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7/29/2019 State Economic Update -Sep 2013.pdf
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@2012 National Australia Bank Limited ABN 12 004 044 937
State Economic Update September 2013NSW
TheNewSouthWaleseconomyhasperformedwellrelativetomoststatesoverthepastsixmonths,withitsdiversified
industrystructure
helping
to
cushion
the
economy
from
the
mining
investment
slowdown.
With
New
South
Wales
householdsmoresensitivetointerestrates,lowerinterestratesshouldsupporthouseholdconsumption,afasterhousing
recovery and a gradual improvement in nonmining business investment growth. The recent depreciation of the
Australiandollar(AUD)shouldsupportactivityintradeexposedsectors.Ofcourse,theNewSouthWaleseconomyisnot
entirely immune to the slowdown inmining investment,but the transition towards exportsgrowth shouldprovide a
boosttogrossstateproduct(GSP)from201415.TheNewSouthWaleseconomyshouldgraduallystrengthenasdemand
fromresourceintensivestatesimprovesandtheupswinginhousinginvestmentbecomesmoreentrenched.
Victoria
TheVictorianeconomyhasadiversified(largelynonmining)industrystructure,makingitmorestablethanmanyofthe
otherstates.Lower interestratesandimprovedconsumersentimentareexpectedtounderpinhouseholdconsumption
growth,whilepartialdatasuggestfurtherimprovementinpropertymarketconditions.Victoriashouldalsobenefitfrom
increasednet interstate trade,whileaweakerAUD should support strongerexports.While thereare severalareasof
potentialgrowth,
there
remain
anumber
of
inherent
weaknesses
in
the
Victorian
economy.
Fiscal
consolidation
will
continue to restraingovernment spendingand investment for some time.Victoriaalsohasa relatively large shareof
industries facing challenging conditions, including manufacturing, retail and wholesale trade. The Victorian outlook
appearsrelativelystable,althoughgrowthisexpectedtoremainbelowtrendovertheforecasthorizon.
Queensland
Queenslandhasbenefitedgreatlyfromtherapidsurge inmining investmentthat,upuntilrecently,wasgrowingatan
exceptionallyhighspeed.WhilethestrengthinmininghasstrengthenedtheQueenslandeconomyrelativetotheother
states, the nonmining sector continues to struggle, not helped by exTropical CycloneOswald in early 2013.While
dwelling investment is recovering, helped by lower interest rates and faster netmigration, theQueensland housing
markethasgenerallyunderperformed.ThisinpartreflectstherelativecautiousnessofQueenslandconsumers,withthe
highAUDandstillsoftglobalgrowthweighingheavilyontradeexposedandlabourintensivesectors.Lookingahead,a
downturn
in
business
investment
is
expected
to
be
negative
for
Queenslands
growth,
but
stronger
household
consumption and dwelling investment growth should help to offset this. While a lower AUD should assist growth,
weaknessinlabourintensivepartsofthestatemaykeeptheunemploymentrateelevatedforsometime.
WesternAustralia
The swelling inmining investmenthasbeen an enormous support to theWesternAustralian economy,withgrowth
spilling intootherpartsofthestateandotherstates.ButthishasmadeWesternAustraliahighlyvulnerabletomining
industry conditions. The mining boom brought with it increased population growth, which has boosted dwelling
investment and household consumption,with the latter alsobenefiting from the highAUD via increasedpurchasing
power.Asmininginvestmentunwinds,sotoowillgrowth.Giventhelabourintensityofmininginvestment,employment
growth is expected to slow. This is likely to put increased pressure on the domestic economy,with housingmarket
activityexpectedtostabilise,andtheeasinginincomeandpopulationgrowthexpectedtolimitdemand.
SouthAustralia
Growthin
the
South
Australian
economy
moderated
over
2012
13,
with
consumer
spending
and
housing
demand
remainingsubdued.SectorsexposedtothehighAUDcontinuetofacechallenges,thoughtheyshouldbesupportedby
the recent dollar depreciation. Nonspecialised parts of the manufacturing sector have faced especially difficult
conditions, includingmotorvehiclemanufacturingandassociatedsupplyfirms,whichwillhave implicationsforfurther
growth.Anetoutflowofmigrationwillkeep labourmarketconditionsreasonablysubdued.Overtime,the risingAsian
middleclasswillincreaseworlddemandforhighqualityfoodandwine,whichshouldbesupportiveforSouthAustralia.
Tasmania
TheTasmanianeconomycontinuedtounderperformrelativetotherestofAustralia,withstatefinaldemandcontracting
by2.9% in201213.WithTasmaniastrugglingto remaincompetitive inthemainlandandoverseasmarketsand lower
populationgrowthpresentingongoingproblemsfor itshouseholdsector,thereappearstobe littleupsidetothenear
termoutlook forthisstate.Nonetheless,therecentdollardepreciationshouldprovidesome relieftotradedependent
sectors,and
there
will
be
opportunities
for
investment
in
dairy
and
agriculture
sectors
over
coming
years.
Government
revenuepressureswillkeeppublicspendingrestrainedovertheforecasthorizon,contributingtothereasonablysubdued
outlookforgrowthin201314.
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StateForecasts
12/13 13/14f 14/15f 12/13 13/14f 14/15f
NSW 2.3 2.5 2.9 5.2 6.0 6.4
VIC 1.5 2.3 2.8 5.6 6.1 6.6QLD 3.8 1.8 2.6 6.0 6.3 7.2
SA 1.8 1.0 2.0 5.8 7.0 7.5
WA 5.0 2.8 2.5 4.4 5.5 6.6
TAS 1.3 0.5 1.3 7.3 8.5 9.5
Australia 2.9 2.2 2.8 5.3 6.2 6.8
Source:NABEconomics
GrossStateProduct UnemploymentRate
Annual%change Averageannualrate
Stateconditionscontinuetodisappointespeciallyinminingstateswhereinvestmentslowdownistakingatoll
TheNABQuarterlyBusinessSurveyshowedamarginaldeterioration inoverallbusinessconditions intheJunequarter,
withthe
level
remaining
close
to
four
year
lows.
