Australian weekly

Week beginning 26 November 2012

Growth challenge supports rate cut. Australian data: construction, CAPEX, credit data previewed. US: durable orders, new home sales and core PCE deflator. Key economic & financial forecasts.

Information contained in this report was current as at 23 November 2012

Economic Research

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Westpac weekly

Growth challenge supports rate cut

The minutes of the Reserve Bank Board's November meeting were published last Tuesday. They gave some encouragement that the Board would decide to cut rates at its next meeting on December 4. That encouragement stemmed from three key sources. Firstly, the Board used quite strong language around the policy outlook. The key statement is: "members considered that further easing may be appropriate in the period ahead". Contrast that with the September minutes which preceded the October rate cut: "The current assessment of the inflation outlook continued to provide scope to adjust policy in response to any significant deterioration in the outlook for growth". The former statement seems less conditional and would appear to provide a stronger indication that a move is imminent. Secondly, we saw a much more detailed assessment of the labour market and the outlook was not encouraging. In the Governor's statement accompanying the November decision the labour market is described as "having generally softened somewhat in recent months". The minutes are more forward-looking noting that leading indicators of labour demand had softened suggesting modest near term employment growth was likely. In fact employment growth is described as remaining "relatively modest over the course of the next year". Finally, the minutes emphasise the uncertainty around the Board's previously-stated plan to ensure a strengthening in dwelling and nonmining business investment. The Board notes there is uncertainty about the timing and magnitude of this pick-up and therefore "uncertainty about the overall pace of growth of demand in the economy over the forecast period". Business surveys are assessed as indicating conditions were a little below their long run average level. Since the Board meeting, the NAB monthly business survey (conducted before the RBA meeting) shows a further deterioration. Indicators of private non-residential investment are described as "relatively subdued". In its November Statement on Monetary Policy the Bank released its growth forecasts for 2012; 2013 and 2014. It expects growth through 2013 and 2014 of around 3%. In the Chart we demonstrate how that growth could be achieved given the constraint of a substantial 'swing' in the contribution to growth from mining investment. We expect that the Bank's assessment of the contribution from mining investment is broadly in line with the chart with it contributing 2.4ppts to growth in 2012; 0.6ppts in 2013; and subtracting 1.4ppts in 2014. From the perspective of GDP the achievement of 3% GDP growth in 2014 will be assisted by a turnaround in the contribution to growth from net exports from a drag of 0.25ppts in 2013 to a contribution of 0.5ppts in 2014 as imports of mining equipment slow and some projects begin production. However we only expect growth in gas exports to increase by 5% in 2014 with the big lift of around 50% occurring in 2015 as most projects begin production. The forecasts indicate a solid recovery in non mining business investment. Its contribution to growth in 2012 is expected to be 0.6ppts, swinging to +0.3ppts in 2013 and +1ppt in 2014. In addition the consumer spending/housing sectors are expected to increase their contributions to growth from 1.9ppts in 2012 to 2.0ppts and 2.2ppts in 2013 and 2014 respectively. The contribution to the lift from the consumer/housing sectors is expected to be constrained by a number of factors. Firstly, we do not expect to see a reduction in the savings rate. That will restrict consumer spending growth to the pace of growth of household incomes. In turn employment growth is expected to remain subdued while wages growth is slowing. Lower interest rates will assist disposable income growth at the margin but short of a most unlikely fiscal stimulus it is hard to see any substantial boost to household income growth. We believe we have seen the early signs of an uplift in the housing sector through both prices and construction. But credit availability will be impacted by the banks' funding challenges and the absence of substantial 'non-bank' funding sources. That outlook highlights the importance of the forecast lift in nonmining business investment. Deteriorating business confidence is a particularly disappointing signal in that regard. Achievement of a 'respectable' growth rate in 2014 of around 3% (i.e. the RBA's current forecast) is expected to require a 1.6ppt turnaround in the contribution of non-mining business investment between 2012 and 2014. That compares with a 0.2ppt boost from the consumer/ housing component. Next week's Capex report on investment intentions will contain the fourth estimate for 2012/13 with the first estimate for 2013/14 not being released until February 28th next year. The Capex survey is expected to reveal that overall investment grew by a solid 3% in the September quarter but that was dominated by mining investment. We expect weak non-mining components for both the September quarter and plans for 2012/13. If, as we suspect, the Reserve Bank also sees non-mining investment as the key to maintaining trend growth through the mining slowdown, lower interest rates seem to be the preferred strategy. Lower rates will take some pressure off the AUD which has been a formidable headwind for businesses. Lower rates will also further stimulate consumer/housing activity. If businesses see their expected sales improving as a result of a more buoyant household sector then they may be encouraged to raise investment and employment plans. But there will be lags. We are only just seeing some improvement in the housing/consumer sectors. With the inflation constraint dormant and wage pressures easing the Bank has scope to further push towards this satisfactory rebalancing of the economy. Mindful of the lags, particularly around business investment, there seems to be no good reason for the Bank to delay the cut by a further two months until February. Bill Evans, Chief Economist

