered, particularly since the QI GDP report surprised Forecast to the upside. A lift in CPI forecasts could also occur. Actuals -2 -2 Jun-2008 Jun-2009 Jun-2010 Jun-2011 14 The Week Ahead 31 July 2009 International Nicola Chadwick – Economist – +44 (0)20 7710 3918 – email@example.com Monday 3 August USA: MANUFACTURING ISM Index Index US Manufacturing ISM, Jul, Index (f) 46.5 80 80 The manufacturing ISM - the best near-term indicator of Expansion US GDP growth – has increased convincingly from its December trough of 32.9 (the lowest since May 1980) to 44.8 in June. Production surged into positive growth 60 60 territory in May to 52.5, though new orders faltered back to 49.2 from 51.1. We expect the indicator to edge higher again in July. The extent to which production has fallen and the severe negative impact of the 40 40 inventory correction mean that it won‟t take much to Contraction achieve a fairly sharp rise in growth in the near-term off a very low base. The employment index will be watched ahead of the payrolls report on Friday. 20 20 Jan-80 Jan-85 Jan-90 Jan-95 Jan-00 Jan-05 Tuesday 4 August % USA: PERSONAL SPENDING % US Personal income, Jun, m%ch (f) -1.0 (annual % growth) 12 12 US Personal spending, Jun, m%ch (f) +0.3 Nominal US Core PCE, Jun, m%ch (f) +0.2 9 9 US personal spending looks set to rise a moderate 0.3% in June, helped by government transfer payments 6 6 the previous month. US retail sales surprised on the upside on a headline basis, rising 0.6%, but the details suggested more tepid growth in volumes, with a great 3 3 deal of upside in nominal retail sales stemming from higher gasoline prices. Discretionary spending areas Real remain weak. 0 0 -3 -3 Jan-91 Jan-95 Jan-99 Jan-03 Jan-07 Wednesday 5 August Index USA: NON-MFG ISM Index US Non-manufacturing ISM, Jul, Index (f) 48.0 80 80 Similarly to the manufacturing survey, the services ISM Expansion has risen strongly off its December low of 37.4 to 47.0 in June. The series hasn‟t all been one-way since December, however, with more volatility than the manufacturing ISM around the upward trend, which we 60 60 nevertheless expect it to extend moderately further in July. The June increases in the new orders and employment indices reinforce the idea that the index will push northward in July, suggesting a slower pace of 40 40 contraction in the services sector in the coming months. Contraction 20 20 Jul-97 Jul-01 Jul-05 Jul-09 15 The Week Ahead 31 July 2009 Thursday 6 August % ECB KEY INTEREST RATE % ECB rate decision, (f) no change at 1% 6 Ever amongst the more hawkish of the central banks, recent rhetoric from the ECB suggests members are 5 becoming more worried about their eventual exit strategy than a period of entrenched deflation. With 4 economic growth set to remain weak for some years ahead and a widening output gap bearing down on inflation, which is set to remain below the ECB‟s 2% 3 target for a prolonged period, we see little scope for tightening from the ECB for at least another year down 2 the track. Still, given the ECB's hawkish tendencies, it seems that the risk of premature tightening that results 1 in stifling the recovery is more pronounced in the Eurozone than in other economies. We expect no change to the ECB‟s intended covered bond purchases 0 totalling 60bn euro in the foreseeable future. Jan-00 Jan-02 Jan-04 Jan-06 Jan-08 Thursday 6 August BoE rate decision, (f) no change at 0.5% The Bank of England has gone as