While
all
states
experienced
difficult
conditions
in
the
quarter,
there
has
beenapronouncedslowing inactivity intheresourcerichstatesoverthepastyearorsowhere it isapparentthatthe
miningslowdown isspreadingbeyond thatsector.Asa result,WesternAustralian,Queenslandand toa lesserextent
SouthAustraliawillfacemorestructuralheadwindsthanelsewhere.Whileconditions inNewSouthWalesandVictoria
have remained subdued,activityherehas largely stabilisedasa resultof thesestatesbeingmorediversifiedand less
exposedtothemininginvestmentslowdown.Overtime,thestructuraldiversityoftheindustrymakeupinthesestates
canbeexpectedtosupportstrongergrowth.
More recent monthly data show that business conditions in the mining states have weakened into the September
quarter,whileconditionsinthenonminingstateshaveheldupatrelativelybetterlevels.Theweaknessinactivityinthe
mining states is consistentwith falling commodityprices and softerChinesedemand.While conditions aregenerally
weakacrossallindustries,activityintherecreation&personalservicesandfinance/business/propertysectorshasheld
upbetter
than
it
has
elsewhere,
supporting
activity
in
NSW
and
Victoria,
where
these
industries
comprise
alarger
share
ofstateoutput. Furthermore,aweakerAUD,risingequitypricesand lower interestratesmaybeprovidingmoreofa
boosttoactivityinthesestates.Consistentwiththegeneraldeteriorationinstateconditionsintothesecondhalfofthis
year,businessconfidenceappearstohaveweakenedeverywhere,withtheheaviestdeclinesintheminingstates.Partof
thedeterioration insentiment is likely to reflectexternal factors, includingexpectationsaroundwhen theUSFedwill
begintaperingitsassetpurchaseprogram,aslowinginChinesegrowthandatemporaryhiccupintheequitypricerally.
However,abounceinbusinessconfidencereported inthe latestAugustmonthlysurvey,whichappearstohave largely
reflected an expectation of political change andmore certainty about the future policy framework (this surveywas
conducted prior to the Federal election on 7 September), represents a decoupling of confidence from conditions,
althoughconsumerconfidencehasalsoimproved.
Graph 1
-40
-30
-20
-10
0
10
20
30
2004 2007 2010 2005 2008 2011
-40
-30
-20
-10
0
10
20
30
Quarterly NAB Business Conditions IndexNet Balance; deviation from LR national average*
* Deviation fromnational average since Sep 1989. Data are seasonally adjusted. Dots representAugust 2013 outcomes fromNAB monthly business survey.
** Data have been trended using 5-termHenderson trend (due to small sample size)
Net
bal
Net
bal
Queensland
NSW
Victoria WA
SA
Tasmania**
Graph 2
-40
-30
-20
-10
0
10
20
2004 2007 2010 2005 2008 2011
-40
-30
-20
-10
0
10
20
Quarterly NAB Business Confidence IndexNet Balance; deviation from LR national average*
Net
bal
Net
bal
QueenslandNSW
Victoria
WA
SA
Tasmania**
* Deviation fromnational average since Sep 1989. Data are seasonally adjusted. Dots representAugust 2013 outcomes fromNAB monthly business survey.
** Data have been trended using 5-termHenderson trend (due to small sample size)
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Weaknessinhouseholdspendingpersistsacrossallstates,withgrowthfallingsharplyinpreviousstrongperformers
Domestic finaldemandgrowth inAustralia softened from6.0%over201112 to 0.6%over 201213, representing the
weakestoutcomesince2009.Contributingtotherecentsofteningindemandhasbeenadeclineininvestmentgrowthas
wellas softgrowth inprivateconsumptionexpenditure,with the lattermakingupalmost55%of total finaldemand.
Throughtheyeargrowthinhouseholdfinalconsumptionexpenditurehasfallensignificantly(fromanexceptionalpace)
inWesternAustraliaoverthefirsthalfofthisyear,while in levelstermsgrowthwasparticularlyweak inTasmaniaand
SouthAustralia.Elsewhere,growthwasrelativelysoftcomparedtoayearearlier.
Graph 3
-10
-5
0
5
10
15
2004 2007 2010 2007 2010
-10
-5
0
5
10
15
Real State Final DemandYear-ended percentage change
Sources: ABS; NAB
% %
Queensland
NSW
Victoria
WA
SA
Tasmania
Graph 4
0
5
10
15
20
25
1990 1994 1998 2002 2006 2010 1991 1995 1999 2003 2007 2011
0
5
10
15
20
25
Household Savings*Proportion of gross disposable income
* Includes consumption of fixed capital
Sources: ABS; NAB
% %
QueenslandNSW
Victoria
WA
SA
Tasmania
Consumercautionhas remainedaprominentfeatureoftheAustralianeconomysincetheonsetoftheglobal financial
crisis(GFC),whenhouseholdsreassessedtheirspendingbehavioursinordertohelpdeleveragetheirbalancesheets.As
aresulthouseholdsarenowsavingamuchlargerproportionoftheirdisposableincomethantheywerepriortotheGFC,
and it isclear that thishasweighedheavilyonconsumption.While interest rateshave fallensince late2011, ineffect
loweringtherateofreturnavailabletohouseholdsontheirsavings,thisdoesnotappeartohavediscouragedhouseholds
from continuing to save. The general expectation is for the economy to soften as the transition away frommining
investmentintensifies.Morecertaintyabouttheeconomicoutlookmaybeexpectedtoseehouseholdsrelaxtheirsavings
patterns,
which
could
help
to
strengthen
household
consumption
growth.
The
rise
in
household
saving
as
a
proportion
of
disposableincomehasbeenbroadbasedacrossstates,thoughithasbeenparticularlypronouncedinWesternAustralia,
wherehouseholdincomegrowthhasrunwellaheadofconsumerspending,despitethestrengthofthelatter(seebelow).
