the federal budget 2013/14 · the federal budget 2013/14 14 may 2013 bill evans chief economist . 2...
TRANSCRIPT
The Federal Budget 2013/14 14 May 2013
Bill Evans
Chief Economist
2
Federal budget: $19.4bn deficit in 2012/13
-3.3
-4.1 -4.2
-60
-40
-20
0
20
40
-6
-4
-2
0
2
4
1981/82 1991/92 2001/02 2011/12
$bn % of GDP
$bn (rhs) % of GDP (lhs)
Sources: Treasury, ABS, Westpac Economics
Gov‟t
f/cs to
‟16/17
Underlying cash balance
3
300
325
350
375
400
425
450
300
325
350
375
400
425
450
'11/12 '12/13 '13/14 '14/15 '15/16
$bn $bn
May 2012 May 2013
Sources: budget papers, Westpac Economics
-$20bn
-$23bn
-$20bn
-$21bn
Total receipts
(a)
Four yrs
-$83bn
Revenue, slippage
4
General government, net debt
0
20
40
60
80
100
120
0
20
40
60
80
100
120 A
us
NZ
Ca
na
da
Germ
any
Sp
ain
UK
Fra
nce
US
Ita
ly
% %
Source: IMF, budget papers, Westpac Economics
Australian Government
including
2014/15 f/c
% of GDP; 2012
5
Back-loaded savings of $12.3bn in 2015/16
0.0 0.1 0.1 0.5 0.3 0.0 0.0
0.9 1.0
11.6
4.2
2.6
5.8
3.4
0.7
1.7
3.1
10.7
0
2
4
6
8
10
12
14 $bn
2013/14*
over four years
Key savings initiatives
*includes savings
in 2012-13
6
New spending initiatives in the Budget
0.2
0.5
0.0
0.6 0.4
0.2
0.6
3.1 3.0
1.9
1.2 1.0 0.9 0.8
0
1
2
3
4
0
1
2
3
4
Infrastructure Schools Disability Training Social Health Defence
$bn $bn
2013/14*
over four years
*includes spending
in 2012-13
7
Australian Government staffing levels
-6
-3
0
3
6
9
12
-4
-2
0
2
4
6
8
2007/08 2008/09 2009/10 2010/11 2011/12 2012/13* 2013/14*
thousands % chg
Change in thousands (rhs)
% change (lhs)
Source: Budget Papers.
*12/13 and 13/14 exclude contractors.
11/12 & 12/13
combined:
–2.0%
–5.3k
8
Government Westpac
World GDP (2014) 4.0 3.1%
Aust GDP 2.75% 2.4%
Consumption 3.0% 3.0%
Housing 5.0% 4.7%
Investment 4.5% 0.0%
Unemployment 5.75% 6.1%
Government & Westpac forecasts: 2013/14
Sources: Budget papers, Westpac Economics
9
Growth to remain below trend in 2013 and 2014
-2
0
2
4
6
-2
0
2
4
6
Dec-90 Dec-94 Dec-98 Dec-02 Dec-06 Dec-10 Dec-14
% chg % chg
GDP growth Long term avg Five year avg
Sources: ABS, Westpac Economics
fc/s
10
Major gas projects: spending near peak
0
2
4
6
8
10
12
14
16
0
2
4
6
8
10
12
14
16
Dec-06 Dec-08 Dec-10 Dec-12 Dec-14 Dec-16
$bn $bn
Quarterly*
Actual, official data #
3qtr moving avg.
Sources: Westpac Economics,
Access “Investment Monitor”
* Westpac estimates
Peak: end 2013, early 2014
# Work on all
oil & gas projects
11
Business confidence fails to respond to rate cuts
70
80
90
100
110
120
130
140
150
70
80
90
100
110
120
130
140
150
0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18
index index
2001-02
2008-09
2011-12
Sources: NAB, Westpac Economics
*index based to 100 in
month prior to first rate cut
months
12
CAPEX plans – collapse in manufacturing
-30
0
30
60
-30
0
30
60
2012 2013f 2014f
% chg, yr avg % chg, yr avg
Mining
Manufacturing
Services
Total
History in real terms,
Expectations in nominal
(calculated using avg.