Australian growth mix

4 3 2 1 0 -1 -2
* includes housing
Sources: ABS, Westpac Economics

ppts cont'
updated: 23 Nov 12

contributions to GDP growth

ppts cont'

4 3 2 1 0 -1 -2

2012f

2013f

2014f

Consumer* Mining inv.

Business investment

Net X

GDP

Past performance is not a reliable indicator of future performance. The forecasts given above are predictive in character. Whilst every effort has been taken to ensure that the assumptions on which the forecasts are based are reasonable, the forecasts may be affected by incorrect assumptions or by known or unknown risks and uncertainties. The results ultimately achieved may differ substantially from these forecasts.

Westpac weekly

Data previews
Aus Q3 construction work
Nov 28, Last: 0.2%, WBC f/c: 2.7% Mkt f/c: 2.0%, Range: flat to 7.4%
24 20 16 12 8 4 0 Jun-92

Construction work: divergent trends

$bn Private
Infrastructure
+47%yr

Public
Sources: ABS, Westpac Economics

$bn

24 20 16 12 8 4 0

The construction sector experienced a strong, but lopsided and bumpy upswing over the last year. Our forecast is for total construction activity to rise by around 2.7% in Q3, underpinned by a 7% rise in private infrastructure. This contrasts with Q2, when infrastructure work inched 0.8% lower and total construction activity was little changed. The residential building sector is at a turning point. After five consecutive quarters of contraction we anticipate a flat outcome in Q3. Private non-residential building activity has edged higher, but remains at weak levels. While we anticipate a pull-back in public construction after an end of financial year 'burst' in Q2.

Building

Building Infrastructure

+131%yr to Jun 10 -50% (-$2.7bn) since then

Jun-00

Jun-08 Jun-92

Jun-00

Jun-08

Aus Q3 CAPEX
Nov 29, Last: 3.4%, WBC f/c: 3.0% Mkt f/c: 2.0%, Range: 0.5% to 6.9%

CAPEX: by industry by asset

$bn 20
Mining

Equipment
nominal

Building & structures

Sources: ABS, Westpac Economics

$bn 20

The CAPEX survey of private business investment spending provides a partial update of total business investment. CAPEX surged over the last two years (+23% year to June 2011 and +27% year to June 2012), as the mining investment boom gained momentum. Our forecast for Q3 is an increase of 3.0%. Another sizeable rise in building & structure spending is likely. We anticipate an increase of about 6%. This compares to an average quarterly rise of 9% for the last two years. However, the risk is that equipment spending declines, potentially by 3%. Capital imports were sharply lower as the softness in business confidence which emerged during Q2 persisted into Q3.

Mining Services Manufacturing

Lift-off: +223% from end 09 +258% 2 yrs to Jun 06

16 12 8 4 0 Jun-89

Services Manufacturing

16 12 8 4 0

Jun-97

Jun-05

Jun-89

Jun-97

Jun-05

Aus 2012/13 CAPEX plans, AUDbn

Nov 29, Last: 181.5

CAPEX plans by industry

% chg, yr avg % chg, yr avg
Mining Manufacturing Services Total
Sources: ABS, Westpac Economics

Estimate 3 for CAPEX spending plans for 2012/13 is $181.5bn. This is 21% higher than Est. 3 for 2011/12. Mining investment is likely to be up strongly in 2012/13, as work on existing projects ramps-up. However, non-mining CAPEX for 2012/13 looks decidedly mixed. We estimate that Est 3 implies growth in 2012/13 of 27%, based on average realisation ratios. Est 4 would need to be upgraded to around $190bn to also imply growth of 27%. We see the risk that manufacturing plans, which are already weak, are scaled back further. However, cost blow-outs may boost the value of mining plans. The 1st estimate of plans for 2013/14 will be published on 28 February 2013. We expect this to show a decline in mining spending, from a record high, as the sector responds to lower prices and higher costs.