Theanticipated slowing in theWesternAustraliaeconomycombinedwithamoreelevated levelofhousepricesmay
weighontherateofhouseholdsavingshere.
Graph 5
-4
0
4
8
2005 2008 2011 2005 2008 2011
-4
0
4
8
Real Household Final Consumption ExpenditureYear-ended percentage change
Sources: ABS; NAB
% %
Queensland
NSW
Victoria
WA
SA
Tasmania
Graph 6
-3
0
3
6
9
12
2004 2007 2010 2013 2006 2009 2012
-3
0
3
6
9
12
Retail Sales GrowthAnnual average percentage change
Source: ABS
% %
Queensland
NSW
Victoria
WA
SA
Tasmania
The relative strengthofeach economy tends tobea strongdeterminantof consumptionbehaviours, including retail
spending.Householdconsumptionexpenditureandretailsalesgrowth inWesternAustraliahavesurpassedthatofthe
otherstates
for
most
of
the
post
GFC
period
but
arecent
sharp
slowing
in
the
pace
of
growth
has
brought
consumption
spending inWestern Australia back to the pack (annual consumption growth slowed to 2% in June quarter 2013,
compared togrowthof6%oneyearearlier).Consistentwith this slowingand the sharpdeterioration in state final
demandasaresultoftheminingdownturn, it is likelythatthehouseholdsavingsratiohasfallen inthisstateoverthe
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pastyear(currentdataonlyavailabletoJune2012).Elsewhere,householdconsumptiongrowthhasgenerallysoftened
but toa lesserdegree.Households inNewSouthWalesappearmoresensitive to interest rates than theotherstates,
whichappeartohavehelpedtosupportamorestablepaceofhouseholdspendinggrowthoverrecentquarters.Thelevel
ofgrowthhasheldup relativelywell inQueensland,possibly reflecting temporary factors including repairs following
severeweatherconditionsearlierthisyear.However,thepaceofgrowthhasstillfallennotably,probablyreflectingthe
overall softness in labour market conditions and income growth. Tasmania has experienced the weakest growth in
household consumption,and indeed consumptionwasdeclining formostof 201112; this largely reflects the relative
weakness in theTasmanianeconomycompared to theother statesasa resultof lowerpopulationgrowthand falling
employment.Retail
sales,
which
account
for
approximately
one
third
of
total
household
consumption
expenditure,
have
exhibitedsimilartrendstoconsumptiongrowthacrossthestates.
PublicsectorinvestmentfallingasGovernmentsaimtobalancetheirBudgets
WithfiscalconsolidationaprimaryfocusatpresentandCommonwealthandStateGovernmentsintentonbringingtheir
Budgetbalancesintosurplus,publicsectordemandgrowthisbeingheavilyconstrained.Publiccapitalinvestmentacross
thestatesdeclinedsignificantlyover201213asCommonwealthfiscalspendingoninfrastructurewasunwoundandvery
few new infrastructure projects were implemented. The main casualties of the pull back in underlying public
infrastructure spend (which abstracts from asset sales between sectors) have been South Australia, Victoria and
Tasmania.ThedeclineinpublicinvestmentspendinginSouthAustraliaappearstoreflecttheunwindingofGovernment
infrastructureprograms implementedduring200809. InVictoria,thereareveryfewpublicsector investmentprojects
currentlyunderway
and
any
projects
that
may
come
online
will
take
anumber
of
years
to
get
up
and
running.
Meanwhile,
significantrevenuepressuresinTasmaniaareweighingonpublicspendinghere.
NSW VIC QLD SA WA** TAS
Private 3.6 1.4 6.2 2.1 7.4 15.5
Public 9.7 11.4 5.0 16.6 6.7 11.3
Total 0.9 0.6 4.0 5.2 6.1 14.3*Abstractingfromassetsalesbetweensectors
**Actual:
underlying
not
available
from
ABS
Yearaveragepercentagechange
Sources:ABS;NAB
UnderlyingGrossFixedCapitalFormation yeartoJune2013*
TheAustralianeconomyhasseenaterrificexpansion incapital investmentovermuchofthepastdecade.Asa result,
therehas,onaverage,beenabroadbased increase incapitalexpenditureasashareofstate finaldemandacross the
Australian states (see Graph). Over more recent years, mining investment has contributed greatly to the capital
expansioninAustralia,makingupthelionsshareoftotalinvestment.Toputthingsintoperspective,theminingsectorin
WesternAustraliaaccountedfor30%oftotalcapitalexpenditure inAustraliaover201213,andtheQueenslandmining
industryaccountedfor19%.Morerecently,however,mininginvestmenthaspeakedanditseemsincreasinglylesslikely
that thenonmining sectorwill have the capacity to respond immediately to themining investment slowdown. The
downturn inmining investment ismostapparent inWesternAustralia,where themajorityofminingactivity is taking
place.Mining investment spending isholdingupbetter inQueensland,boostedby investment in threeLNGprojects
whichare
still
being
constructed,
although
business
investment
is
expected
to
peak
in
Queensland
later
this
year.
To
help
thetransitionaway from investment,theQueenslandGovernment is lookingtobroaden theeconomyby focusingon
construction,tourism,resourcesandagriculture.Elsewhere,thelikesofVictoria,NewSouthWalesandSouthAustralia
havebeenlessaffectedgiventheirlesserrelianceonmining.Nonetheless,adeclineinmanufacturinginvestment,which
is coming under pressure from a relatively elevated AUD and increased competition from the emerging market
economies, ishavingamaterial impactonbusiness investment inthosestateswheremanufacturingmakesupa larger
partoftheeconomy,includingSouthAustralia,VictoriaandTasmania.Overall,whilethereremainsasignificantamount
of(mining)investmentinthepipeline,theoutlookforbusinessinvestmentcontinuestosoften,withtheoveralllevelof
businessinvestmentexpectedtobearound15%lowerthanthecurrentlevelintwoyearstime.