realisation ratios)
Sources: ABS,
Westpac Economics
Financial years
13
Consumer sentiment finally responds to rate cuts
70
80
90
100
110
120
130
140
150
70
80
90
100
110
120
130
140
150
0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18
index index
2001-02
2008-09
2011-12
Sources: Melbourne Institute, Westpac Economics
*index based to 100 in
month prior to first rate cut
months
14
0
10
20
30
40
50
60
0
10
20
30
40
50
60
Mar-97 Mar-99 Mar-01 Mar-03 Mar-05 Mar-07 Mar-09 Mar-11 Mar-13
% %
Sources: Melbourne Institute,
Westpac Economics
level of recall: „international‟ news items
Consumers very sensitive to European crises
Asian
crisis
9-11
Lehman’s
collapse avg
last
2yrs:
28%
European
sov. debt
crisis
15
Household leverage will contain housing excess
0
20
40
60
80
100
120
140
160
180
Mar-77 Nov-83 Jul-90 Mar-97 Nov-03 Jul-10
0
20
40
60
80
100
120
140
160
180 % %
total (gross)
housing
Sources: RBA, Westpac Economics
Peak in Sep-06
16
Westpac loan book shows consumer caution
90
92
94
96
98
100
102
104
106
108
110
80
85
90
95
100
105
110
115
120
Jul-06 Jul-07 Jul-08 Jul-09 Jul-10 Jul-11 Jul-12
index index
*based on median months ahead
Westpac customers are on mortgage
repayments
increase in months ahead
decrease in months ahead
17
New housing lending is picking up very slowly
-30
-20
-10
0
10
20
30
40
50
60
0
10
20
30
40
50
60
70
Mar-99 Mar-02 Mar-05 Mar-08 Mar-11 Mar-14
% ann $bn/qtr
Housing finance, level (lhs) Annual growth (rhs)
Sources: ABS, RBA, Westpac Economics
quarterly
30%
10%
f/c to
Sep ‟13
18
The job market in 2012: winners and losers
-50
-25
0
25
50
75
-50
-25
0
25
50
75
Education & health
Business services*
Mining Government Construction
thousands thousands
Sources: ABS, Westpac. * Professional, technical & business.
19
Unemployment rate: moving higher
0
2
4
6
8
10
0
2
4
6
8
10
Apr-97 Apr-01 Apr-05 Apr-09 Apr-13
Australia, sa ACT, trend
Sources: ABS, Westpac Economics
% %
f/c
end '15
ACT: unemployment rate
up 1ppt year to 4.6% in April ’13
20
Durables inflation – domestic margin pressure
-12 -9 -6 -3 0 3 6
Textiles, clothing & footwear
Furniture
Motor vehicles & parts
Toys, books & leisure goods
Household electrical items
ppts
Consumer prices
Import prices
Source: RBA
average annualised inflation since Q1 2011
21
Underlying inflation to stay low despite carbon tax
0
1
2
3
4
0
1
2
3
4
Mar-11 Sep-11 Mar-12 Sep-12 Mar-13 Sep-13
%yr %yr
Westpac's estimate of the Carbon Price
RBA core inflation
Sources: ABS, Westpac Economics
Forecasts
Target band
22
Housing finance approvals not responding to rates
70
80
90
100
110
120
130
140
150
70
80
90
100
110
120
130
140
150
0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18
index index
2001-02
2008-09
2011-12
Sources: ABS, Westpac Economics
*index based to 100 in
month prior to first rate cut
months
23
25
30
35
40
45
50
0.0
0.2
0.4
0.6
0.8
1.0
1.2
1.4
1.6
Dec-84 Dec-88 Dec-92 Dec-96 Dec-00 Dec-04 Dec-08 Dec-12
‟000 ‟000
ACT (lhs)
Australia (rhs) Sources: ABS, Westpac Economics
ACT: supply surge
Mar ‟09 to Mar ‟11
Dwelling commencements
24
House prices are slow to respond to rate cuts
80
90
100
110
120
130
80
90
100
110
120
130
0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18
index index
2001-02
2008-09
2011-12
Sources: RP Data-Rismark, Westpac Economics
*index based to 100 in
month prior to first rate cut
months
25
House Price Expectations finally picking up
-50
-25
0
25
50
75
100
-50
-25
0
25
50
75
100
Oct-04 Oct-05 Oct-06 Oct-07 Oct-08 Oct-09 Oct-10 Oct-11 Oct-12
% %
Source: Melbourne Institute, Mortgage
Choice, Westpac Economics
*grey line is a similar measure from an
annual survey by Mortgage Choice;
^average of all observations, adjusted
for different survey frequencies
net % expecting
house prices to rise
avg^
26
Canberra house prices – recall risk in 1996
3.4
3.8
4.2
4.6
5.0
3.4
3.8
4.2
4.6
5.0
Mar-89 Mar-93 Mar-97 Mar-01 Mar-05 Mar-09 Mar-13
log index log index
Canberra
Capital cities avg.
