Asian market perspectives - Westpac · This issue was finalised on 8 October 2010 Asian market...
Transcript of Asian market perspectives - Westpac · This issue was finalised on 8 October 2010 Asian market...
W001272 WIB Market Outlook.indd 1-2 6/6/07 11:11:56 AM
Asian market perspectives
October 2010
Contents
Executive summary 3
US credit supply & the shadow banks: chart essay 4World growth: chart essay 6China 6Japan 8Emerging Asia 10United States 12
Summary forecast tables Japan 14East Asia 15United States 16World growth 17
Corporate directory 18
Internet: www.westpac.com.auEmail: [email protected]
This issue was finalised on 8 October 2010
Asian market perspectives is a monthly publication produced by Westpac Economics
Editor: Huw McKay, Senior International Economist
3
Executive summary
An unacceptably high unemployment rate and uncomfortably low inflation is pushing the US Federal Reserve inexorably towards a further round of balance sheet expansion. Since the Fed’s Jackson Hole conference we have perceived an air of creeping negativity among the core of the Fed leadership. This has recently burst forth into open pessimism and will soon flower into a new asset purchasing program that will eventually be of considerable magnitude. We are not alone in reaching this conclusion: financial markets have been transfixed by the prospect of renewed “QE”. This is the correct policy for the US, but the spillover effects are enormous and potentially unwelcome: particularly regards exchange rates. Excess liquidity in the US means a cheaper dollar, pure and simple. Under these conditions, we see Asia attracting heavy capital inflows. That will complicate matters further for regional monetary authorities already attempting to lean against a wall of liquidity.
China: The economy continues to decelerate, but not in a straight line, with kernels of resilience helping to alleviate the impact of the policy induced slowdown. This month we review the evidence from the various business surveys and activity indicators to make sure our basic view – that we are in a mid-cycle correction, nothing more – is still on track.
Japan: Count Japan among those countries that feels it cannot sit idly by while the US undermines its exchange rate through monetary expansion. We have been advocating an aggressive monetary easing in Japan for a considerable time. The BoJ’s recent announcement of “comprehensive” easing is bold in construction but meek in scale. Expect an extension down the line.
Emerging Asia: With the impetus from inventory rebuilding and the recovery in global trade diminishing, the region is at a critical juncture. We expect growth to be much harder to come by over the next few quarters, even though regional liquidity is expected to remain very elevated against the loose global monetary policy backdrop.
United States: Widespread dissatisfaction with the state of the labour market and the level of inflation is driving the Fed towards a further expansion of its balance sheet. Excess liquidity means a cheaper dollar, which is something the US needs but Asia will not be thrilled about.
October 2010
Summary of regional and world GDP growth
Real GDP %ann 2005 2006 2007 2008 2009 2010f 2011fJapan 1.9 2.0 2.4 –1.5 –5.8 3.3 1.1China 11.3 12.7 14.2 9.6 9.1 10.3 9.1India 9.2 9.8 9.4 7.3 5.7 8.0 9.1Korea 4.0 5.2 5.1 2.3 0.2 6.5 4.0Taiwan 4.7 5.4 6.0 0.7 –1.9 6.0 3.8Hong Kong 7.1 7.0 6.4 2.1 –2.7 5.8 5.6Singapore 7.6 8.7 8.2 1.4 –2.0 13.0 3.0Indonesia 5.7 5.5 6.3 6.0 4.5 6.0 5.2Thailand 4.6 5.1 4.9 2.5 –2.3 5.0 4.0Malaysia 5.3 5.8 6.2 4.6 –1.7 6.0 4.0Philippines 5.0 5.3 7.1 3.8 0.9 4.5 3.3Vietnam 8.4 8.2 8.5 6.2 5.3 8.0 8.3
East Asia 8.7 9.8 10.9 7.1 5.9 8.9 7.4East Asia ex China 5.2 5.8 6.0 3.2 0.4 6.4 4.4NIEs* 4.8 5.8 5.8 1.8 –0.9 6.9 4.1
United States 3.1 2.7 1.9 0.0 –2.6 2.5 1.1OECD total 2.7 2.7 2.5 0.1 –3.2 2.1 1.5Emerging ex– East Asia* 6.0 6.8 6.8 5.0 –0.7 4.9 5.0World 4.5 5.1 5.2 3.0 –0.6 4.4 3.8Sources: IMF, Westpac Economics. * Includes India. Aggregates weighted at purchasing power parity exchange rates. See notes to detailed table on page 17.
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.
4
Chart 2.
Chart 3. Chart 4.
Chart 5. Chart 6.
Chart 1.
US credit supply & the shadow banks
October 2010
US total private sector credit
-5
-1
3
7
11
15
-5
-1
3
7
11
15
Mar-61 Mar-70 Mar-79 Mar-88 Mar-97 Mar-06
%yr %yr
Nominal GDP
Total credit
Sources: BEA, Federal Reserve, Westpac Economics
Total liabilities: banks & “shadow” banks
0 2 4 6 8 10 12 14 16 18 20 22
0 2 4 6 8
10 12 14 16 18 20 22
1990 1994 1998 2002 2006 2010
$trn
Traditional commercial bank liabilities
Shadow bank liabilities
Sources: Federal Reserve, Westpac Economics
$trn
Mar ‘08
Since Mar ’08 peak in shadow bank liabilities: shadow liabilities have declined by $4.5tn; traditional bank liabilities have increased by $2.1tn.
Shadow liabilities: composition
0 2 4 6 8 10 12 14 16 18 20 22
0 2 4 6 8
10 12 14 16 18 20 22
1990 1994 1998 2002 2006 2010
$trn
GSE (liabilities and agency pools) MMkt funds ABS issuers Net securities loaned Open market paper Repos
Sources: Federal Reserve, Westpac Economics
$trn
US total credit liabilities by sector
0
3
6
9
12
15
0
3
6
9
12
15
1990 1994 1998 2002 2006 2010
$trn Other* Households Nonfarm nonfinancial firms Government Rest of World
Sources: Federal Reserve, Westpac Economics
March ‘08
$trn
*nonfinancial noncorporate and farm
US commercial bank credit provision*
-300
-200
-100
0
100
200
300
400
-300
-200
-100
0
100
200
300
400
1990 1994 1998 2002 2006 2010
$bn
Total loans Agency & GSE securities Treasuries
Source: Federal Reserve, Westpac Economics
$bn
*Consolidation of off balance sheet assets and liabilities on 31 March 2010 excluded from total loans as this accounting change did not lead to the provision of any new credit.
quarterly change
US commercial bank credit provision – loans
-300
-200
-100
0
100
200
300
400
-300
-200
-100
0
100
200
300
400
1990 1994 1998 2002 2006 2010
$bn
Security credit Consumer credit Mortgages Bank loans nec*
Source: Federal Reserve
$bn
*Primarily includes commercial and industrial loans, lease financing receivables and agricultural loans.
quarterly change
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.
Chart 8.
Chart 9. Chart 10.
Chart 11. Chart 12.
5
Chart 7.