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Graph 7
0
5
10
15
20
25
30
1990 1996 2002 2008 1990 1996 2002 2008
0
5
10
15
20
25
30
WA
Queensland
NSW
Victoria
SA
Mining Manufacturing
Capital Expenditure by Industry by State*Proportion of total Australian capital expenditure, annual sum
* Data not available for Tasmania
Sources: ABS; NAB
% %
Postthemininginvestmentboom:wheretofromhere?
Thenonresidential investmentpipelinepeaked inmid2012, reflecting the significantamountofmining construction
thatwas
being
completed,
combined
with
aslowing
stream
of
project
commencements,
with
many
of
the
mega
mining
projectsalreadyunderway.Thedecline in the investmentpipelinehascontinuedover thepastyear,withparticularly
sharpfallsoccurringinWesternAustraliaandQueenslandwheremininginvestmentismostembedded.Nonetheless,the
pipelineofworkyet tobedone remainsmostelevated in thesestates,ataroundoneyearand threemonths long in
WesternAustraliaandoneyearandonemonth long inQueensland,which together, representsoverhalfof the total
Australianpipeline.Thenonminingstatesarenotexpectedtomakeasignificantcontributiontofuturenonresidential
investmentgivenalreadylowcapacityutilisationandsoftdemand.
TheAustralianBureauofResourcesandEnergyEconomics(BREE)releaseditsupdatedlistingsofmajorminingprojects
inMaythisyear,whichoutlinedthecurrentstateofmining,infrastructureandprocessingfacilitiesprojectsinAustralia.
AccordingtoBREE,thetotalnumberofcommittedprojectsfellfrom87inOctober2012to73inApril2013.However,the
valueofcommittedprojectswasbroadlyunchangedat$268billion(17.9%ofcurrentannualGDP),largelyreflectingcost
overrunswhich
do
not
necessarily
add
to
the
volume
of
activity
or
capacity.
LNG,
gas
and
petroleum
projects
continue
to
dominate thepipelineofcurrentand future investment inAustralia,makingup$205billion (76%)of totalcommitted
projects,withmanyoftheseprojects located inQueensland.Whilethevalueofmineralsandenergy investment inthe
pipeline remains enormous,BREE has highlighted a sharp reduction in the value of projects at the feasibility stage,
providingfurtherevidencethatthemininginvestmentslowdown isunderway.Theshiftfrominvestmenttoproduction
andexportswillhaveimportantimplicationsforoutputgrowthandemployment.
Graph 8
-4
0
4
8
2000 2003 2006 2009 2012 2001 2004 2007 2010 2013
-4
0
4
8
Investment Expenditure*Contribution to annual state final demand
* Gross fixed capital formation
Sources: ABS; NAB Group Economics
ppts ppts
Queensland
NSW
Victoria
WA
SA
Tasmania
Graph 9
0.0
0.4
0.8
1.2
1.6
2.0
2000 2003 2006 2009 2012 2001 2004 2007 2010 2013
0.0
0.4
0.8
1.2
1.6
2.0
Queensland
Victoria
NSW
WA
SA
Yrs Yrs
Non-residential Investment Pipeline*Work yet to be done as a proportion of annual work done
* Calculated as the sumof non-residential building and engineering construction
Sources: ABS; NAB
Tasmania
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Nominalnetinternationaltradestrengtheninginresourcerichstates,butgenerallysofteningelsewhere
Forthefirsttimesince2009,netexportsmadeapositivecontributiontoannualGDPgrowthinSeptemberquarter2012,
withthistrendcontinuingfortheremainderof201213.Followingyearsof intensive investmentactivity,an increase in
miningproductioncapacity inWesternAustraliaandQueensland isnowbeginningtoyieldhigherexportvolumes.Net
exportshaverisensolidlyinWesternAustraliainthefirsthalfofthisyeartobeatveryelevatedlevels,withthetransition
from theminingconstruction toproductionphasegainingmomentum.Queenslandsnominaltradebalancehas lifted
modestlyoverrecentquarters,thoughitremainsatalowlevelrelativetorecenthistory,reflectingthecurrentweakness
incoal
export
volumes.
Elsewhere,
trade
balances
have
been
broadly
steady
in
Victoria
and
New
South
Wales,
with
weaker importshelping to (at least temporarily) stem the longtermdecline in tradebalances in these states.Export
activity inSouthAustraliaandTasmaniahasbeensubdued,withsectorsexposed to thehighAUDcontinuing to face
challengesinthesestates,withparticularweaknessfeltinthelessspecialisedpartsofmanufacturing.
Looking ahead, further expansions in production capacity are expected to be the key driver of export volumes over
comingyears, rather than fluctuations inexternaldemand.Productioncapacitywill rampup solidly inQueenslandas
LNGprojectsbegintoyieldmoreoutput.Onthedemandside,themajorityofexternaldemandforAustraliasexports
willcomefromChinaAustraliaslargesttradingpartnerwhichaccountedforalmost32%ofthecountrysmerchandise
exportsin201213.Whilemostofthestrengthindemandisexpectedtocomefromtheemergingmarketeconomies,the
recovery ingrowth inthemajoradvancedeconomiesshouldalsohelptostrengthendemand.Exports incommodities
continue todominate tradepatternswhile ruralexportshave liftedconsiderablyover thepastyearor so, in linewith
improvedconditions.
Graph 10
-15
-10
-5
0
5
10
15
20
1985 1990 1995 2000 2005 2010 1987 1992 1997 2002 2007 2012
-15
-10
-5
0
5
10
15
20
Net Exports of GoodsNominal
Sources: ABS; NAB Group Economics
$bn $bn
Queensland
NSW
Victoria
WA
SA
Tasmania
Graph 11
0
10
20
30
40
50
1985 1991 1997 2003 2009 1987 1993 1999 2005 2011
0
1
2
3
4
5
Goods & Services ExportsChain Volume Measures (reference year 2010-11)
Sources: ABS; NAB Group Economics
$bn $bn
Other
Rural
Commodities
Travel
Transport
Other Services
WhileVictoriaandNSW typicallyhave large internationaltradedeficits inmerchandisegoods, it isservicestradethat
generallydrivesexportperformancewithinthesestates,accountingforaroundtwothirdsoftotalexports.Accordingto
balanceofpaymentsdata,Australianservicesexportsfellby0.7%over201213,withfallsintransportandtravelexports
mostly offset by a rise in other services.With aweakerAUD and international student enrolments on the rise, it is
possiblethatVictoriaandNSWmaybenefitfromimprovednetservicestradeovercomingquarters.