Sources: ABS; Westpac Economics
House prices
unchanged from
Mar ’10 to March ’13
27
Sydney house prices have a lot to catch up
60
80
100
120
140
160
180
200
220
240
60
80
100
120
140
160
180
200
220
240
Dec-02 Dec-04 Dec-06 Dec-08 Dec-10 Dec-12
index index
Sydney
Melbourne
Canberra
Sources: RP Data-Rismark, Westpac Economics
*all dwellings, Dec 2002 = 100
+33%
+82%
+82%
28
Rental yields are close to mortgage rates
3
4
5
6
7
8
9
10
11
12
3
4
5
6
7
8
9
10
11
12
Mar-93 Mar-96 Mar-99 Mar-02 Mar-05 Mar-08 Mar-11
%pa %pa
Sydney
Australia
Sources: REIA, Westpac Economics
*median rent on
2bdrm unit as %
of median unit
price
investor
housing
boom
variable
mortgage rate
3yr fixed
rate
29
Gross rental yields by capital city
0
1
2
3
4
5
6
7
0
1
2
3
4
5
6
7
Sydney Melbourne Brisbane Adelaide Perth Canberra
% %
houses units *as at May 13 SVMR
3yr fixed
30
Investors are responding to rates/yields in NSW
0.0
0.1
0.2
0.3
0.4
0.5
0.5
1.0
1.5
2.0
2.5
3.0
Mar-08 Mar-09 Mar-10 Mar-11 Mar-12 Mar-13
$bn $bn
NSW Vic ACT (rhs)
Sources: ABS, Westpac Economics
NSW: +33%yr
Vic: +20%yr
ACT: –7.6%yr
31
First home buyers are not responding to rate cuts
0.0
0.1
0.2
0.3
0.4
0
1
2
3
4
5
6
7
Mar-08 Mar-09 Mar-10 Mar-11 Mar-12 Mar-13
thousands thousands
NSW Vic ACT (rhs)
32
House prices: solid increases expected
94
96
98
100
102
104
106
108
110
112
114
116
94
96
98
100
102
104
106
108
110
112
114
116
Dec-12 Dec-13 Dec-14
index index
Sydney
Melbourne
Brisbane
Sources: RP Data-Rismark, Westpac Economics
*all dwellings, Dec 2012 = 100
33
Australian CBD office property yields: States
0
3
6
9
12
15
0
3
6
9
12
15
Dec-85 Dec-91 Dec-97 Dec-03 Dec-09
% annual avg % annual avg
Risk free SYD MEL CBR
Sources: IPD Australia, Westpac Economics.
Income only.
34
Australian CBD office property yields: ACT
0
3
6
9
12
15
0
3
6
9
12
15
Dec-85 Dec-91 Dec-97 Dec-03 Dec-09
% %
Risk free
CBR premium and grade A
CBR other grades
CBR - CBD total
Sources: IPD Australia,
Westpac Economics.
Income only.
35
Civic Office market vacancy rate
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
Ja
n-9
3
Ja
n-9
5
Jan
-97
Ja
n-9
9
Ja
n-0
1
Ja
n-0
3
Ja
n-0
5
Ja
n-0
7
Jan
-09
Ja
n-1
1
Ja
n-1
3
Prime Secondary
Non Civic office market vacancy rate
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
Ja
n-9
3
Ja
n-9
5
Jan
-97
Ja
n-9
9
Ja
n-0
1
Ja
n-0
3
Ja
n-0
5
Jan
-07
Ja
n-0
9
Ja
n-1
1
Ja
n-1
3
Prime Secondary
Source: PCA OMR 2/12
36
Actual
May 12
Forecast
for May
13
Current
level
May-14
forecast
Cash %pa 3.75 3.25* 2.75 2.00
3yr swap 3.42 4.20 2.90 2.75
AUD/USD 102¢ 105¢ 98¢^ 96¢
Last year’s Budget forecasts – the report card
*lowered to 2.75% on May 24 2012
^trading at 105¢ Apr 8-12
37
2
3
4
5
6
Jan Apr Jul Oct
%
3yr swap
Cash rate
Source: Bloomberg, Westpac Strategy
Fixed rates turn sharply – time to contain risk now
2
3
4
5
6
Jan Apr Jul Oct
%
f‟cast
2009 2013
38
World growth – WBC forecasts slowdown
2012 (%ann) 2013 (%ann) 2014 (%ann)
World 3.2 3.4 3.1
US 2.2 1.7 1.6
Europe -0.6 -0.5 -0.5
China 7.7 8.0 7.8
Australia 3.6 2.5 2.3
39
Policy to slow down Chinese housing sales
-50
-25
0
25
50
75
100
125
150
175
200
-50
-25
0
25
50
75
100
125
150
175
200
Jan-01 Jan-03 Jan-05 Jan-07 Jan-09 Jan-11 Jan-13 Jan-15
%yr %yr
Centre
East
West
Sources: CEIC, Westpac Economics.