far as it can with rate cuts and will leave the Bank Rate unchanged at its stimulatory level of 0.5% next week. We continue to believe that further policy action would help the UK economy on what will be a long and unstable road to recovery. Having reviewed the situation in light of fresh economic projections (released the following week in the Bank‟s August Inflation Report), we still see a good chance that the BoE will pull in the remaining £25 billion available to it under its Asset Purchase Facility, thereby utilising the entire £150bn allocation. Beyond that, the odds that the BoE asks the Chancellor to approve more funds have reduced markedly, given the unprecedented amount of stimulus already delivered, alongside green shoots in the data and increasing market concerns over inflation. Friday 7 August USA: LABOUR MARKET US Non-farm payrolls, Jul, 000 (f) -333 750 '000s 10 % US Unemployment rate, Jul, % (f) 9.6 Monthly change in US Average hourly earnings, Jul, m%ch (f) +0.1 500 non-farm payrolls 8 (lhs) Indicators are lacking but the likes of initial jobless claims and the employment indices in the manufacturing 250 6 and services ISMs suggest the pace of contraction in US non-farm payrolls eased in July (after a disappointing 467k decline in June) and will continue to 0 4 do so in the subsequent months. We still expect the unemployment rate to take out 10% in the coming months, though the rate of increase should remain more -250 Unemployment rate 2 (rhs) muted than seen from January through to May given recent large increases in the labour force are unlikely to continue apace. Continued employment declines and -500 0 an increasing unemployment rate in the year ahead will Jan-00 Jan-02 Jan-04 Jan-06 Jan-08 ensure that wages growth remains historically tepid for some time. 16 Monetary Policy 31 July 2009 Monetary Policy Notes OFFICIAL INTEREST RATES FUNDING COSTS % % (yield on 3-month LIBOR minus OIS) bp bp NZ USA 8 8 300 300 Australia NZ 6 6 Europe 175 175 UK 4 UK 4 Euro 50 50 Japan 2 2 US Australia Canada Japan -75 -75 0 0 Jan-07 Jun-07 Dec-07 Jun-08 Dec-08 Jun-09 Jan-00 Jan-02 Jan-04 Jan-06 Jan-08 Country Last Move Next Meeting and Forecast CBA View Australia 25bp cut to 3.00% 4 August, 2009 After significant easing we expect (RBA) on 7 April 2009. the RBA to deliver a final 25 basis Sep „09 Dec „09 Mar „10 Jun „10 point cut to 2.75% late in QIII. 2.75% 2.75% 2.75% 2.75% US 75-100bp cut to 11-12 August, 2009 The Fed has cut rates as low they (FOMC) 0-0.25% on can go and committed to keeping 16 December 2008. Sep „09 Dec „09 Mar „10 Jun „10 rates exceptionally low for some time. Green shoots in the data have 0- 0- 0- 0- made an extension of its QE 0.25% 0.25% 0.25% 0.25% program less likely. Eurozone 25bp cut to 1.00% 6 August, 2009 The ECB is getting comfortable with (ECB) on 7 May. its current monetary policy stance Sep „09 Dec „09 Mar „10 Jun „10 and has moved into wait-and-see mode. Additional policy stimulus 0.75% 0.75% 0.75% 0.75% could be delivered in September. UK 50bp cut to 0.5% on 6 August, 2009 The BoE has cut rates to an (MPC) 5 March 2009. historical low and is pursuing a Sep „09 Dec „09 Mar „10 Jun „10 quantitative easing programme. 