Labourmarketconditionsdeteriorateinsoftgrowthenvironment
ThelabourmarkethasweakenedconsiderablysinceourlastStateEconomicUpdatesixmonthsago.Inthesoftgrowth
environment,businesses continue to look forways tooperatemore efficiently and at a lower cost,which inevitably
means reducing employment. Indeed, the pace of employment growth has slowed over the past year and the
unemploymentratehasgraduallyrisento5.8%,fromcloserto5.0%ayearearlier.Thereareclearsignsthattheslowing
inlabourintensivemininginvestmentisalreadyhavinganimpactonlabourmarketconditionsinWesternAustralia,with
the unemployment rate rising to almost 5% in trend terms in August, up from 4%just one year earlier. Themore
diversifiedVictorian,NewSouthWalesandtoalesserextentQueenslandeconomieshavebeenmuchmoreresilientto
labourmarketweaknessasaresultoftheirmorediversifiedindustrystructures,withunemploymentratesinthesestates
risingjust0.10.2pptsoverthepastyear.The recentupswing intrend ratesofunemployment inTasmaniaandSouth
Australia have been much more concerning, with current rates of 8.6% (6.9% one year earlier) and 6.8% (5.6%)
respectively.Theweakness intheTasmanian labourmarket isconsistentwiththedifficultiesofremainingcompetitive
with
mainland
Australia
and
overseas
markets,
largely
reflecting
the
economys
large
exposure
to
the
AUD
as
well
as
its
mixof industriesbeingskewed towardsweakersectors.Furthercompounding theweakness in theTasmanian labour
market is thesharp reduction inaveragehoursworked,whichwillhavehelped topreventa further rise in the rateof
unemployment.AveragehoursworkedfellsharplyinWesternAustralia,whiletheywerealittlelowerelsewhere.
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Graph 12
2
3
4
5
6
7
8
2005 2007 2009 2011 2013 2006 2008 2010 2012
2
3
4
5
6
7
8
Unemployment RateTrend
Sources: ABS; NAB
%
Queensland
NSW
Victoria
WA
SA
Tasmania
%
Graph 13
-4
-3
-2
-1
0
1
2
2005 2007 2009 2011 2013 2006 2008 2010 2012
-4
-3
-2
-1
0
1
2
Average Mon thly Hou rs WorkedAnnual average percentage change; sa
Sources: ABS; NAB
%
Queensland
NSW Victoria
WA
SA
Tasmania
%
Labourmarketindicatorsgenerallypointtoamoderationinemploymentgrowthlargelyreflectingthefrictionalimpact
structural adjustment in the Australian economy is having on hiring. The deterioration is already underway, with
employment fallingoverrecentmonths.Weseetheunemployment rateexceeding6%bytheendofthisyear,before
risingto
around
6%
by
mid
2014.
The
higher
rate
of
unemployment
is
likely
to
be
particularly
apparent
in
Tasmania
and
SouthAustralia,whereunemployment isalready rising rapidly,while theNewSouthWalesandVictorianeconomies
shouldbemoreshelteredduetohavingmorediversifiedindustrystructures.IntheminingstatesWesternAustraliaand
Queensland the decline in labourintensive mining investment should see unemployment rates risemodestly and
remainelevatedforsometime.
Therateofnetinterstatemigrationappearstohavestabilisedacrossallstatesoverthesecondhalfof2012(latestdata
available).Thetwolargestminingstates,WesternAustraliaandQueensland,continuetobenefitfromapositiveflowof
interstatemigration inresponsetohighlevelsofminingrelated investment intheresourcerichstates.Consistentwith
theweakeroutlookformininginvestmentovertheforecasthorizon,WesternAustraliaandQueenslandareexpectedto
experienceadecline in interstatemigration.Victoriacontinuestogainfrom interstatemigrationbutthegainsareonly
marginal.NewSouthWalescontinuestoexperienceanoutflowofnetinterstatemigrationbuttherateofdeclinehasalso
eased.
Tasmania
and
South
Australia
have
experienced
a
continued
outflow
of
migration.
The
outflow
of
people
from
thesestatesishavinganegativeimpactofsomeindustriesandiscontributingtoweakeractivityrelativetotherestofthe
country.
Graph 14
-60000
-40000
-20000
0
20000
40000
1982 1988 1994 2000 2006 2012 1986 1992 1998 2004 2010
-60000
-40000
-20000
0
20000
40000
Annual Net Inters tate Mig rat ion
Sources: ABS; NAB
Queensland
NSW
VictoriaWA
SA
Flow of
persons
Flow of
persons
Tasmania
Wagepressureseasing,consumerpriceinflationundercontrol
Soft domestic demand and excess spare capacity have simultaneously weakened demand for labour, which has
restrainedwagegrowthtohistoricallylowlevels.Thewagepriceindex,whichmeasuresthecostofaunitoflabour,rose
by2.9%overtheyeartoJunequarter2013,whichwasthe(equal)softestoutcomesinceMarchquarter2000,justpriorto
theintroduction
of
the
GST.