40
Chinese infrastructure spending to slow down
28
22
16
23
42
18
3
6
26
19
-10
0
10
20
30
40
50
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
ppt cont.
Transport
Utilities
Total
Sources: CEIC, Westpac.
Contribution to full year growth. * Railways, airports, mass urban transit, pipeline, waterways.
forecast
41
Chinese construction cycle – slowdown coming
0
10
20
30
40
Jan 05 Jul 06 Jan 08 Jul 09 Jan 11 Jul 12 Jan 14
%yr %yr
%yr 3mma
Sources: CEIC,
Westpac Economics.
42
Europe: unemployment continues to rise
0
5
10
15
20
25
30
0
5
10
15
20
25
30
1995 1997 1999 2001 2003 2005 2007 2009 2011
%
France Spain
Italy Netherlands
Source: Eurostat
% unemployment rate
Germany and France – core diverging rapidly
4
6
8
10
12
4
6
8
10
12
1995 1997 1999 2001 2003 2005 2007 2009 2011
% %
Germany France
Source: Eurostat
unemployment rate
44
-15
-10
-5
0
5
10
15
20
25
30
35
-15
-10
-5
0
5
10
15
20
25
30
35
Jul-00 Jul-02 Jul-04 Jul-06 Jul-08 Jul-10 Jul-12
ann%
Euro area 'troubled' economies the rest
Sources: IMF, Westpac
ann%
*private sector, 6mth annualised growth rate
^Spain, Italy, Portugal, Ireland and Greece combined
Troubled economies’ banks just not lending
45
Gross debt ratios keep rising – ratings risks
0
20
40
60
80
100
120
140
1991 1999 2007 2015
%
Spain Italy France
Source: IMF, Westpac Economic growth forecasts
46
% of GDP
Sovereign risk ratings – Spain/Italy on the cusp !
Current 2011/12
peak
Rating Outlook
France 1.0% 3.4% AA+ Neg
Italy 3.1% 7.7% BBB+ Neg
Spain 3.4% 7.6% BBB– Neg
*current yield is generic 7yr yield to match average duration of existing liabilities.
47
Non-residents hold EUR 1.35 tr in Spain/Italy debt*
0.0
0.2
0.4
0.6
0.8
1.0
1.2
1.4
France Germany Greece Ireland Italy Portugal Spain
€trn
Sources: IMF, Bloomberg.
Westpac Economics.
*Marketable debt only.
48
US unemployment falls due to part. rate, not jobs
54
56
58
60
62
64
66
68
0
2
4
6
8
10
12
1970 1980 1990 2000 2010
% %
Unemploment rate (lhs)
Participation rate (rhs)
Employment-population ratio (rhs) Sources: Ecowin, Westpac Economics
49
US consumption growth is slowing again
-8
-6
-4
-2
0
2
4
6
8
-20
-15
-10
-5
0
5
10
15
20
1997 1999 2001 2003 2005 2007 2009 2011 2013
% %
Durables (lhs) Services (rhs) Non durables (rhs)
Sources: Ecowin, Westpac Economics
annual change
PCE total m/m chg
Dec: 0.2%
Jan: 0.2%
Feb: 0.3%
Mar: 0.3%
50
US house prices – no longer booming
-30
-20
-10
0
10
20
30
-3
-2
-1
0
1
2
3
Jan 01 Jan 03 Jan 05 Jan 07 Jan 09 Jan 11 Jan 13
% %
monthly change (lhs)
6 month ann change (rhs) Source: Ecowin
20-city S&P Case-Shiller Index
51
US commercial banks not supporting housing
0.5
1.0
1.5
2.0
2.5
Dec-02 Dec-04 Dec-06 Dec-08 Dec-10 Dec-12
2.0
2.5
3.0
3.5
4.0 $trn $trn
Mortgages (lhs)
Treasury & MBS
C&I loans
Sources: Federal Reserve
Mortgage charge offs circa
$28bn in 2012; rise in
mortgage balance past year $12bn,
but GSE‟s down $95bn.