80
History in real terms,

80 60 40 20 0
Financial years

60 40 20 0 -20

Expectations in nominal (calculated using avg. realisation ratios)

-20 2013f

2008

2009

2010

2011

2012

Past performance is not a reliable indicator of future performance. The forecasts given above are predictive in character. Whilst every effort has been taken to ensure that the assumptions on which the forecasts are based are reasonable, the forecasts may be affected by incorrect assumptions or by known or unknown risks and uncertainties. The results ultimately achieved may differ substantially from these forecasts.

Westpac weekly

Data previews
Aus Oct private credit
Nov 30, Last: 0.2%, WBC f/c: 0.2% Mkt f/c: 0.3%, Range: 0.2% to 0.4%
32 24 16 8 0 -8 -16 Sep-92
Total Housing Business

Credit momentum
3 mth % chg, annlsd
Sources: RBA, Westpac Economics

3 mth % chg, annlsd

32 24 16 8 0 -8 -16

Credit to the private sector is expanding modestly. We expect growth of 0.2% in October, matching that for September. Housing credit is subdued ahead of a boost from lower interest rates. In September, growth was 0.37% for the month and 4.7% for the year. October should see a slight improvement with housing finance trending a little higher. However, households continue to look to pay down debt. Business credit appears to have moved in to a period of consolidation, increasing by just 0.1% in July, reversed by a 0.1% decline in August, followed by a 0.3% gain In September. This comes after strong gains earlier in the year. For now, recent global weakness is weighing on confidence, contributing to a moderation of commercial finance.

Sep-96

Sep-00

Sep-04

Sep-08

Sep-12

Q4 RBNZ survey of inflation expectations, 2yr ahead

Nov 27, Last: 2.3%, WBC f/c: 2.1%

RBNZ surveyed expectations of inflation 2 years ahead

3.2 3.0 2.8 2.6 2.4 2.2 2.0 1.8 1.6
Source: RBNZ

Inflation expectations have stepped up in importance. In his October speech, the new RBNZ Governor said "We will continue to monitor inflation indicators, such as pricing intention and inflation expectation data, closely over the coming months as stronger residential investment gets into full swing." Our hunch is that the RBNZ would like to see two-year-ahead inflation expectations fall to 2% and stay there. Two-year ahead expectations have been sliding for the past year, reaching 2.3% at the last survey. We anticipate a further fall this quarter, perhaps to 2.1%. Such a result would please the RBNZ.

3.2 3.0 2.8 2.6 2.4 2.2 2.0 1.8 1.6 1.4

1.4 1994

1997

2000

2003

2006

2009

2012

NZ Oct merchandise trade

Nov 27, Last: -$791m, WBC f/c: -$620m, Mkt f/c: -$450m

NZ merchandise trade balance

2000 0 -2000 -4000 -6000 -8000 1998
Monthly
Source: Statistics NZ

NZ$m

NZ$m 2000 0 -2000 -4000

Annual

We expect the improvement in world dairy prices seen since May to become more evident in the October trade data. Dairy prices have risen recently in line with rising world grain prices (owing to Northern hemisphere drought) and recovering Chinese demand for dairy products. Strong vehicle imports should see import values tick up in October. On balance, we expect the October 2012 trade deficit to widen compared to October 2011. On an annual basis we expect the trade deficit to widen in October, reflecting earlier weakness in export values. Further out, the earthquake-related imports will dominate improving dairy export prices; as a result, the trade deficit will widen further over 2013.

-6000 -8000

2000

2002

2004

2006

2008

2010

2012

Past performance is not a reliable indicator of future performance. The forecasts given above are predictive in character. Whilst every effort has been taken to ensure that the assumptions on which the forecasts are based are reasonable, the forecasts may be affected by incorrect assumptions or by known or unknown risks and uncertainties. The results ultimately achieved may differ substantially from these forecasts.