Wage
growth
has
been
especially
subdued
in
New
South
Wales
and
Queensland,
rising
just
2.8% over the year to June quarter. Theweakness inwage growth in part reflects government initiatives aimed at
reducingpublic sectorwageburdens.Forexample, theNewSouthWalesgovernmenthas imposeda2%ceilingon
annualremunerationexpensesandintroducedothermeasurestomanageexcessemployees.TheVictoriangovernment
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has implementedasimilarschemeprovidingforannualisedwage increasesof2%(largerincreasesmustbeoffsetby
genuineproductivitygains),supportingbelowtrendpublicsectorwagegrowth.TotalwagegrowthinVictoriawasalso
soft,at3.0%overtheyeartoJunequarter. WhilewageincreasesremainrelativelystrongerinWA,rising3.4%overthe
year,therehasbeenaclearmoderationinquarterlygrowthinresponsetoincreasingsparecapacityintheresourcerich
partof thestate.Thismomentum isexpected tocontinue throughout201314as the flowof labourintensivemining
investment continues to ease. These effectswill be compounded by a softening in activity in businesses supporting
mining,where demand for labour is expected to decline.Whilewage growth has held up reasonablywell in South
Australia,up3.3%overtheyear, ithasgenerallymoderatedoverthecourseof201213 inquarterlyterms,suggesting
growthmomentum
is
trending
lower.
Growth
in
Tasmanian
wages
has
been
especially
soft,
up
just
2.9%
over
the
year,
which isconsistentwithrelativelyweak labourmarketconditions.With labour intensivemining investmentsettoease
and the nonminingpartsof the economy showing little signof strengthening anytime soon, theoutlook forwages
remainssubdued.
Consistentwithsoftdomesticdemandand labourmarketconditions,quarterlyconsumerpriceinflationhasmoderated
acrossthecapitalcitiessinceSeptemberquarter2013.Inannualterms,inflationacrossthecapitalsremainedwellwithin
(or in the caseofTasmania,below) theRBAsmediumterm targetof23%,evendespite the solidboost toprices in
Septemberquarter2013which resulted fromthe implementationof theFederalGovernmentscarbontax.Underlying
measuresofconsumerpriceinflation(atthenationallevel)werealsorelativelysoft,withtheaverageofweightedmedian
andtrimmedmeanCPImeasuresrunningataround2.4%intheJunequarter.Withtheimpactofcarbonpricingexpected
to largelywashoutofannual inflationnumbersfromSeptemberquarter2013,weseeheadline inflationdippingbelow
2%.Price
pressures
have
moderated
notably
across
all
states
in
the
first
half
of
2013,
even
despite
aseries
of
RBA
cash
ratecutswhichwereintendedtoboostdomesticdemand.Annualratesofinflationrangedfrom1.8%inHobartto2.6%
in Sydney in the June quarter. The weakness in prices growth in Tasmania reflects a deterioration in discretionary
spendingtobelowthelevelpriortotheglobaleconomicdownturn in2008.Whiletherecentsharpdeteriorationinthe
valueoftheAUDwilladdtopricepressuresthrough itstransmissiontohigher importcosts,thefulleffectsofthiswill
takea long time towash through theeconomy.Furthermore, thesoftness in thedomesticeconomymay restrict the
abilityofbusinessestopassonhighercosts,whichmayseeprofitabilitydeclineratherthanpricesincrease.
Graph 15
2
3
4
5
2005 2007 2009 2011 2013 2006 2008 2010 2012
2
3
4
5
Wage Price IndexYear-ended percentage change
Sources: ABS; NAB
% %
Queensland
NSW
Victoria
WA
SA
Tasmania
Graph 16
0
1
2
3
4
5
2005 2007 2009 2011 2013 2006 2008 2010 2012
0
1
2
3
4
5
Consumer Price IndexYear-ended percentage change
Sources: ABS; NAB
% %Brisbane
Sydney
Melbourne
Perth
Adelaide
Tasmania
Housingmarketrecoverygainingmomentum
Emerginggreenshootsinthehousingmarkethavegainedmoretraction,withallstatesreportinghigherannualratesof
dwellingspricegrowthcomparedtoayearagowhenpriceswereinmoderatedecline.AccordingtothelatestmonthlyRP
DataRismarkdata,averagedwellingspricesacrossAustraliascapitalcitiesroseby5.3%overtheyeartoAugust2013
the eighth consecutive positivemonthly growth outcome though deviations in annual growth across capital cities
remain,meaningthe recovery inthehousingmarkethasnotbeenequal.Muchof thevariation ingrowth reflectsthe
varianceinstateeconomicconditions,whichisaffectinghouseholdinvestmentdecisionsdifferently.Theoverallrecovery
inpropertypriceshasbeen ledbyPerth,with this state stillbenefiting from the resourcesboom,whichhasboosted
populationgrowthandputadditionalpressureonrentalmarketconditions.Thedwellingpricerecoveryhasalsogained
more traction in theSydneypropertymarket,underpinnedbysolidgrowth in rentalprices,populationandhousehold
income, aswell as an undersupplyof housing. Furthermore,New SouthWales households appearmore sensitive to
interestrates
than
other
states,
with
the
low
interest
rate
environment
helping
to
support
demand
for
housing
as
well
as
anundersupplyintermsofdwellingsperperson.WhiletheMelbournepropertymarkethastakenlongertorecoverthan
mostothermarkets, reflectingacorrection fromespeciallyhighgrowth in thepostGFChousingboom, thedwellings
pricerecoveryisalsogatheringpaceinMelbourne.Elsewhere,propertymarketsarelessrobustinAdelaideandBrisbane,
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andpricesarestilldeclininginHobart.Itislikelythatconcernsabouttheeconomicoutlookandjobsecurityareweighing
onhousehold investmentbehaviour inthesecities.Nonetheless,theQueenslandgovernments GreatStartGrantand
TasmaniasFirstHomeBuilderBoostshouldhelptosupporttheconstructionofnewdwellingsin201314.