52
Fiscal policy still a drag – new policies next year ?
0
1
2
3
4
0
1
2
3
4
2013 2014
%
Fiscal cliff (without deal)
Sequester
January deal
%
Source: CBO; Westpac Economics
drag on GDP growth in calendar year
53
Commodity prices will fall through 2014
100
150
200
250
300
350
100
200
300
400
500
600
700
Mar-07 Mar-09 Mar-11 Mar-13
index index
Bulks* (lhs)
Exchange traded* (rhs)
Sources: Westpac Economics, Bloomberg, ABS.
Bulks includes iron ore and coal. Exchange traded includes
rural, crude oil, base metals and gold.
54
Major central banks are committed to QE
0
10
20
30
40
50
0
10
20
30
40
50
Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13
%GDP
ECB Fed BOJ
Sources: Ecowin, Bloomberg, CEIC, Westpac Economics
%GDP
Indicative
forecasts
55
Australian dollar to fall but retain QE premium
0.40
0.50
0.60
0.70
0.80
0.90
1.00
1.10
1.20
0.40
0.50
0.60
0.70
0.80
0.90
1.00
1.10
1.20
Jan-91 Jan-95 Jan-99 Jan-03 Jan-07 Jan-11
USD USD
Fair value band
AUD/USD actual & forecast
Sources: RBA, Westpac Economics
Includes WCFI+BI commodities index, 2 year swap spread, and NFD to GDP.
56
“2012 Budget talk”: QE3 to support market
0.0
0.5
1.0
1.5
2.0
2.5
3.0
Mar-09 Sep-09 Mar-10 Sep-10 Mar-11 Aug-11 Feb-12
100
125
150
175
200
225 $trn Index
S&P500* (rhs)
Federal Reserve: securities held (lhs)
Source: Ecowin, Bloomberg, Westpac Economics
*S&P500 March
2009 low = 100
QE1 QE2
Operation twist
announced
US sharemarket has outperformed Australia
30
50
70
90
110
130
30
50
70
90
110
130
Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13
index index
S&P500 S&P200 Euro Stoxx 50
Sources: Bloomberg,
Westpac Economics
2 Jan „07 = 100
58
... but not in AUD terms; Europe woeful
30
50
70
90
110
130
30
50
70
90
110
130
Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13
index index
S&P500 S&P200 Euro Stoxx 50
Sources: Bloomberg,
Westpac Economics
2 Jan „07 = 100
59
MSCI P/E ratios – market is no longer cheap
-15
-10
-5
0
5
10
15
-15
-10
-5
0
5
10
15
Jan-96 Jan-99 Jan-02 Jan-05 Jan-08 Jan-11
points points
Australia US Europe
Source: Bloomberg (MSCI indexes)
deviation from long-run average
cheap
expensive
60
Australian P/E ratios; resources better banks
-15
-10
-5
0
5
10
15
20
-15
-10
-5
0
5
10
15
20
Jan-96 Jan-99 Jan-02 Jan-05 Jan-08 Jan-11
points points
Financials
Materials
Source: Bloomberg (MSCI indexes)
deviation from long-run average
cheap
expensive
61
Key messages from Budget presentation
• Forecast budget deficits are not significant – Australia has very low
sovereign debt ratio; especially with most debt issued in AUD„s.
• RBA to cut to 2% from 2.75% but fixed rates near lows right now.
• Risks around rebalancing of mining/non mining – business the key.
• House prices to rise but household leverage to contain any boom.
• Second wave of cuts to be associated with weak world economy.
• Low inflation allows rate flexibility for the authorities.
• Commodity prices to fall – AUD to USD 0.96 by mid 2014.
• World economy to slow in 2014 – US to disappoint – keep QE;
China slows construction cycle; Europe remains in recession.
62
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Transactions involving carbon give rise to substantial risk (including regulatory risk) and are not suitable for all investors. We recommend that you seek your own independent legal or financial advice before proceeding with any
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credit units and eligible international emissions units (respectively) are available at www.cleanenergyregulator.gov.au, as mentioned in section 202 of the Clean Energy Act 2011, section 162 of the Carbon Credits (Carbon Farming
Initiative) Act 2011 and section 61 of the Australian National Registry of Emissions Units Act 2011. You should consider each such statement in deciding whether to acquire, or to continue to hold, any carbon unit, Australian carbon
credit unit or eligible international emissions unit.
Additional information if you are located outside of Australia
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