Westpac weekly

Data previews
NZ Nov business confidence
Nov 29, Last: 17.2

NZ business confidence & inflation expctns

80 60 40 20 0 -20 -40 -60 -80 1997
Source: ANZ

net %
Business confidence (lhs) Inflation expectations (rhs)

The ANZ (formerly National Bank) Business Outlook was generally soft in October. However, the balance of domestic activity indicators has improved in the last couple of months, and a strong increase in the informal BNZ business survey in early November suggests that we should see a similar result here. The October survey was probably completed before the soft Q3 inflation figures were published, so the November survey may well see inflation expectations and pricing intentions plumb new lows. The RBNZ has said that it will be paying particular attention to these kinds of measures, although the two-year ahead expectations from its own survey (see above) are more relevant to its policy horizon than the one-year ahead measure in the ANZ survey.

4.5 4.0 3.5 3.0 2.5 2.0 1.5 1.0

1999

2001

2003

2005

2007

2009

2011

NZ Oct building consents

Nov 30, Last: +7.8%, WBC f/c: -3%

NZ housing activity
3500 3000 2500 2000 6000 1500 1000 500
Source: REINZ, Statistics NZ

consents

sales

Residential building consents are now clearly trending higher, led in the first instance by post-quake rebuilding in the Canterbury region, but also in line with a broad-based pickup in housing demand over the last year. While we expect the October figures to retain the upward trend, the 7.8% jump in September was narrowly focused (up 35% in the Waikato region) and we expect some reversal. As well as the Canterbury rebuild gathering pace, we would expect to see a further rise in issuance in Auckland, which has lagged in recent months despite strong sales turnover and a clear legacy of under-building in the region.

12000 10000 8000

4000
Building consents (lhs) House sales (rhs)

2000 0

0 1996

1998

2000

2002

2004

2006

2008

2010

2012

US Oct durable goods orders

Nov 27, Last: 9.8%, WBC f/c: 2.0%

US durable goods orders

40 30
* smoothed by 3mth MA

%yr
non-defense capital goods ex air* total orders*

%yr

Durable goods orders jumped 9.8% in Sep, after falling 13.1% in Aug. Much of that volatility was due to aircraft (Boeing had one order in Aug but 143 in Sep); ex transport orders fell 2.1% in Aug and rose 2.0% in Sep. But core capital goods (ex aircraft/ defence) were flat after a 0.2% rise in Aug and falls in June/ July. In Q3, core orders fell at an alarming 23.5% annualised pace, compared to 5.9% in Q2 and +0.4% in Q1. This weakness is now showing up in falling core shipments; in Q3 a 4.9% annualised pace, compared to 5%+ gains in Q1 and Q2. ISM factory orders recovered a further 1.9pts to 54.2 from 47.1 in Aug. Boeing took 152 orders in Oct, up 9 on Sep, but seasonality is unclear. Auto sales fell in Oct production has not risen since July. Local fiscal and global growth risks suggest firms are wary of investing. Core capital good orders also seem to fall in the first month of the quarter (even with regular seasonal variations removed). More down than up signals here.

40 30 20 10 0 -10 -20

20 10 0 -10 -20 -30

Sources: Ecowin, Westpac Economics

-30 -40 Sep-07 Sep-09 Sep-11

-40 Sep-01

Sep-03

Sep-05

Past performance is not a reliable indicator of future performance. The forecasts given above are predictive in character. Whilst every effort has been taken to ensure that the assumptions on which the forecasts are based are reasonable, the forecasts may be affected by incorrect assumptions or by known or unknown risks and uncertainties. The results ultimately achieved may differ substantially from these forecasts.

Westpac weekly

Data previews
US Oct home sales: new & pending
Nov 28, New home sales: Last: 5.7%, WBC f/c 3.0% Nov 29, Pending home sales: Last: 0.3%, WBC f/c 1.0%
8000 7000
existing home sales (lhs)

US housing sales
'000s, ann.
new home sales (rhs)

'000s, ann

1600 1400 1200 1000

New home sales rose 5.7% in Sep to a 389k annualised sales pace, the highest since sales spiked to a 422k pace ahead of the expiring tax credit for homebuyers in 2010. Falling stocks of unsold homes may be a factor although there continues to be a large 'shadow supply' of properties tied up in the foreclosure process. In Oct-Nov recent sharp gains in homebuilder confidence continued with sales cited as a factor. Late month storms may impact but we see a further 3% gain. Pending sales rose just 0.3% in Sep after falling 2.6% in Aug. Sales peaked in Jul this year but in Sep were running at a slower pace than in Mar. Hence existing sales (i.e. completed) fell in Aug and recovered only partially in Sep. An issue may be that inventories of unsold homes are at 6yr lows and what sales take place are more high-end properties, pushing first time buyers into the new build market as noted above.