Graph 17
-10
0
10
20
30
40
50
2002 2005 2008 2011 2002 2005 2008 2011
-10
0
10
20
30
40
50
Sources: RP Data; NAB
Brisbane
Sydney
Melbourne
Adelaide
Perth
Hobart%%
RP Data Dwelling PricesYear-ended percentage change
Graph 18
0.00
0.05
0.10
0.15
0.20
0.25
0.30
2000 2003 2006 2009 2012 2002 2005 2008 2011
0.00
0.05
0.10
0.15
0.20
0.25
0.30
Sources: ABS; NAB
Brisbane
Sydney
Melbourne
Adelaide
Perth
Hobart
%%
Dwelling Completions to Population RatiosAverage over quarter
With conditions in the residential propertymarket improving, the outlook for dwellings investment appears to have
strengthened. Consistent with the improvement in housing demand, ABS data show that prices for new homes
purchasedbyowneroccupiersroseby3.6%overtheyeartoJunequarter2013thehighestpaceofannualgrowth in
threeyears.Whencombinedwithamarginallysofter3.2%riseinhourlyratesofpayfortheconstructionindustry,aswell
asamodest1.2% rise in inputcosts to thehouseconstruction industry, the rise inprices fornewhomes implies that
marginshave improveda littlecompared to sixmonthsago,when theywerebeing squeezed.Furthermore, theABS
establishedhousepriceindex,weightedfortheeightcapitalcities,showeda5.1%riseinhousepricesovertheyeartothe
Junequarter2013.Improvingmarginsandrisinghousepricesshouldeventuallyunderpinstrongerdwellingsinvestment.
Indeed,wearealreadyseeingevidencethathousingconstructionratesare improving insomestates,withtheratioof
dwellingcompletionstopopulationshowingsignsof recovering.TheAdelaideandHobartmarketsare theexception,
whereverysofteconomicgrowthandoutflowsofnetinterstatemigrationarelimitingtheneedforadditionaldwellings.
Nonetheless,the
Melbourne,
Brisbane
and
Sydney
markets
are
all
benefiting
from
an
increase
in
the
rate
of
dwellings
to
population, which should help to reduce the degree of undersupply in these cities. While the rate of dwellings
construction has been relatively stable in Perth, this market is continuing to experience a solid pace of additions,
especiallygiventhesurgeinpopulationgrowththathasoccurredoverrecentyears.Weexpectdwellingsconstructionto
strengthenin201314,althoughfinancerestrictionsmaylimitgrowth,atleastinthenearterm.
Graph 19
-6
-4
-2
0
2
4
6
8
2000 2003 2006 2009 2012 2001 2004 2007 2010 2013
-6
-4
-2
0
2
4
6
8
Sources: ABS, NAB
Brisbane Sydney
Melbourne
Adelaide
Perth
Hobart
%%
Real RentsYear-ended percentage change
Graph 20
-2
-1
0
1
2
3
WA Vic NSW SA/NT Qld Australia
J un-12 Mar-13 J un-13
Expected House Price Growth12 months ahead
%
Source: NAB Residential Property Survey
3
%
2
1
0
-2
-1
Underlyingdemand forhousingappears tohave strengthened into2013,helpedby lower interest ratesanda recent
upturn in consumer sentiment.While there are signs of an upswing in housing trends, still soft wages growth and
concernsabout
job
security
in
the
deteriorating
labour
market
environment
are
likely
to
keep
demand
for
housing
somewhat restrained, preventing the exceptional pace of house price growth seen over most of the last decade.
Nonetheless, the interest rate environment is expected to remain very accommodative for some time,which should
providecontinuedsupporttounderlyingdemand.
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Consistentwiththegeneraldowngradetotheoutlookforeconomyovertheforwardestimates,theJunequarter2013
NAB Residential Property Survey has shown a slight softening in expectations for house prices over 201314.
Nonetheless,expectationsarestillforhousepricestoriseacrossallstates.Accordingtothesurvey,respondentsexpect
housepricestoriseby1.4%nationallyin201314(2.2%atthetimeoftheMarchquartersurvey),withsofterpricegains
forecast for all states. Expectations remain strongest forWesternAustraliandwellings, largely reflecting the existing
undersupplyofhousing,althoughpricegrowthforthisstatewasdowngradedmostsignificantlyasaresultofthefaster
thananticipated slowing inmining investment,which is impacting the rateofpopulationgrowth.Expectationswere
softestin
South
Australia
and
Queensland,
while
they
were
broadly
similar
and
close
to
the
national
average
for
New
SouthWalesandVictoria.
Stategovernmentfiscalpositionsgenerallyweakerthanatthetimeofmidyearreviews
All of the state treasuries have revised down their 201314 estimates ofGSP since producing theirmidyearBudget
reviews,reflectingaweakerglobaleconomicenvironmentandasofteroutlookforlabourmarketactivity.TheWestern
Australian Treasury has downgraded its 201314 GSP estimate by 1.0ppt, reflecting a sharper projected decline in
business investment in response to the softened outlook for Chinese growth, volatile commodity prices and the
possibilityoffurtherpricedeclines.Notonlyhavethesefactorsledminingfirmstoreassesspotentialprojects,butthey
arealsoencouraging firms to reassessexistingoperationsby focusingmoreon reducing costs rather than increasing
capacity.InQueensland,exTropicalCycloneOswald,whichcausedseverefloodingacrosspartsofthestateinearly2013,
hitagricultural
production
especially
hard
and
the
resulting
economic
production
losses
are
estimated
to
be
in
the
order
of$500700million in201213 (excludesdamagebill forprivateandbusinesspremisesandpublicproperty).Whilethe
QueenslandTreasurydoesnotprovideanestimateoftheimpactofthecycloneon201314growth,aproportionofthe
0.75pptdownwardrevisionto201314growthislikelytocapturethis.Theexpectationformininginvestmenttodecline
sharplyafter2013,relativelypoorhousingmarketfundamentalsandsoftpopulationgrowthprojectionsarelikelytohave
been responsible for the remainder of the downgrade. The South Australian Treasury has lowered its GSP growth
estimatefor201314by0.5ppts,acknowledgingthatanumberofsectorsthatfacechallengesahead,especiallytrade
exposed sectorsand thoseheavily reliantonconsumer spending.Manybusinesses in these industriesare likely tobe
adverselyaffectedasaresultofthesofterglobalgrowthenvironment.VictoriaandNewSouthWales,whichhavemore
diversifiedindustrystructures,looksettoweathertheeffectsoftheminingtransitionbetterthanmoststates.InVictoria,
asofternationalgrowthoutlookisexpectedtoweighmoreheavilyoninterstatetrade,whichisakeycomponentofthe
Victorianeconomy,whilethesofteroutlookfortheglobaleconomyisexpectedtoweighonexports.Similarly,theNew
South
Wales
economy
is
expected
to
be
affected
by
weakness
elsewhere,
though
the
downward
growth
revision
for
201314of0.25pptsisslightlybelowthatofVictorias(0.5ppts),probablyreflectingtherelativelyhighsensitivityofNew
SouthWaleshouseholds to (lower) interest rates.Theoutlook for theTasmanianeconomyhasbeen revised lower in
201314,with this state highly exposed to the still elevatedAUD due to its industrymix and especially the types of
manufacturingproductsitexports,whichislesseningitscompetitivenesswiththemainlandandoverseasmarkets.