US credit supply & the shadow banks
October 2010
Household loan charge offs
-200
-100
0
100
200
300
400
-200
-100
0
100
200
300
400
1990 1994 1998 2002 2006 2010
$bn
Net charge offs
Household credit* (qtly change; ex net charge offs)
Sources: Federal Reserve, Westpac Economics
$bn
*Home mortgages and consumer credit
Decline in shadow liabilities broad based
-1750 -1500 -1250 -1000
-750 -500 -250
0 250 500 750
1990 1994 1998 2002 2006 2010
$bn
GSE (liabilities and agency pools) MMkt funds ABS issuers Net securities loaned Open market paper Repos
Sources: Federal Reserve, Westpac Economics
quarterly change
Ongoing difficulties in CP market …
50
100
150
200
250
300
350
200
400
600
800
1000
1200
1400
2001 2002 2003 2005 2006 2007 2009 2010
$bn
Financial (lhs)
Asset backed (lhs)
Non financial (rhs)
Source: Federal Reserve
$bn outstanding stock
… a greater incentive to hold onto cash
0
200
400
600
800
1000
0
200
400
600
800
1000
1990 1993 1996 1999 2002 2005 2008
$bn
At call Term deposits Total deposits*
Source: Federal Reserve
nonfarm nonfinancial cash balance Also includes foreign deposits; $50bn at June quarter 2010.
$bn
Dec ‘08
Household loans mostly non-conforming
-200
0
200
400
600
800
1000
-200
0
200
400
600
800
1000
2005 2006 2007 2008 2009 2010
$bn
GSE (on balance sheet) Mortgage pools
Source: Federal Reserve
$bn net quarterly change; saar Conventional mortgages (Fannie and Freddie debt) were put back on the GSE’s balance sheet in Q1 ’10; pool issuance in H1 ’10 then seems to be limited to non-conventional (low deposit) FHA-backed loans through Ginnie Mae.
1
Fed has helped to ease the pain
-2.0
-1.5
-1.0
-0.5
0.0
0.5
1.0
1.5
2.0
-2.0
-1.5
-1.0
-0.5
0.0
0.5
1.0
1.5
2.0
ABS Security loans & repos
Open mkt paper
MMkt funds
Comm bank loans
GSE Fed purchases
Sources: Federal Reserve, Westpac Economics
change from March ’08 peak* $trn $trn
*While not shown here, we expect the Fed will embark on a new round of QE in late 2010.
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.
6
Chart 2.
Chart 3. Chart 4.
Chart 5. Chart 6.
Chart 1.
World growth: chart essay
October 2010
-40
-30
-20
-10
0
10
20
30
40
-40
-30
-20
-10
0
10
20
30
40
Jul-91 Nov-94 Mar-98 Jul-01 Nov-04 Mar-08
Industrial country import volumes
Industrial country export volumes
Sources: Westpac Economics, CPB Netherlands.
%6mth annualised %6mth annualised
Global trade volume: rebound dissipating
-40
-30
-20
-10
0
10
20
30
40
50
-40
-30
-20
-10
0
10
20
30
40
50
Jul-91 Nov-94 Mar-98 Jul-01 Nov-04 Mar-08
Non-industrial country import volumes
Non-industrial country export volumes
Sources: Westpac Economics, CPB Netherlands.
%6mth annualised
Global trade volume: EM clearly slowing
-50
-40
-30
-20
-10
0
10
20
30
40
-50
-40
-30
-20
-10
0
10
20
30
40
Jul-91 Nov-94 Mar-98 Jul-01 Nov-04 Mar-08
US Japan Euro area
Sources: Westpac Economics, CPB Netherlands.
%6mth annualised %6mth annualised
IP volume: G3 slows, Japan most volatile
-30
-20
-10
0
10
20
30
-30
-20
-10
0
10
20
30
Jul-91 Nov-94 Mar-98 Jul-01 Nov-04 Mar-08
Asia Emerging Europe Latam
Sources: Westpac Economics, CPB Netherlands.
%6mth annualised %6mth annualised
IP volume: EM slow to below double digits
Global narrow liquidity: is it still ample?
0
2
4
6
8
10
12
14
16
0
2
4
6
8
10
12
14
16
Jan-00 Jan-02 Jan-04 Jan-06 Jan-08 Jan-10
%yr %yr
Global proxy* (lhs)
OECD (rhs)
Sources; Westpac Economics, CEIC, OECD * GDP weighted index of OECD & the BRICs
Global broad liquidity: multiplier is weak
0
2
4
6
8
10
12
3
5
7
9
11
13
15
Jan-00 Jan-02 Jan-04 Jan-06 Jan-08 Jan-10
%yr %yr
Global proxy* (lhs)
OECD (rhs)
Sources; Westpac Economics, CEIC, OECD * GDP weighted index of OECD & the BRICs
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.
Chart 8.
Chart 9. Chart 10.
Chart 11. Chart 12.
7
Chart 7.
World growth: chart essay
October 2010
World growth momentum
-9
-6
-3
0
3
6
9
12
-9
-6
-3
0
3
6
9
12
Jun-95 Jun-98 Jun-01 Jun-04 Jun-07 Jun-10 Jun-13
%saar %saar
World proxy Australia MTP proxy G3
Sources: Westpac Economics, IMF, National agencies.
forecasts
Contributions to world growth
-2
-1
0
1
2
3
4
5
6
1994 1997 2000 2003 2006 2009 2012
The rest China Advanced
Sources: Westpac, IMF.
%
Global auto sales: stimulus passing
22
24
26
28
30
32
0
5
10
15
20
25
May-02 May-03 May-04 May-05 May-06 May-07 May-08 May-09 May-10
million million
China (lhs)
Ex China (rhs)
Sources: Factset, CEIC. Westpac Economics. Annualised 6mth levels.
The semiconductor market
-60
-45
-30
-15
0
15
30
45
60
0.4
1
1.6
Dec-96 Dec-98 Dec-00 Dec-02 Dec-04 Dec-06 Dec-08 Dec-10
%ann ratio
book-to-bill ratio US semiconductor machinery (lhs)
global semiconductor sales (rhs)
Source: SEMI, SIA
0
400
800
1200
1600
2000
0
400
800
1200
1600
2000
Jan-2002 Jan-2004 Dec-2005 Dec-2007 Dec-2009
index index
Baltic Dry Panamax Capesize
Sources: Westpac Economics, Factset
Freight costs are slightly off the lows Oil and metals prices
50
100
150
200
250
300
350
30
60
90
120
150
Jan-04 Feb-05 Apr-06 Jun-07 Aug-08 Sep-09
Index US$/bbl
Oil (lhs)
Base metals (rhs)
Sources: Westpac Economics, Bloomberg
8
China
The Chinese economy is in a transition phase. The dominant theme remains the policy-induced slowdown, which is passive in some sectors (infrastructure) and active in others (housing). This is producing a reduced rate of headline economic growth. The secondary theme is one of resilience to the aggregate slowdown through the various offsets that have emerged to take the edge off the policy headwinds. In terms of our expectations, the winding down of infrastructure spending is proceeding as foreseen, while the rebound in profits is on schedule, but housing construction has been more resilient and so has manufacturing overall, particularly if measured via the business surveys rather than the official data series.