0.50% 0.50% 0.50% 0.50% NZ 50bp cut to 2.5% on 9 September, 2009 The high NZD is perturbing the (RBNZ) 30 April 2009. RBNZ. We expect 2 more 25bpt Sep „09 Dec „09 Mar „10 Jun „10 cuts to be delivered in September 2.25% 2.00% 2.00% 2.00% and October. Canada 25bp cut to 0.25% 10 September, 2009 The BoC has announced a (BoC) on 21 April 2009. quantitative easing framework and a Sep „09 Dec „09 Mar „10 Jun „10 commitment to low rates for an 0.25% 0.25% 0.25% 0.25% extended period. Japan 20bp cut to 0.1% on 10-11 August, 2009 Japanese interest rates are back at (BoJ) 19 December 2008. zero. A quantitative easing Sep „09 Dec „09 Mar „10 Jun „10 framework is now being employed. 0.10% 0.10% 0.10% 0.10% 17 Forecasts 31 July 2009 Forecasts - Economic Fiscal Years Calendar Years 2005/06 2006/07 2007/08 2008/09 2009/10 2010/11 2004 2005 2006 2007 2008 2009 2010 (a) (a) (a) (f) (f) (f) (a) (a) (a) (a) (a) (f) (f) Economic Activity Private final demand 4.2 4.3 5.7 1.5 -0.1 3.0 5.7 4.3 3.5 6.1 4.1 -0.8 2.0 Of which: Household spending 2.6 4.0 3.7 1.2 1.6 3.5 5.9 3.0 3.2 4.3 2.2 1.2 2.6 Dwelling investment -4.3 1.9 1.6 -2.2 -0.7 13.2 3.0 -3.5 -2.7 2.7 2.5 -7.7 11.4 Business investment 16.4 7.6 15.6 5.7 -7.4 -3.2 9.8 16.7 8.2 14.9 13.7 -5.6 -4.5 Public final demand 3.8 3.3 4.1 3.6 5.5 -0.4 5.0 4.3 3.5 2.8 5.3 3.2 4.3 Domestic final demand 4.1 4.1 5.3 2.0 1.1 2.2 5.6 4.3 3.5 5.3 4.4 0.1 2.5 Inventories (contrib to GDP) -0.4 0.1 0.2 -1.3 0.7 0.8 -0.1 0.1 -0.6 0.6 -0.6 -0.6 1.1 GNE 3.7 4.1 5.6 0.7 1.8 2.9 5.4 4.4 2.8 5.9 3.8 -0.5 3.6 Exports 2.2 3.8 4.1 2.5 -0.3 9.5 4.3 2.3 3.3 3.3 3.9 0.5 4.8 Imports 7.2 9.2 12.9 -2.5 3.1 10.0 15.0 8.9 7.2 11.4 10.3 -8.6 13.1 Net exports (contrib to GDP) -1.0 -1.1 -2.0 1.1 -0.8 -0.4 -1.7 -1.2 -0.8 -1.7 -1.5 2.2 0.0 GDP 3.0 3.3 3.7 1.0 0.6 2.7 3.8 2.8 2.8 4.0 2.3 0.3 1.9 Prices & Wages CPI 3.2 2.9 3.4 3.2 1.9 2.5 2.3 2.7 3.5 2.3 4.4 1.7 2.4 Underlying CPI 2.6 2.9 3.8 4.3 3.0 2.4 2.5 2.5 2.9 3.1 4.4 3.7 2.4 AWOTE 4.7 3.7 4.9 5.4 4.0 4.2 3.9 5.4 3.4 4.8 4.9 5.1 3.7 WPI 4.1 3.9 4.2 4.1 3.7 3.9 3.5 4.1 4.0 4.1 4.2 3.9 3.7 Real h/hold disposable income 4.8 6.8 1.8 4.1 -1.2 4.6 6.7 4.6 5.7 4.8 3.0 0.2 2.5 Labour Market Employment 2.9 2.9 2.6 1.1 -0.3 1.6 1.9 3.5 2.6 2.8 2.2 0.0 0.6 Unemployment rate 5.0 4.5 4.2 4.9 6.9 6.5 5.4 5.0 4.8 4.4 4.2 6.1 6.9 External Accounts Current Account: $bn -53.0 -59.1 -70.8 -30.9 -54.6 -54.9 -52.8 -53.9 -53.3 -67.7 -51.0 -41.3 -56.1 % of GDP -5.5 -5.7 -6.3 -2.6 -4.5 -4.2 -6.1 -5.8 -5.3 -6.2 -4.3 -3.4 -4.5 This advice has been prepared without considering your objectives, financial situation or needs, and before acting on the advice, you should consider its appropriateness to your circumstances. Produced by Commonwealth Research based on information available at the time of publishing. We believe that the information in this report is correct and any opinions, conclusions or recommendations are reasonably held or made as at th 18 Commonwealth Bank of Australia ABN 48 123 123 124 – AFSL 234945 - nor any of its subsidiaries accept liability to any person for loss or damage arising from the use of this report. No person should act on the basis of this report without c Forecasts 31 July 2009 Forecasts - Financial Interest Rates Exchange Rates USD versus End Period Cash 90-day 180-day 3-year 10-year AUD JPY EUR GBP NZD Rate Bank Bank Bond Bond Bill Bill Jun-06 5.75 5.98 6.10 5.79 5.78 0.77 114.0 1.26 1.88 0.62 Sep-06 6.00 6.17 6.26 5.76 5.51 0.78 118.5 1.28 1.90 0.65 Dec-06 6.25 6.44 6.55 6.11 5.88 0.79 120.0 1.32 1.96 0.69 Mar-07 6.25 6.52 6.64 6.21 5.88 0.79 120.0 1.32 1.97 0.72 Jun-07 6.25 6.44 6.59 6.45 6.26 0.85 123.2 1.35 2.01 0.77 Sep-07 6.50 6.89 6.99 6.44 6.15 0.89 114.8 1.43 2.05 0.76 Dec-07 6.75 7.24 