6000 5000

800 4000 3000

Sources: Factset, Westpac Economics

600 400 200

2000 Sep-85 Sep-89 Sep-93 Sep-97 Sep-01 Sep-05 Sep-09

US Oct core PCE deflator, personal spending & income

Nov 30, Core PCE deflator: Last: 0.1%, WBC f/c: 0.2% Nov 30, Personal income: Last: 0.4%, WBC f/c: 0.2% Nov 30, Personal spending: Last: 0.8%, WBC f/c: 0.0%
4 3 2 1 0

US core PCE deflator

%
mthly (rhs) annual (lhs) 6mth, annualised (lhs)

0.8 0.6 0.4 0.2 0.0

The core PCE deflator rose 0.1% in Sep, its fifth 0.1% in six months (June rounded up to 0.2%), for a six month annualised pace of 1.5%, quite subdued though not as weak as in late 2010 (0.9% annualised) when deflation concerns briefly emerged. The core CPI was up 0.2% in Oct after 0.1% monthly gains right through Q3 so the core PCE deflator which has tracked CPI closely of late will likely post a 0.2% gain as well. Personal income growth of 0.4% was way outpaced (as in JulAug) by 0.8% spending growth, its equal fastest since Feb, except income growth was averaging 0.8% in Jan-Feb. Flat hourly earnings and 0.1% hours worked growth mean income growth will be even slower but weak, storm-distorted retail sales data in Oct portend stalled total personal spending.

Sources: Factset, Westpac Economics

-1 Sep-06

-0.2 Sep-07 Sep-08 Sep-09 Sep-10 Sep-11 Sep-12

Past performance is not a reliable indicator of future performance. The forecasts given above are predictive in character. Whilst every effort has been taken to ensure that the assumptions on which the forecasts are based are reasonable, the forecasts may be affected by incorrect assumptions or by known or unknown risks and uncertainties. The results ultimately achieved may differ substantially from these forecasts.