At the aggregate level, the best measure of the current and future growth pulse are the NBS’ coincident and leading indicators. Last month we reported that the July update of the leading indicator offered tentative evidence of a bottoming. The August update did not oblige with confirmation of that signal, indeed it refuted it quite strongly, but that is comforting in a way as it confirms our view that the low point for momentum is likely to be the two quarters 2010Q4 and 2011Q1. And given the dominance of policy measures in driving the volatility in the leading index over the past year (incorporating both fiscal and monetary influences) it would not be plausible to expect a sustained turnaround before policy itself begins to rebalance. The coincident index, meanwhile, is pointing directly south, implying that activity was weak through the middle of Q3. That accords with our sub-trend forecast for Q3 of 8¾%, which translates to an official yoy rate of 9.8%. The risks are on the downside for these outcomes.
Elsewhere, the quarterly business survey reported a levelling out of confidence and conditions, the profits survey indicated that earnings have been tracking sideways while the trend in the PMI is slightly downward, but only if you squint, given it has been 52 point something in every read since March (on our seasonally adjusted estimates). However, the forward looking information in these surveys, principally in relation to inventories and order books, have shifted in a positive direction, after a soft patch through late Q2 and early Q3. Indeed, the ratio of orders to inventories, a leading indicator of near term industrial outcomes, has been rising in both the PMI and the quarterly survey. Profits, which we track religiously due to their important role in the financing of private sector investment, are up 55%ytd, but our stripped back measure indicates that the pulse has softened, resulting in a levelling out through the middle of the year. Decelerating revenues are principally responsible for the deceleration. Margins have been stable.
As far as the external sector goes, foreign orders (quarterly survey) and new exports orders (PMI) are both printing at a discount to their domestic and total new orders counterparts respectively. Import demand has been inconsistent, with the sub-index in the PMI below 50 on four occasions since March. Two factors drive the import cycle. The first is domestic demand for raw materials. The second is the global assembly trade, where components enter China for assembly and re-export. Raw materials demand has been weighed down by slowing infrastructure activity and controls on overtly polluting industries, but the fact that real estate construction has been resilient has supported demand. On the assembly trade, the first half of the year saw very rapid growth in imports of componentry, as the global electronics industry continued to rebalance after the savage inventory adjustment of early 2009, late 2008. That flow is now less strong, with upstream economies like Japan, Korea, Singapore and Taiwan all reporting headline PMI readings below the 50 threshold in September. Japan, where the data is easiest to read, clearly suffered an unanticipated inventory build in August. So it would be no surprise to see Chinese export growth lose considerable altitude going into the end of the year.
Politico-financial matters – a more delicate phrase than “China bashing” – took a turn for the worse over the month. The US House passed a bill that is a bald attempt to pressure China into revaluing by imposing tariffs equivalent to the “currency subsidy” (it has yet to be tabled in the Senate); Brazil went on the record about their concerns with weak exchange rates in the major economies; the EU is threatening to ban Chinese firms from applying for government procurement deals; and French President Sarkozy, under major pressure at home, is seeking to use his upcoming stint as G-20 chairman to push for greater coordination of international economic policy matters, which is not that far from requesting a Plaza Accord style sitdown. The Bank of Japan intervened in the FX market for the first time since 2003 and the US Fed seems intent on pursuing an implicit weak dollar policy. All these events and prospects make China’s seat at international fora more uncomfortable than ever.
Huw McKay, Senior International Economist
The transition from ...
... public to private-led growth ...
... is underway.
The transition phase will be patchy.
Trade & FX friction continues.
October 2010
9
Chart 1. Chart 2.
Chart 3. Chart 4.
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.
China
October 2010
Economic variables – recent history
2009 2010
Monthly data %yr Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul AugConsumer prices – headline –0.8 –0.5 0.6 1.9 1.5 2.7 2.4 2.8 3.1 2.9 3.3 3.5Money supply M2 29.3 29.5 29.7 27.7 26.1 25.5 22.5 21.5 21.0 18.5 17.6 19.2Bank lending 34.2 34.2 33.8 31.7 29.3 27.2 21.8 22.0 21.5 18.2 18.4 18.6Fixed asset investment %ytd 33.3 33.1 32.1 30.5 26.6 26.6 26.4 26.1 25.9 25.5 0.0 0.0Industrial production (IVA) 13.9 16.1 19.2 18.5 12.8 12.8 18.1 17.8 16.5 13.7 13.4 13.9Retail sales 15.5 16.2 15.8 17.5 14.0 22.1 18.0 18.5 18.7 18.3 17.9 18.4Exports –15.0 –13.7 –1.2 17.6 21.0 45.7 24.2 30.4 48.5 43.9 38.0 34.3Imports –3.8 –6.8 26.3 55.6 85.6 44.7 66.4 50.1 48.9 34.6 23.2 35.5Trade balance USDbn 12.9 24.0 19.1 18.4 14.2 7.6 –7.2 1.7 19.5 20.0 28.7 20.0
Quarterly data Q1:09 Q2:09 Q3:09 Q4:09 Q1:10 Q2:10
Real GDP %yr 6.5 8.1 9.1 10.7 11.9 10.3Real fixed investment* %yr 29.8 39.8 36.5 27.3 24.5 21.9Real household consumption*^ %yr 9.2 10.7 10.4 8.7 8.8 5.8Property prices – national %yr –1.1 –0.5 1.9 5.8 10.6 12.2Sources: Government agencies, Bloomberg, CEIC, Westpac Economics. January data omitted from certain series due to Lunar New Year distortions. In these instances the February number is the average for the first two months of the calendar year. * Urban. ^ Per capita.
China: leading and coincident indicators
-18
-12
-6
0
6
12
18
Jan-92 Jan-95 Jan-98 Jan-01 Jan-04 Jan-07 Jan-10
%6mth ann %6mth ann
Leading
Coincident
Sources: CEIC, Westpac Economics.
Shaded areas indicate the leading index is expanding at a faster pace than the coincident index, implying growth will accelerate in coming months.
35
40
45
50
55
60
35
40
45
50
55
60
Jun-92 Jun-96 Jun-00 Jun-04 Jun-08
net bal. net bal.
Foreign Domestic
Sources: CEIC, Westpac Economics.
China 5000 firm survey: order books
Profits: official and surveyed
45
50
55
60
65
-60
-30
0
30
60
90
120
150
Jan-01 Jan-03 Jan-05 Jan-07 Jan-09
net bal/% %ytd industrial profits %ytd (lhs) 5000 enterprise survey, profits net balance (rhs)
Sources: CEIC, Westpac Economics. * Profits as a share of revenues.
0
4
8
12
16
0
20
40
60
80
1-Mar 31-Mar 30-Apr 30-May 29-Jun 29-Jul
‘000 sqm ‘000 sqm
Beijing (lhs)
Shanghai (lhs)
Shenzhen (rhs)
Sources: CEIC, Westpac. 5 day rolling averages.
Measures imposed
on April 16
Daily house sales in the tier one cities
10
Japan
The Bank of Japan has finally committed to truly “unconventional” monetary easing. This is something we have been hoping would happen for a long time. Back in March of this year we wrote that: “A good policy for Japan over the next three years would be to sponsor a weak yen through a policy of excess liquidity. This would take some pressure off the price level to boost Japanese competitiveness ... it is nonsensical to refrain from ... ultra loose settings.