7.36 6.89 6.33 0.88 111.7 1.46 1.98 0.77 Mar-08 7.25 7.86 7.96 6.13 6.05 0.91 99.7 1.58 1.98 0.79 Jun-08 7.25 7.84 7.96 6.70 6.45 0.96 106.2 1.58 1.99 0.76 Sep-08 7.00 7.32 7.04 5.09 5.40 0.79 106.1 1.41 1.78 0.67 Dec-08 4.25 4.15 3.70 3.07 3.99 0.70 90.7 1.40 1.46 0.58 Mar-09 3.25 3.14 3.06 3.40 4.42 0.69 99.0 1.33 1.43 0.56 Jun-09 3.00 3.19 3.31 4.56 5.52 0.81 96.4 1.40 1.65 0.65 Sep-09 2.75 3.00 3.40 4.25 5.30 0.80 98.0 1.40 1.62 0.65 Dec-09 2.75 3.00 3.40 4.20 5.30 0.84 105.0 1.42 1.70 0.70 Mar-10 2.75 3.00 3.50 4.35 5.30 0.87 112.0 1.45 1.75 0.73 Forecast Jun-10 2.75 3.10 3.75 4.70 5.60 0.89 115.0 1.47 1.80 0.75 Sep-10 3.00 3.50 4.15 5.05 5.90 0.90 118.0 1.50 1.85 0.76 Dec-10 3.50 4.00 4.55 5.30 6.10 0.90 118.0 1.52 1.87 0.77 19 https://www.research.commbank.com.au http://www.cbaspectrum.com GLOBAL MARKETS RESEARCH Level 24, 201 Sussex St, Sydney SALES TEAMS Institutional Equities Corporate Sydney FX (612) 9117 0190 Sydney (612) 9118 1447 NSW (612) 9117 0377 (612) 9117 0341 (612) 9118 1442 VIC (612) 9675 7737 Credit (612) 9117 0020 (612) 9118 1445 SA (618) 8206 4155 Japan Desk (612) 9117 0025 (612) 9118 1444 WA (618) 9482 6044 (612) 9118 1443 QLD (617) 3015 4525 Asia London/Europe (613) 9675 6967 (44) 20 7710 3573 Melbourne (613) 9675 7757 New York (1212) 336 7749 London FX (44) 20 7329 6266 New Zealand (649) 375 5738 Debt & Derivatives (44) 20 7329 6444 Metals Desk (612) 9117 0069 Corporate (44) 20 7710 3905 Agricultural Desk (Corp) (612) 9117 0157 Hong Kong (852) 2844 7538 Agricultural Desk (612) 9117 0145 Singapore (65) 6349 7077 New York (1212) 336 7739 AUSTRALIA Economics Chief Economist Michael Blythe firstname.lastname@example.org (612) 9118 1101 Senior Economist Michael Workman email@example.com (612) 9118 1019 Senior Economist John Peters firstname.lastname@example.org (612) 9117 0112 Economist James McIntyre email@example.com (612) 9118 1100 International Economist (UK) Nicola Chadwick firstname.lastname@example.org (44) 20 7710 3918 Currencies Chief Currency Strategist Richard Grace email@example.com (612) 9117 0080 Currency Strategist Joseph Capurso firstname.lastname@example.org (612) 9118 1106 Economist Sara Hoenig email@example.com (612) 9118 1107 Commodities Chief Commodity Strategist David Moore MoorDa@cba.com.au (612) 9118 1099 Commodity Strategist Luke Mathews firstname.lastname@example.org (612) 9118 1098 Debt & Credit Head of Debt Research Adam Donaldson email@example.com (612) 9118 1095 Interest Rate Strategist Jarrod Kerr firstname.lastname@example.org (612) 9117 0013 Credit Research Analyst Michael Bors email@example.com (612) 9118 1108 Credit Research Analyst Steve Shoobert firstname.lastname@example.org (612) 9118 1096 Securitised Product Winnie Chee email@example.com (612) 9118 1104 Quantitative Analyst Tally Dewan firstname.lastname@example.org (612) 9118 1105 Delivery Channels & Publications Internet/Intranet Monica Eley email@example.com (612) 9118 1097 Information Services Ai-Quynh Mac firstname.lastname@example.org (612) 9118 1102 NEW ZEALAND CBA NZ Economist Chris Tennent-Brown email@example.com (649) 374 8819 ASB Chief Economist Nick Tuffley firstname.lastname@example.org (649) 374 8604 Economist Jane Turner email@example.com (649) 374 8185 DISCLOSURE AND DISCLAIMER All Investors: Commonwealth Bank of Australia ABN 48 123 123 124 AFSL 234945 ("the Bank") is incorporated in Australia with limited liability. 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