TOP POLICY CHALLENGES FOR GOVERNMENT

Tax and federation

reform

Skills and education

Workplace relations

Energy and climate

International trade

Innovation and infrastructure

Inflation is benign, the dollar is lower and the housing sector is recovering. But the mining boom is all but over and local business investment remains weak. Unemployment is rising.

We expect the Australian economy to stay in the slow lane in 2015.

WHY?

BUDGET DATES 2015

NSW Mid-June

SOUTH AUSTRALIA June

QUEENSLAND Early June

WESTERN AUSTRALIA Early May

VICTORIA5 May

FEDERAL BUDGET 12 May

Non-dwelling construction is

forecast to contract further by

-10.0%(includes mining,

infrastructure, commercial and industrial construction) -10.0%

2014-15f

-2.0%2013-14e

2013-14a 2.5% 2014-15f 2.5% 2015-16f 3.0%GDP GROWTH RATE FORECASTS

EMPLOYMENT participation rate is declining as the population ages, and for cyclical reasons

UNEMPLOYMENT rate is rising from 6.0% to

2013-14 to 2014-15f

2012-13 65.1% 2013-14 64.7% 2014-15f 64.5%

TRENDS TO WATCH IN 2015 Positives for Australian business growth in 2015 include:

THE LOWER VALUE OF THE AUSTRALIAN DOLLAR

LOW INFLATION AND CONTAINED WAGE INFLATION

LOW INTEREST RATES

AUD/USD CURRENT Vs. 4 YEARS AGO

JAN

20121.06

JAN

20131.04

JAN

20140.88

29 JAN

20150.79

TREND

TREND

TREND

INFLATION (CPI) WAGES (WPI)

2.5%2.6%

3.0% 2.5%2013-14a 2014-15f

2013-14a

2014-15f

RBA cash rate is currently 2.50%

As of 4 pm AEDT

GROWTH IN TOTAL NOMINAL

CREDIT TO BUSINESSESNOV 2012

+2.6%pa NOV 2013

+1.8%pa NOV 2014

+4.6%pa

2013-14: +0.8%pa 2014-15f: +1.0%pa

LOWER OIL AND ENERGY COSTS

A RESURGENT HOUSING MARKET

RELATIVELY STABLE EMPLOYMENT GROWTH

RELATIVELY STRONG POPULATION GROWTH

RELATIVELY LOW GROWTH IN DEBT AMONG BUSINESSES

TREND

TREND

TREND

TREND

TREND

ESTIMATED RESIDENT POPULATION, JANUARY 2015

Estimated resident population growth rates 2012-13 1.75%pa 2013-14 1.7%pa 2014-15f 1.7%pa

WTI LIGHT CRUDE ($US/BBL) CURRENT Vs. 3 YEARS AGO

JAN 201397.450

JAN 201497.530

JAN 201545.480

DWELLING INVESTMENT

GROWTH

2013-14a 2014-15f5.1%

Sources: Australian Bureau of Statistics; Australian Treasury; and Reserve Bank of Australia.

www.aigroup.com.au