In April we followed up with the judgement that: “Shirakawa is correct to view monetary policy as a limited tool and he is also right to be dismissive of calls for inflation targeting as a cure–all for Japan. However, that does not mean that the Bank of Japan should not be a dynamic actor in a strategic plan for economic revival. Monetary policy can impact upon price expectations through the rate of growth of monetary supply. It can also assist fiscal policy by monetising further public debt expansion, which is no small thing from such an incredibly high base. These activities will manifest themselves in a weaker exchange rate. An end to the Japanese yen’s secular real trade weighted appreciation would be a major contributor to raising expectations of future price rises.” Basically, we have argued that the transmission mechanism that is left to the BoJ is the currency and they had a good to chance to move it if they were decisive.
What has actually been announced? The BoJ calls it “Comprehensive Monetary Easing”. The Bank has unveiled a ¥5 trillion asset purchase program. In addition, the Bank has installed what might be mistaken for an inflation target, committing to maintain ZIRP until the CPI is exhibiting “medium to long term financial stability”, which is described as +2%yoy or lower (buttressed by the midpoint of Board members “understanding” of the topic at 1%). Eligible asset classes for the purchasing program are quite broad, as they should be. The Bank nominates JGBs, CP, corporate bonds, ETFs and J–REITs. One member dissented on the inclusion of JGBs in the program, which is a sensible position given on–going purchases of ¥1.8 trillion are conducted as routine. The only issue here is that ¥5 trillion is not that big and the BoJ is too late: if they had gone in Q1 or Q2, when the V shaped US recovery crowd were in the ascendant, USD/JPY might be above ¥100 today. Instead, 24 hours after this announcement USD/JPY was lower.
On the size of the program, the previously announced lending facility is capped at ¥30 trillion and the previous editions of QE saw the current deposits portion of the balance sheet expand to ¥35 trillion. Our suspicion is that the target will be increased in ¥5 or ¥10 trillion increments as time goes by and inflation is not returning. In a related development, the BoJ intervened in the FX market on behalf of the Finance Ministry in late September, the first such move since the major bout of US dollar weakness seen in the wake of the Dubai G7 meeting of late 2003. This had an ephemeral impact on the currency. If Japan wants to be in the “currency war” that is now being openly discussed, it will need a whole of monetary policy approach. Nothing piecemeal or tentative will suffice. The recent move is a promising step in the right direction.
Huw McKay, Senior International Economist
The unconventional policy route ...
... has finally been taken ...
... which we applaud.
Timing & scale are the key concerns.
October 2010
Macroeconomic variables2009 2010
Monthly data Oct Nov Dec Jan Feb Mar Apr May Jun Jul AugConsumer prices (ex fresh food) %yr –2.2 –1.7 –1.3 –1.3 –1.2 –1.2 –1.5 –1.2 –1.0 –1.1 –1.0Corporate goods prices* %yr –3.4 –3.7 –3.4 –2.9 –1.9 –1.1 –0.9 –0.8 –0.8 –1.1 –0.9Unemployment rate % 5.2 5.3 5.2 4.9 4.9 5.0 5.1 5.2 5.3 5.2 5.1Tertiary activity index %mth 0.2 –0.2 –0.3 3.4 –2.2 –0.6 1.9 0.0 0.2 1.0 –
Retail sales %yr –1.8 –1.8 –1.3 –1.0 –1.1 –0.2 2.3 4.2 4.7 4.9 2.8Housing starts mn saar 0.746 0.676 0.699 0.762 0.798 0.819 0.863 0.794 0.854 0.793 0.737Industrial production %mth 1.5 2.6 2.6 4.3 –0.6 1.2 1.3 0.1 –1.1 –0.2 –0.3Machinery orders (core) %mth –3.8 –7.4 15.4 –3.1 –3.8 5.4 4.0 –9.1 1.6 8.8 –Exports %yr –23.2 –6.3 12.0 40.9 45.3 43.5 40.4 32.1 27.7 23.5 15.5Trade Balance ¥bn 594 523 603 678 569 695 600 338 503 595 590
Quarterly data Q2:09 Q3:09 Q4:09 Q1:10 Q2:10 Q3:10
Real GDP %saar 10.4 –1.0 4.1 4.4 1.9 –Tankan large manuf. confidence – level –48 –33 –24 –14 1 8Tankan large non–manuf. confidence – level –29 –24 –22 –14 –5 2Sources: Government agencies, Bloomberg. GDP numbers frequently revised. * Domestic final use goods.
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.
Chart 1. Chart 2.
Chart 3. Chart 4.
Chart 5. Chart 6.
11
Japan
October 2010
Output gap underpins deflation
-3
-2
-1
0
1
2
3
4
5 60
70
80
90
100
110
120
130 Mar-85 Mar-89 Mar-93 Mar-97 Mar-01 Mar-05 Mar-09
index index
Output gap (lhs)
Consumer prices ex fresh food (rhs)
Sources: Westpac, BoJ, Cabinet Office
The Bank of Japan’s first effort with QE
0
100
200
300
400
500
600
700
Mar-98 Mar-00 Mar-02 Mar-04 Mar-06 Mar-08 Mar-10 0
100
200
300
400
500
600 index index
Domestic bank holdings of JGBs Bank of Japan deposit liabilities
Sources: CEIC, Westpac Economics. Indexed to CY1999.
The yen against various currencies
60
70
80
90
100
110
120
60
70
80
90
100
110
120 Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10
index index
EUR USD AUD GBP
Sources: CEIC, Westpac Economics.
Economic activity & business conditions
-60
-30
0
30
Mar-95 Mar-98 Mar-01 Mar-04 Mar-07 Mar-10 -10
-5
0
5 net % %yr
GDP (rhs) Tankan lrg manuf conditions
Source: BoJ, ESRI
The yen over the long run
20
40
60
80
100
120
140 50
100
150
200
250
300
350 Jan-73 Jan-79 Jan-85 Jan-91 Jan-97 Jan-03 Jan-09
JPY index
USD/JPY (lhs, inverted)
Nominal effective (rhs)
Sources: CEIC, Westpac Economics
Investment & business conditions
-60
-30
0
30
Mar-95 Mar-98 Mar-01 Mar-04 Mar-07 Mar-10 -30
-15
0
15 net % %yr
Real non-res investment (rhs) Tankan lrg manuf (lhs) Tankan lrg non-manuf (lhs)
Source: BoJ, ESRI
12
Emerging Asia
October 2010
Emerging Asia is at a critical juncture. On the one hand, the region has basically recovered from the setbacks associated with the North Atlantic Financial Crisis. On the other, growth is now clearly slowing and easy monetary policy and soggy demand conditions in the G4 economies will restrict the region’s options for leaning against the slowdown. With the exception of India and Indonesia, we think that emerging Asia received too much credit for its rebound. Yes, financial system, corporate and household sector balance sheets were relatively unimpaired when the crisis hit, and therefore the region was in a position to succeed once conditions improved, but the dynamics of the recovery – an inventory cycle and the leveraging of stimulus policies at home and abroad, was not that fundamentally different from the rebound in the advanced countries. Now, with the inventory cycle maturing and the manufacturing trade slowing down accordingly, Asia has to prove it can stay the course.