With the deterioration in the national growth outlook putting immense pressure on the fiscal positions of state
governmentssincethetimethemidyearBudgetreviewsweresubmitted,stategovernmentrevenueprojectionshave
generallybeen revised lower.Thedeterioration in revenueprojectionshasput increasedpressureon stateoperating
balances,whichhavegenerallybeen revised lowerasaconsequence.Queenslandsnetoperatingbalance for201314
was revised down by $3.0bn, mainly due to unanticipated disaster recovery payments following severe weather
conditionsatthebeginningof2013.Tasmaniasnetbalancewasalso reviseddownnotably ($340million), reflectinga
softeroutlookforemploymentgrowthandotherkeyeconomicindicatorsimpactingontaxreceipts.Incontrast,Western
Australiasnet
fiscal
operating
balance
has
been
revised
up
($570
million),
in
part
reflecting
additional
revenue
of
$475millionthatisexpectedtobegeneratedbytheGovernmentsFiscalActionPlanaswellasstrongerprojectionsfor
underlying transferduty collectionsandhigher forecasts formining revenue.Elsewhere,netoperatingbalanceswere
littlechangedfor201314,whiledowngradestothestategovernmentoutlooksmeantageneraldeteriorationinforecasts
forgeneralgovernmentnetoperatingbalancesin201415.
Bystate,theQueenslandTreasuryexpectsitsnetoperatingdeficittoimproveto$3.8billionin201314,whichisaround
$3 billion larger than what was expected at the time of the mid year fiscal and economic review (MYFER). The
deteriorationinprojecteddeficitlargelyreflectstheincorporationofcostsassociatedwithrecentfloodingcausedbyex
TropicalCycloneOswald.TheQueenslandTreasuryhasprojected a $2.1billion surplus in 201415, asa resultof the
Governments fiscal repair initiatives,which include reducingdebtand targeting full fundingof longterm liabilities in
accordancewithactuarialadvice.ThenetoperatingdeficitforNewSouthWalesimprovedatouchto$329million;with
theeconomic
outlook
for
this
state
broadly
unchanged
since
MYFER,
the
improved
Budget
position
largely
reflects
efforts to restrainexpendituregrowth.However, for201415aBudget surplusof$829million isanticipated,which is
lower than previously projected, reflecting the impact of amendments to the accounting standard applied to
superannuationaccrualexpenses in201314.WhileSouthAustraliasnetoperatingposition is relativelyunchanged for
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201314,adverserevenuemovements, includingadjustmentstoexpectedGSTcollectionsandstatetaxationrevenues,
haveaffectedthenetoperatingbalancefor201415.TheSouthAustralianTreasuryestimatesanetoperatingdeficitof
$431millionin201415.VictoriaandWesternAustraliaaretheonlytwostatesforecastinganetoperatingsurplusin2013
14($818millionand$386millionrespectively).InVictoria,thenetoperatingsurplusisprojectedtoriseto$1.0billionin
201415,which ismodestly softer than the surplusestimatedat the timeof itsMYFER,while theWesternAustralian
Treasuryprojectsitsnetoperatingbalancetodeterioratetoadeficitof$147millionin201415,reflectinglowerexpected
tax revenue due to soft labour market conditions. The Tasmanian Treasury estimates its net operating balance to
improvemarginallyovertheforwardestimates,risingfromadeficitof$267millionin201314toadeficitof$165million
in2014
15.
Graph 21
-6
-4
-2
0
2
NSW Vic Qld WA SA Tas
2012-13 2013-14 2014-15 2015-16 2016-17
$bn$bn
Source: State Treasury end-year Budget statements
Net Operating Balance
2
0
-2
-4
-6
Compositionofproduction
NSW VIC QLD SA WA TAS Australia
Agriculture 2 3 3 6 2 8 3
Mining 3 2 11 5 36 2 10
Manufacturing 8 9 8 10 5 9 8
Construction 6 6 9 7 12 7 8
WholesaleTrade 5 5 6 5 3 3 5RetailTrade 4 6 5 5 3 6 5
Finance&Insurance 15 13 7 9 4 8 10Property&Business 13 14 11 9 8 7 12
Other 43 42 41 43 26 50 40
2011/12ShareofStateProduction(%)
Source:ABS
AlexandraKnight RobBrooker AlanOster
Economist Australia HeadofAustralianEconomics&Commodities GroupChiefEconomist
(613)92088035 (613)86341663 (613)86342927
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Macroeconomic, Industry & Markets Research
Aus tral ia
Alan Oster Group Chief Economist +(61 3) 8634 2927
Jacqui Brand Personal Assistant +(61 3) 8634 2181
Rob Brooker Head of Australian Economics & Commodities +(61 3) 8634 1663Alexandra Knight Economist Australia +(61 3) 9208 8035
Vyanne Lai Economist Agribusiness +(61 3) 8634 0198
Dean Pearson Head of Industry Analysis +(61 3) 8634 2331
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Robert De Iure Economist Property +(61 3) 8634 4611
Brien McDonald Economist Industry Analysis & Risk Metrics +(61 3) 8634 3837
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