Westpac weekly

Key data & event risk for the week ahead

Last Mon 26 Sing Eur Ger UK US Oct industrial production %yr EU Finance Ministers reconvene Dec GfK consumer confidence Nov house prices %yr Oct Chicago Fed national activity index Nov Dallas Fed factory index 2.5% 6.3 0.9% 0.0 1.8 2.3% -$791m 1.8% 1.0% a 0.9% 9.8% 2.1% 72.2 7 0.7% 0.2% 2.75% 2.7% 2.0% 5.7% 3.4% 181.5 17.2 1.62 84.5 20k 1.2 0.5 7.4% 30 2.0% a 410k 0.3% 4 0.5% 16.0 0.3% 7.8% 3.0% 46.9 4.2% 0.9% 0.3% 4.1% 5.5% 0.7% 2.5% 11.6% 0.8% 30 0.4% 0.8% 0.1% 49.9 43.3 1.9% 0.1% Market Westpac median forecast Risk/Comment 0.4% 6.3 1.1% 2.0 $450m 1.0% 1.0% 2.9% 73.0 0.4% 2.0% 2.75% 2.9% 1.9% 0.8% 2.0% 84.0 15k 0.3 0.7 20 2.8% 0.8% 3 0.1% 18.1 0.3% flat 4.2% 0.8% 0.4% 2.0% 5.2% 2.4% 11.6% 0.1% 30 0.2% 0.1% 0.2% 51.0 0.9% 0.1% 5.0 2.1% -$620m 1.0% 2.0% 72.5 10 2.7% 2.75% 3.0% 3.0% 1.60 84.2 20k 15 2.5% 395k 1.0% 1 0.2% 3.0% 11.7% 29 0.2% 0.0% 0.1% 50.0 Sing PMI has lagged the regional upturn since September. Greek bailout still not quite signed off. Surveyed in early Nov but labelled Dec. Nationwide index, due sometime this week. Not surveyed, based on 80 data releases for the month. Hovering either side of zero recently but seasonal upswing due. A further fall in ination expectations would please the RBNZ. Look for quake-related imports to widen trade deficit over 2012/13 Profit cycle looks to have bottomed. Q3 boost from Olympics, Jubilee holiday bounceback. Q2 saw partial recovery from 2.7% slump in Q1. See text box for detail of our forecast decline. S&P/CS 20 city index. Conference Board index. Other indices mixed/lower in Nov. Weather disruption? FHFA index. Bernanke; Evans in Canada; Fisher et al in Germany. Up on private infrastructure strength, which edged 0.8% lower in Q2. Decent domestic demand in Q3 GDP implies recent cut will be enough. Loans to private sector down 1.4% yr in Sep. Aug blip higher not yet reversed. Housing market is recovering from a low base. Prepared ahead of Dec 12 FOMC meeting. Tarullo. Building & structure spend to rise, offsetting lower equipment spend. Est 3 is 21% higher than Est 3 for 2011/12. See text box. The balance of domestic indicators has picked up again. Stabilising at lower level... ... but risks to downside. Even German joblessness is on the rise now. These household credit outstandings reports may reveal the success or not of BoE/Treasury's cheap funding program. Ex support for finance sector figures. Total M4 3.5% yr in Sep. Reported sales rose to a four month high in Oct. Revision upwards to come entirely from net exports and inventories. Still boosted by superstorm disruption. Housing market is recovering from a low base. See text box. Last of the regional Fed surveys to go sub zero this year. Fisher still in Germany. Sep saw first rise since April. In deficit since 2008. Housing subdued ahead of rate cut boost, business consolidating. Trending higher, but Sep's jump was narrowly based. Credit growth has picked up over the past year. Unique in a bad way right now. Hours worked under pressure, jobs-to-applicants steady to lower. Eco--subsidy expiry plus shadow base effects from disaster rebound. Tokyo series fell to 0.8%yr in Oct. Nationwide core at 0.6%yr. Chinese island row is hurting the supply chain, especially in autos. Manuf. down 0.5%qtr, tertiary activity flatlining at best. Probably a bit early for nascent China rebound to show up here. 2.3% yr would be lowest since end of 2010. German rate steady at 6.9% in Oct but upside risk from periphery. Retail data volatile and heavily revised. Economy growing again? Flat hours worked and 0.1% earnings growth mean slower income... ...but the superstorm looks to have hit spending anyway. Core CPI 0.1% in Oct. Back to back sub 50 readings, weakest since 2009. One of the lesser watched surveys, but also weakest since 2009. Stein and Kocherlakota. Growth slowed in Q3. Aug saw first monthly decline since Feb.

Tue 27 NZ Q4 RBNZ ination expectations Oct merchandise trade Chn Oct industrial profits %ytd UK Q3 GDP revision Q3 business investment US Oct durable goods orders Sep house prices %yr Nov consumer confidence Nov Richmond Fed factory index Sep house prices Fedspeak Wed 28 Aus Thai Eur Ger US Q3 construction work done Bank of Thailand decision Oct money supply M3 %yr Nov CPI %yr Oct new home sales Fed beige book Fedspeak

Thu 29 Aus Q3 private new capital expenditure 2012/13 CAPEX plans, AUDbn NZ Nov ANZ business condence Eur Nov business climate indicator Nov economic confidence Ger Nov unemployment ch' UK Oct net consumer credit bn Oct net mortgage lending bn Oct money supply M4 annualised Nov CBI retail survey US Q3 GDP first revision Initial jobless claims w/e 24/11 Oct pending home sales Nov Kansas City Fed factory index Fedspeak Can Oct industrial product prices Q3 current account balance C$bn Fri 30 Aus NZ Jpn Oct private sector credit Oct building consents Oct private sector credit %yr Nov Markit/JMMA manufacturing PMI Oct jobless rate Oct overall household spending %yr Oct national CPI %yr Oct industrial production %mth Q3 GDP %yr Oct industrial production %yr Nov CPI flash %yr Oct unemployment rate % Ger retail sales Nov GfK consumer confidence Oct personal income Oct personal spending Oct PCE core Nov Chicago purchasing manager Aug NAPM-Milwaukee Fedspeak Q3 GDP Sep GDP

Inr Kor Eur Ger UK US

Can

Past performance is not a reliable indicator of future performance. The forecasts given above are predictive in character. Whilst every effort has been taken to ensure that the assumptions on which the forecasts are based are reasonable, the forecasts may be affected by incorrect assumptions or by known or unknown risks and uncertainties. The results ultimately achieved may differ substantially from these forecasts.