As we indicated last month, Q2 growth was respectable and was nothing to worry about in its own right. What is of more concern are signs of fatigue coming through in some of the bellwether sectors. Port throughput seems to be topping out (chart 6) in the key trading nations. Tech, whose inputs generally travel by air, is showing a similar trend of slowing. The various national manufacturing PMI surveys, which are the most timely indicators of activity available, are already indicative of a shallow contraction in manufacturing activity. Korea’s is at 48.8 in September from 50.9 in August (down from 57.1 in April); Taiwan printed at 49.0 and 49.2 in September and August (down from 62.7 in March) and Singapore is at 49.4/49.5/51.9 on the same basic, with the corresponding readings for its electronics sector being 48.5/50.6, with the latest updates on new orders and inventories being 47.2 and 51.9 respectively. In India the levels look better (55.1 in September) but the direction of change is similar: the Indian PMI had not printed below 57 for a considerable time before the September update.
While growth is slowing, capital is still flowing strongly to the region. India’s Q2 balance of payments figures (admittedly a little dated, but given the European debt crisis blew up in April, the data remain interesting) showed a strong rise in the basic balance, despite a record deficit. The quality of the inflow was also pretty good, with very little reliance on loans in the quarter. Inflows to US based emerging markets equities mutual funds have been far more resilient than advanced country funds, which have been haemorrhaging consistently. We see little reason to call a halt in this trend, with the G4 seemingly bent on out–QEing each other. The question is more one of how do emerging markets deal with these flows? The basic principle right now seems to be to rely more on non–interest rate policy. That will not serve forever.
Huw McKay, Senior International Economist
The region still has much to prove ...
... as the trade rebound fades.
Capital inflow will remain elevated.
Macroeconomic variables
2009 2010
Industrial production %yr Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug
India 10.2 12.0 17.7 16.3 14.7 14.6 15.2 11.3 5.8 13.8 –Indonesia 4.7 3.8 4.9 5.3 4.0 3.5 3.8 4.1 5.0 3.7 –Korea 0.2 18.1 34.2 37.0 18.9 22.7 20.1 21.7 17.2 15.5 17.1Taiwan 7.4 32.0 47.8 70.1 35.5 39.5 32.0 31.0 24.7 20.9 23.4Singapore 2.6 –9.6 15.3 42.0 20.5 53.3 49.8 59.4 29.5 9.9 8.1Exports %yr
India 4.8 10.2 12.0 17.7 16.3 14.7 14.6 15.2 11.3 5.8 13.8Indonesia 13.5 4.7 3.8 4.9 5.3 4.0 3.5 3.8 4.1 5.0 3.7Korea –8.5 0.2 18.1 34.2 37.0 18.9 22.7 20.1 21.7 17.2 15.5Taiwan –4.6 7.4 32.0 47.8 70.1 35.5 39.5 32.0 31.0 24.7 20.9Singapore – non–oil –7.6 2.6 –9.6 15.3 42.0 20.5 53.3 49.8 59.4 29.5 9.9
GDP %yr Dec–07 Mar–08 Jun–08 Sep–08 Dec–08 Mar–09 Jun–09 Sep–09 Dec–09 Mar–10 Jun–10
India 9.7 8.5 7.8 7.5 6.1 5.8 6.0 8.6 6.5 8.6 8.8Indonesia 5.8 6.2 6.3 6.3 5.3 4.5 4.1 4.2 5.4 5.7 6.2Korea 5.7 5.3 4.2 3.1 –3.2 –4.1 –2.1 1.1 6.1 8.1 7.1Taiwan 6.5 6.8 4.5 –1.6 –6.3 –10.1 –5.6 0.5 8.4 14.6 11.4Singapore 6.3 7.4 2.7 0.0 –2.5 –8.9 –1.7 1.8 3.8 16.9 18.8
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.
Chart 1. Chart 2.
Chart 3. Chart 4.
Chart 5. Chart 6.
13
Emerging Asia
October 2010
Target interest rates
4
6
8
10
12
14
4
6
8
10
12
14
Jan-02 Jan-04 Jan-06 Jan-08 Jan-10
%pa %pa
PHP
IDR
INR
Sources: CEIC, Westpac Economics.
Target interest rates
0
2
4
6
8
10
12
0
1
2
3
4
5
6
7
Jan-02 Jan-04 Jan-06 Jan-08 Jan-10
%pa %pa
HK KRW
MYR THB
TWD
Sources: CEIC, Westpac Economics.
Effective exchange rates
60
70
80
90
100
110
120
130
140
60
70
80
90
100
110
120
130
140
Feb-06 Aug-06 Mar-07 Sep-07 Apr-08 Oct-08 May-09 Dec-09 Jun-10
Index level Index level
Indonesia Malaysia
Thailand Philippines
Source: Westpac Strategy, Bloomberg.
Asian port activity: container throughput
60
70
80
90
100
110
120
130
140
60
70
80
90
100
110
120
130
140
Jun-01 Jun-03 Jun-05 Jun-07 Jun-09
Index level Index level
Korea
Taiwan
Singapore
HK
Sources: CEIC. Seasonally adjusted by Westpac.
Effective exchange rates
60
70
80
90
100
110
120
130
140
60
70
80
90
100
110
120
130
140
Feb-06 Oct-06 Jun-07 Feb-08 Oct-08 Jul-09 Mar-10
Index level Index level
Korea Taiwan
India Singapore
Source: Westpac Strategy, Bloomberg.
Net foreign investment flows: India
-4
-2
0
2
4
6
8
10
-4
-2
0
2
4
6
8
10
Mar-97 Mar-99 Mar-01 Mar-03 Mar-05 Mar-07 Mar-09
%GDP %GDP Other (mainly loans) Portfolio investment Direct investment Basic balance
Sources: CEIC, Westpac Economics.
14
United States
October 2010
The US economy continues to evolve broadly as we have been expecting. The headwinds weighing against recovery are well known. Household spending is constrained by near 10% unemployment and an increased tendency to save rather than borrow to consume; ongoing oversupply of housing and the expiry of the tax credit for homebuyers is pushing housing activity to multi–decade lows and further undermining reasons for households to spend. With elections just a month away Congress seems unlikely to approve further fiscal measures at the federal level, which effectively means tax hikes as the Bush tax cuts roll off at the end of 2010. Also state and local governments – unable to run deficits – are being forced to cut services and jobs. The banking system is recovering slowly but credit conditions remain tight especially for small business, where most hiring is expected to take place during an economic upswing.
With the impact of fiscal stimulus and inventory rebuilding that boosted growth to 4.5% annualised in Q4/Q1 now fading, the economy expanded just 1.7% annualised in Q2 and on our forecasts will slow further in 2010H2. Hard activity data confirm this loss of momentum. On a 3 month annualised basis, core retail spending fell at a 1% pace in Jun–Aug, compared to growth of 8% in Q1 and 4% in Q2. Full quarter figures are already available for the auto sector: unit auto sales expanded at a 7% annualised pace in Q3, down from 13% in Q2 (and 7% in Q1). Over the same time period, the equivalent data for housing are much bleaker: as an example, new home sales collapsed at a 71% annualised pace in Jun–Aug, compared to falls of 14% annualised in Q1 and 27% in Q2. Industrial production was more upbeat, expanding at a 3% annualised pace in Jun–Aug, but that was down from 6% in Q2. Similarly, still positive growth in shipments of core capital goods of 12% in June–Aug was down from 17% in Q2.
The business survey message is less clear–cut but points to activity and confidence either in retreat or markedly slowing. Some of the district Fed factory surveys clearly pointed to falling – not just slowing – orders and shipments late in Q3 (Philadelphia and Dallas) whereas others, flying high just a few months prior, were on the cusp of decline (New York and Richmond). In contrast, the private sector Chicago PMI jumped to above 60 in September but given its value as a contrarian indicator that actually supports the broader slowdown story. Indeed the national ISM manufacturing index fell to its lowest for the year so far in September. Its sister non–factory survey posted a rise but this was only a partial rebound from a steep August fall. Private sector payroll employment fell 39k in September according to ADP (the first decline since the start of the year) and as we go to press we await the official payroll count from the BLS.
Tying these and other data sources together, we expect the Q3 GDP report due 29/10 will show the economy expanding just 0.9% annualised, the slowest quarter of growth so far since the recovery began mid last year. That will reflect weaker household consumption growth, a renewed decline in dwelling investment, slower business investment growth, flat public demand, and offsetting declines in inventories and growth in net exports. Our preliminary forecast for Q4 is even weaker at 0.3% annualised, reflecting broadly similar compositional detail apart from falling public spending and net exports.
Previously we argued that we would need to see renewed contraction in GDP growth for the Fed to embark on further quantitative easing. However the FOMC statement from September 21 noted that “measures of underlying inflation are currently at levels somewhat below those the Committee judges most consistent, over the longer run, with its mandate to promote maximum employment and price stability... inflation is likely to remain subdued for some time before rising to levels the Committee considers consistent with its mandate... The Committee is prepared to provide additional accommodation if needed to support the economic recovery and to return inflation, over time, to levels consistent with its mandate.” Then at the end of the month, the NY Fed’s influential Bill Dudley concluded that ”further action is likely to be warranted unless the economic outlook evolves in a way that makes me more confident that we will see better outcomes for both employment and inflation before too long”. The new Fed vice chair, Janet Yellen (confirmed October 4) is also thought to favour further QE.
So whilst it won’t be a unanimous decision (Kansas City Fed president Tom Hoenig continues to dissent in favour of tighter language re the policy outlook), it now seems likely that before the year is out, the Fed will have announced further balance sheet expansion. Consequently our forecasts (p. 34) now include projections for the size of the Fed’s balance sheet, which we expect will expand from $2.3trn now to almost $4trn by the end of 2011 (see discussion on p. 4). Another key unresolved issue is what will the new Congress do regarding fiscal policy? That debate will heat up before the year is out.
James Shugg, Senior Economist
The growth profile ...
... is unfolding roughly as forecast ...
... with the pulse fading ...
... as the year goes on.
We now see renewed QE ...
... and plenty of it.
15
Chart 1. Chart 2.
Chart 3. Chart 4.
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.
United States
October 2010
...will see increased asset buying by Fed
0
400
800
1200
1600
2000
2400
Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10
USDbn
CP purchase facility Term auction facility Securities held outright
Source: Ecowin
A weak jobs market…
-1.0 -0.8 -0.6 -0.4 -0.2 0.0 0.2 0.4 0.6 0.8 1.0
-12 -10
-8 -6 -4 -2 0 2 4 6 8
10 12
Aug-00 Aug-02 Aug-04 Aug-06 Aug-08 Aug-10
mn private payrolls mthly chg (rhs) annual chg (lhs) jobless rate (lhs)
%
Sources: Westpac Economics, Factset
latest: 9.6%
...deflationary concerns...
-0.2
0.0
0.2
0.4
0.6
0.8
-1
0
1
2
3
4
Aug-03 Aug-05 Aug-07 Aug-09
% %
mthly (rhs) 6-month annualised (lhs)
Sources: Factset, Westpac Economics deflation scares
Core PCE
Macroeconomic variables2009 2010
Monthly data Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug SepConsumer prices %yr –0.2 1.8 2.8 2.7 2.2 2.4 2.2 2.0 1.1 1.3 1.2 –Unemployment rate % 10.1 10.0 10.0 9.7 9.7 9.7 9.9 9.7 9.5 9.5 9.6 –Non–farm payrolls chg '000 –224 64 –109 14 39 208 313 432 –175 –54 –54 –Industrial production %mth 0.3 0.5 0.5 1.0 0.0 0.6 0.4 1.1 0.1 0.6 0.2 –New homes sales %mth 1.3 –7.1 –3.3 –2.0 –0.6 10.7 7.8 –31.9 10.6 –7.7 0.0 –ISM manufacturing composite 55.2 53.7 54.9 58.4 56.5 59.6 60.4 59.7 56.2 55.5 56.3 54.4ISM non–manufacturing composite 50.1 48.4 49.8 50.5 53.0 55.4 55.4 55.4 53.8 54.3 51.5 53.2Retail sales %yr –2.0 2.4 5.5 4.0 4.7 8.5 8.7 6.9 5.2 5.4 3.6 –UoM Consumer Sentiment 70.6 67.4 72.5 74.4 73.6 73.6 72.2 73.6 76.0 67.8 68.9 68.2Trade balance USDbn –32.3 –35.3 –37.1 –34.8 –39.9 –39.7 –40.0 –41.8 –49.8 –42.8 – –
Quarterly data Jun–09 Sep–09 Dec–09 Mar–10 Jun–10 Sep–10f
Real GDP % saar –0.7 1.6 5.0 3.7 1.7 0.9Current account USDbn –84.4 –97.5 –100.9 –109.2 –123.3 –Sources: Government agencies, Bloomberg, Factset
…and a poor growth outlook…
-2
-1
0
1
2
3
-2
-1
0
1
2
3
consumer housing business public net X GDP
ppts cont'
2010H1 2010H2f 2011f
ppts cont'
Sources: BEA, Westpac
contributions to annualised GDP growth
16
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.
October 2010
Forecasts – Japan
Interest rate forecasts
Latest (8 Oct) Dec 10 Mar 11 Jun 11 Sep 11 Dec 11JapanBoJ target rate 0.10 0.10 0.10 0.10 0.10 0.10Market implied* na 0.07 0.15 0.18 0.09 0.10Asset purchase target ¥trn 5 5 10 20 25 3010 Year JGB 1.01 0.90 1.00 1.20 1.40 1.5010 Year Spread to US –153 –160 –145 –125 –130 –135* Market implied rate is the anticipated target rate in the OIS market. Sources: Bloomberg, Westpac Strategy.