Westpac weekly

Economic & financial forecasts

Interest rate forecasts
Latest (23 Nov) Cash 90 Day Bill 3 Year Swap 10 Year Bond 10 Year Spread to US (bps) International Fed Funds US 10 Year Bond US Fed balance sheet USDtrn ECB Repo Rate New Zealand Cash 90 day bill 2 year swap 10 Year Bond 10 Year spread to US 2.50 2.64 2.66 3.49 181 2.50 2.70 2.80 3.60 185 2.50 2.75 2.90 3.70 180 2.75 3.00 3.10 3.80 175 3.00 3.40 3.40 4.00 180 3.00 3.40 3.40 4.00 170 0.125 1.68 2.92 0.75 0.125 1.75 3.00 0.75 0.125 1.90 3.25 0.75 0.125 2.05 3.49 0.75 0.125 2.20 3.74 0.75 0.125 2.30 3.99 0.75 3.25 3.26 3.21 3.30 162 Dec 12 3.00 2.95 2.90 3.10 135 Mar 13 2.75 2.85 3.00 3.20 130 Jun 13 2.75 3.00 3.15 3.25 120 Sep 13 2.75 3.10 3.25 3.40 120 Dec 13 2.75 3.10 3.40 3.50 120

Exchange rate forecasts

Latest (23 Nov) AUD/USD NZD/USD USD/JPY EUR/USD AUD/NZD 1.0396 0.8165 82.24 1.2885 1.2732 Dec 12 1.02 0.81 78 1.26 1.26 Mar 13 1.06 0.82 81 1.24 1.29 Jun 13 1.05 0.81 81 1.22 1.30 Sep 13 1.03 0.80 80 1.20 1.29 Dec 13 1.01 0.79 79 1.19 1.28

Australian economic growth forecasts

2011 Q4 GDP % qtr annual change Unemployment rate % CPI % qtr annual change CPI underlying % qtr annual change 0.5 2.6 5.2 0.0 3.0 0.8 2.7 2012 Q1 1.4 4.4 5.2 0.1 1.6 0.4 2.2 Q2 0.6 3.7 5.1 0.5 1.2 0.6 2.1 Q3f 0.6 3.1 5.3 1.4 2.0 0.7 2.5 Q4f 0.6 3.2 5.5 0.4 2.4 0.7 2.5 2013 Q1f 0.9 2.8 5.7 0.6 2.8 0.6 2.7 Q2f 0.8 3.0 5.6 0.7 3.1 0.4 2.5 2010 2.5 5.2 2.8 2.3 Calendar years 2011 2.1 5.1 3.0 2.7 2012f 3.5 5.3 2.4 2.5 2013f 3.2 5.6 2.1 2.3

New Zealand economic growth forecasts

2011 Q4 GDP % qtr Annual avg change Unemployment rate % CPI % qtr Annual change 0.5 1.3 6.4 -0.3 1.8 2012 Q1 1.0 1.6 6.7 0.5 1.6 Q2 0.6 2.0 6.8 0.3 1.0 Q3e 0.3 2.3 7.3 0.3 0.8 Q4f 0.7 2.5 7.0 0.2 1.3 2013 Q1f 0.9 2.5 6.9 0.6 1.4 Q2f 1.0 2.6 6.7 0.8 1.8 2010 1.7 6.7 4.0 Calendar years 2011 1.3 6.4 1.8 2012f 2.5 7.0 1.3 2013f 3.2 6.1 2.5

Past performance is not a reliable indicator of future performance. The forecasts given above are predictive in character. Whilst every effort has been taken to ensure that the assumptions on which the forecasts are based are reasonable, the forecasts may be affected by incorrect assumptions or by known or unknown risks and uncertainties. The results ultimately achieved may differ substantially from these forecasts.