Currency forecasts
Latest (8 Oct) Dec 10 Mar 11 Jun 11 Sep 11 Dec 11Yen vsUSD 82.35 83 83 83 90 95EUR 114.70 119 120 125 127 131AUD 80.89 85 85 87 89 91 NZD 61.77 63 65 68 71 74 CAD 80.92 86 86 88 88 89
SGD 63.02 64 65 66 72 77HKD 10.62 10.71 10.71 10.71 11.61 12.26PHP 1.89 1.93 1.94 1.95 2.13 2.27THB 2.75 2.81 2.86 2.91 3.18 3.42MYR 26.63 27.21 27.63 27.91 30.41 32.20CNY 12.33 12.52 12.65 12.77 13.92 14.84IDR 108 107 106 105 96 91TWD 2.68 2.76 2.79 2.82 3.08 3.28KRW 13.62 13.25 13.01 12.76 11.66 10.84INR 1.78 1.89 1.92 1.95 2.13 2.29
Economic forecasts2009 2010 Calendar years
% change Q1 Q2 Q3 Q4 Q1 Q2 Q3f 2008 2009 2010f 2011fPrivate consumption –1.4 1.3 0.6 0.7 0.5 0.0 –0.4 –0.6 –1.0 1.6 0.7Dwelling investment –7.2 –9.6 –7.2 –2.9 0.3 –1.3 0.2 –8.5 –13.9 –8.8 2.7Business investment –9.0 –4.8 –1.8 1.5 0.6 0.5 0.5 –0.1 –19.1 0.2 2.1Private demand –4.8 –0.1 –0.5 0.4 0.6 0.4 0.0 –1.3 –5.8 1.0 1.0Public demand 0.9 1.7 –0.3 0.4 0.3 –0.4 0.2 –3.1 2.4 0.8 0.8Inventory contribution –1.3 0.2 –0.3 –0.2 0.0 0.2 0.2 –0.4 –0.3 0.0 0.0Net exports contribution –1.6 1.7 0.5 0.6 0.7 0.4 0.5 0.2 –2.0 2.4 0.2GDP –4.4 2.5 –0.3 1.0 1.1 0.5 0.4 –1.5 –5.8 3.3 1.1annual chg –8.7 –5.9 –4.9 –1.3 4.4 2.3 3.0 – – – –GDP deflator %yr 0.1 –1.9 –0.4 0.4 –1.0 –0.8 –1.2 0.1 –0.5 –0.9 –0.5
Other macroeconomic variablesUnemployment rate % 4.5 5.1 5.4 5.2 4.9 5.2 5.2 4.0 5.1 5.1 5.0Consumer prices %yr –0.1 –1.0 –2.2 –2.0 –1.2 –0.9 –0.8 1.4 –1.3 –0.8 –0.4Industrial production %yr –34.0 –27.6 –19.6 –5.2 24.8 21.0 15.6 –3.4 –21.8 18.2 3.1Bank lending %yr 3.8 3.1 1.9 0.1 –1.8 –2.0 –2.0 1.9 2.2 –1.9 –1.1Current account % of GDP 1.8 3.0 3.1 3.3 3.9 3.0 3.1 3.3 2.8 3.3 3.4Sources: Official agencies, Factset, Westpac Economics. Calendar year and quarterly data are period averages. GDP is frequently revised.
17
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.
October 2010
Forecasts – Asia & China
Interest rate forecasts
Latest (8 Oct) Dec 10 Mar 11 Jun 11 Sep 11 Dec 11Korea (BoK call) 2.25 2.25 2.25 2.50 2.75 3.00Hong Kong (HKMA base rate) 0.50 0.50 0.50 0.50 0.50 0.50Taiwan (CBC rediscount rate) 1.38 1.38 1.50 1.63 1.75 1.88Singapore (overnight repo) 0.21 0.40 0.55 0.70 0.80 0.90China (PBoC lending rate) 5.31 5.31 5.31 5.31 5.31 5.31Malaysia (Overnight policy rate) 2.75 2.75 3.00 3.25 3.50 3.50Thailand (BoT repo rate) 1.75 2.00 2.50 3.00 3.25 3.50Indonesia (BI rate) 6.50 6.50 6.75 7.25 7.75 8.00Philippines (BSP reverse repo rate) 4.00 4.00 4.50 4.75 5.00 5.25India (RBI repo) 6.00 6.00 6.25 6.50 6.75 7.00
Currency forecasts
USD vs Latest (8 Oct) Dec 10 Mar 11 Jun 11 Sep 11 Dec 11SGD 1.3068 1.30 1.28 1.26 1.26 1.24HKD 7.7552 7.75 7.75 7.75 7.75 7.75PHP 43.62 43.10 42.80 42.50 42.20 41.90THB 29.97 29.50 29.00 28.52 28.28 27.80MYR 3.09 3.05 3.00 2.97 2.96 2.95CNY 6.6785 6.63 6.56 6.50 6.47 6.40IDR 8928 8900 8820 8740 8660 8610TWD 30.75 30.10 29.76 29.43 29.26 28.94KRW 1122 1100 1080 1059 1050 1030INR 46.24 44.0 43.3 42.5 42.2 41.5
Chinese economic forecasts
2005 2006 2007 2008 2009 2010f 2011fReal GDP 11.3 12.7 14.2 9.6 9.1 10.3 9.1Consumer prices 1.8 1.5 4.8 5.9 –0.7 3.0 2.8Producer prices 4.9 3.0 3.1 6.9 –5.4 5.5 2.8Industrial production (IVA) 15.9 16.2 13.5 8.8 10.7 12.9 12.1Retail sales 12.9 13.7 16.8 21.8 15.4 17.0 15.8Money supply M2 16.0 18.1 17.5 16.7 26.5 20.0 15.3Fixed asset investment 29.6 25.5 25.8 26.7 31.9 24.0 22.3Exports 29.3 27.0 26.7 17.9 –15.9 28.9 8.1Imports 17.4 20.3 20.7 19.6 –10.0 35.9 7.3Trade balance USDbn 102 177 262 298 196 201 176Bank lending 13.3 15.2 16.7 15.3 31.0 20.4 14.3Property prices 7.6 5.5 7.6 6.5 1.5 9.5 –0.5Sources: CEIC, IMF, Westpac Economics. Year average growth rates unless specified otherwise
Regional growth forecasts#
Real GDP %ann 2005 2006 2007 2008 2009 2010f 2011fEast Asia 8.7 9.8 10.9 7.1 5.9 8.9 7.4East Asia ex China 5.2 5.8 6.0 3.2 0.4 6.4 4.4NIEs* 4.8 5.8 5.8 1.8 –0.9 6.9 4.1India 9.2 9.8 9.4 7.3 5.7 8.0 9.1#Regional and global groupings are weighted using PPP exchange rates. See notes to world growth table overleaf. * “NIEs” signifies “Newly Industrialised Economies” as defined by the IMF, viz; Republic of Korea, Hong Kong Special Administrative Region of China, Taiwan Province of China, and Singapore. Sources: IMF, Westpac Economics.
18
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.
October 2010
Forecasts – United States
Currency forecasts
Latest (8 Oct) Dec 10 Mar 11 Jun 11 Sep 11 Dec 11USD vsUSD index* 100 97.20 98.03 94.82 98.52 100.42JPY 82.35 83 83 83 90 95EUR 1.3928 1.43 1.45 1.50 1.41 1.38AUD 0.9823 1.02 1.03 1.05 0.99 0.96NZD 0.7501 0.76 0.78 0.82 0.79 0.78CAD 1.0177 0.97 0.96 0.94 1.03 1.06
GBP 1.5877 1.61 1.65 1.79 1.72 1.69CHF 0.9659 0.97 0.97 0.95 1.04 1.06ZAR 7.2944 6.75 6.66 6.54 6.98 7.26
SGD 1.3068 1.30 1.28 1.26 1.26 1.24HKD 7.7552 7.75 7.75 7.75 7.75 7.75PHP 43.62 43.1 42.8 42.5 42.2 41.9THB 29.97 29.5 29.0 28.5 28.3 27.8MYR 3.09 3.05 3.00 2.97 2.96 2.95CNY 6.6785 6.63 6.56 6.50 6.47 6.40IDR 8928 8900 8820 8740 8660 8610TWD 30.75 30.1 29.8 29.4 29.3 28.9KRW 1122 1100 1080 1059 1050 1030INR 46.24 44.0 43.3 42.5 42.2 41.5*Broad (20 MTP) nominal trade weighted index, with latest data compiling the base. Weights from US Fed. A reading above (below) 100 indicates a rise (fall) in the USD.
Activity
2010 2011 Calendar years
% annualised, s/adj Q2 Q3f Q4f Q1f Q2f Q3f Q4f 2008 2009 2010f 2011fPrivate consumption 2.2 1.2 1.2 2.1 2.2 2.6 2.7 –0.3 –1.2 1.4 2.0Dwelling investment 25.6 –5.0 –2.0 4.1 4.9 4.9 4.9 –24.0 –22.9 0.0 3.2Business investment 17.2 4.8 5.7 4.4 5.7 7.8 7.8 –0.1 –16.8 6.1 6.4Public demand 3.9 0.0 –2.8 –5.1 –5.1 –4.3 –4.3 2.8 1.6 0.5 –3.3Domestic final demand 4.5 1.2 0.8 1.0 1.2 1.9 2.0 –0.7 –3.1 1.7 1.4Inventories contribution ppt 0.8 –0.9 0.0 –0.3 0.2 0.1 0.1 –0.5 –0.6 1.3 –0.1Net exports contribution ppt –3.4 0.8 –0.2 –0.2 –0.3 0.0 –0.1 1.1 1.1 –0.4 –0.3
GDP 1.7 0.9 0.3 0.7 1.3 2.0 2.0 0.0 –2.6 2.5 1.1%yr annual chg 3.0 2.8 1.7 0.9 0.8 1.1 1.5 – – – –Other macroeconomic variables
Non–farm payrolls mth avg 231 –40 0 87 96 196 166 –237 –448 53 136
Unemployment rate % 9.7 9.7 9.9 10.1 10.1 10.4 10.3 5.8 9.3 9.8 10.2CPI headline %yr 1.8 0.9 0.8 1.0 1.9 2.7 3.1 3.8 –0.3 1.5 2.2PCE deflator, core %yr 1.5 1.3 1.0 1.1 1.2 1.4 1.6 2.3 1.5 1.4 1.3Current account %GDP –3.4 –3.2 –3.1 –3.0 –2.9 –2.8 –2.6 –4.7 –2.7 –3.2 –2.8Sources: Official agencies, Factset, Westpac Economics
Interest rate forecastsLatest (8 Oct) Dec 10 Mar 11 Jun 11 Sep 11 Dec 11
Fed Funds* 0.250 0.125 0.125 0.125 0.125 0.125Market implied^ na 0.16 0.16 0.19 0.25 0.31Fed balance sheet $trn 2.39 2.80 3.40 3.60 3.80 3.9010 Year Bond 2.54 2.35 2.25 2.50 2.75 3.25^ Market implied rate is the anticipated target rate in the OIS market. * Midpoint of the target range. Sources: Bloomberg, Westpac Strategy.
19
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.
October 2010
Summary of world output
Economic growth forecasts#
Real GDP %ann 2005 2006 2007 2008 2009 2010f 2011f
World 4.5 5.1 5.2 3.0 –0.6 4.4 3.8
United States 3.1 2.7 1.9 0.0 –2.6 2.5 1.1Japan 1.9 2.0 2.4 –1.5 –5.8 3.3 1.1Euro zone 1.7 3.0 2.8 0.6 –4.0 1.6 1.4
Group of 3 2.4 2.7 2.3 0.0 –3.6 2.3 1.2
United Kingdom 2.2 2.9 2.6 0.5 –5.0 1.4 1.1Canada 3.0 2.9 2.5 0.4 –2.6 2.8 3.0Australia 3.2 2.6 4.8 2.2 1.2 3.5 4.0New Zealand 3.2 1.0 2.8 –0.2 –1.7 3.0 5.0
OECD total 2.7 2.7 2.5 0.1 –3.2 2.1 1.5
China 11.3 12.7 14.2 9.6 9.1 10.3 9.1Korea 4.0 5.2 5.1 2.3 0.2 6.5 4.0Taiwan 4.7 5.4 6.0 0.7 –1.9 6.0 3.8Hong Kong 7.1 7.0 6.4 2.1 –2.7 5.8 5.6Singapore 7.6 8.7 8.2 1.4 –2.0 13.0 3.0Indonesia 5.7 5.5 6.3 6.0 4.5 6.0 5.2Thailand 4.6 5.1 4.9 2.5 –2.3 5.0 4.0Malaysia 5.3 5.8 6.2 4.6 –1.7 6.0 4.0Philippines 5.0 5.3 7.1 3.8 0.9 4.5 3.3Vietnam 8.4 8.2 8.5 6.2 5.3 8.0 8.3
East Asia 8.7 9.8 10.9 7.1 5.9 8.9 7.4East Asia ex China 5.2 5.8 6.0 3.2 0.4 6.4 4.4NIEs* 4.8 5.8 5.8 1.8 –0.9 6.9 4.1
India 9.2 9.8 9.4 7.3 5.7 8.0 9.1Russia 6.4 7.7 8.1 5.6 –7.9 4.0 3.3Brazil 3.2 4.0 6.1 5.1 –0.2 5.5 4.1South Africa 5.3 5.6 5.5 3.7 –1.8 2.6 3.6Mexico 3.2 4.9 3.3 1.5 –6.5 4.2 3.5Argentina 9.2 8.5 8.7 6.8 0.9 3.5 3.0Chile 5.6 4.6 4.6 3.7 –1.5 4.7 5.4CIS^ 6.7 8.5 8.6 5.5 –6.6 4.0 3.6Middle East 5.4 5.7 5.6 5.1 2.4 4.5 4.8C & E Europe 5.9 6.5 5.5 3.0 –3.7 2.8 2.8Africa 6.3 6.5 6.9 5.5 2.1 4.7 5.9
Emerging ex–East Asia 6.0 6.8 6.8 5.0 –0.7 4.9 5.0
Other countries 5.1 5.2 5.1 6.7 3.6 3.9 4.1
World 4.5 5.1 5.2 3.0 –0.6 4.4 3.8#Regional and global groupings are weighted using PPP exchange rates updated to reflect ICP 2005 benchmark revisions. Adding ½ppt to the global headline approximates growth under the prior weighting system * “NIEs” signifies “Newly Industrialised Economies” as defined by the IMF, viz; Republic of Korea, Hong Kong SAR, Taiwan Province of China, and Singapore. ^ CIS is the Commonwealth of Independent States, including Mongolia. Sources: IMF, Westpac Economics.
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This issue was finalised on 8 October 2010
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