Westpac Coast to Coast (March2013)

28
Westpac Coast-to-Coast March 2013 An update on Australia's state economies Institutional Bank.

Transcript of Westpac Coast to Coast (March2013)

Page 1: Westpac Coast to Coast (March2013)

WestpacCoast-to-CoastMarch 2013

An update on Australia's state economies

InstitutionalBank.

Page 2: Westpac Coast to Coast (March2013)

2

Contents

This issue was finalised on 22 March 2012

Coast-to-Coast produced by Westpac Economics

Editors

Andrew Hanlan & Matthew Hassan, Senior EconomistsElliot Clarke, Economist

Internet: www.westpac.com.auBloomberg: WBCE <GO>

Email: [email protected]

Overview

Australian economic outlook 3States overview 5Consumers: a state view 7Housing: state update 8Employment: a state view 9

States

New South Wales: construction a bright spot 11Victoria: ouch 13Queensland: returns to new normal 15Western Australia: another record year 17South Australia: concern builds 19Tasmania: underperforms 21Summary indicators 23

Forecasts: state activity and employment 24

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Westpac Coast-to-Coast March 2013

Australian economic outlook

The Coast-to-Coast Report highlights how the Australian economy has lost considerable momentum through the second half of 2012. In the first half of 2012 annualised growth momentum was around 3.5% while in the second half it slowed to 2.5%.

On average we expect growth to slow from 3.6% in 2012 to 2.5% and 2.3% in 2013 and 2014 respectively. The key theme will be the inability of demand, including government, to adequately fill the gap in demand created by the slowdown in mining expenditure over the course of 2013 and 2014. Indeed this report highlights that mining investment growth already slowed markedly in the second half of 2012.

The mining boom is expected to peak in 2013 with mining spending swinging from a contributor to growth in 2012 to a drag in 2014. The expectation from the authorities is that non mining investment and household spending will respond to lower interest rates and accelerate to fill the void. Some evidence has been building with consumer confidence rising by 11% since October although business confidence has been flat. Investment, employment intentions and house prices appear to have stabilised but manufacturing, in particular remains weak. Households are concerned about job security. Recent strong growth in equity markets has allayed concerns amongst consumers around the global economy while businesses are responding to soft demand with plans to raise efficiency levels and limit expansion plans.

With 2013 being a Federal election year both households and business are impacted by political uncertainty. Indeed, political issues have dampened confidence, both business and consumer, through 2012. That is unlikely to pass until well beyond Election Day on September 14 as businesses, in particular, scrutinise the policies of whichever party is elected with, hopefully, a clear majority.

Fiscal policy stands as a significant headwind to a more robust response by the economy to the low interest rates. In previous easing cycles fiscal policy has supplemented monetary policy particularly around the housing market with direct subsidies to First Home Buyers. In this cycle First Home Buyer subsidies have been reduced and /or been limited in all states. First Home Buyers have failed to respond, in turn constraining any boost to housing finance growth. Investors and upgraders are being required to "carry" the recovery. To date an encouraging response from investors has been limited to NSW with diverse regional conditions highlighting considerable difficulties in engineering a nationwide boost to property markets, despite aggressive rate competition amongst banks. House prices have shown some evidence of responding to near record low rates but, to date, evidence is patchy.

Public demand has also constrained growth. With state governments under considerable pressure to sustain their AAA/AA+ ratings with ratings agencies spending cuts have been imposed at the state government level.

Australia's unemployment rate has edged up slightly despite near record low interest rates. Until the February Employment Report hours worked and employment to population ratio pointed to weak demand for labour although a falling participation rate has held down the unemployment rate. The February Report, which printed a stunning 71,000 jobs and yet no reduction in the unemployment rate appears to be partly distorted by statistical issues highlighting a significant danger in declaring a return to a strong jobs market. Lead indicators point to ongoing labour market weakness in 2013. We estimate that the unemployment rate is likely to exceed 6% by early in 2014 unnerving households and constraining any recovery in consumer confidence.

Under these circumstances the output gap will widen and inflation pressures are likely to ease. Efficiency gains by firms, limited demand pressures and an Australian dollar which remains elevated will contain inflation pressures.

Following the February Employment Report markets are now forecasting that rates are near bottom with hikes likely in 2014. That is not consistent with our scenario. We expect a further rate cut in June, or shortly thereafter, and an extended period of rate stability. We cannot see a rate hike in 2013 or 2014.

Whether a second round of rate cuts begins much later in 2013 and into 2014 will be determined by the state of the global economy. Our view is that the risks favour "disappointment" in the global outlook in the second half of 2013 and into 2014. Expectations for a solid upswing in China, European stability, and a lift in the pace of underling private demand in the US will dominate global views for the next six months or so. The reality is likely to be less encouraging with China's growth plateauing in response to modest policy restraint, Europe remaining in recession for another year, and US growth being contained in the 1–2% range as excessive sovereign and household debt constrain confidence. In Europe and the US, governments will deal poorly with high sovereign debt and banks will continue to limit support to the housing market.

Accordingly, while our central forecast is for one more rate cut to be followed by a long period of rate stability the balance of risks favour a renewed easing cycle in late 2013 and into 2014.

Under this scenario we look for a marked down shift in global commodity prices around the second half of 2013 and into 2014. Slowing global demand and increased supply, which has been responding to rising demand in the first half of 2013, will dictate this downshift. We expect the Australian dollar, after peaking around USD1.05 by mid-year, will be on a down trend through 2013 and into 2014. Potential further rate cuts, softening commodity prices and elevated global risks will be headwinds for the AUD.

Bill Evans, Chief Economist

Page 4: Westpac Coast to Coast (March2013)

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.

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Westpac Coast-to-Coast March 2013

Australian economic outlook

Hours worked contract

-6

-4

-2

0

2

4

6

8

-6

-4

-2

0

2

4

6

8

Dec-88 Dec-92 Dec-96 Dec-00 Dec-04 Dec-08 Dec-12

% ann% ann

Real GDP (lhs) Hours worked (rhs)

Sources: ABS; Westpac Economics

Labour market softHours worked contract

Australian economic conditions

-2

0

2

4

6

8

-2

0

2

4

6

8

Dec-98 Dec-02 Dec-06 Dec-10 Dec-14

% ann% ann

Domestic demand GDPf/csend '14

Sources: ABS, Westpac Economics

GDP growth, average:3.5%, 1998 to 20072.5%, 2008 to 2014

Housing & mining investment, share of GDP

0

2

4

6

8

0

2

4

6

8

Dec-88 Dec-92 Dec-96 Dec-00 Dec-04 Dec-08 Dec-12

% of GDP % of GDP

Mining, CAPEX Housing

Sources: ABS, Westpac Economics

2004: 6.4%Latest: 4.7%

2009: 2.4%Latest: 6.5%

f/csend 2014

Household savings rate

-4

-2

0

2

4

6

8

10

12

14

-4

-2

0

2

4

6

8

10

12

14

Dec-88 Dec-92 Dec-96 Dec-00 Dec-04 Dec-08 Dec-12

% income% income

Sources: ABS, Westpac Economics

Latest: 10.1%Post 2008 avg: 10.3%

Business confidence & commercial finance

-60

-40

-20

0

20

40

60

-30

-20

-10

0

10

20

30

Jan-01 Jan-04 Jan-07 Jan-10 Jan-13

Business confidence* (lhs)

Commercial finance* (rhs)

Sources: ABS, NAB, Westpac Economics

index % ann

* Smoothed (2mth / 3mth avg)

Australian growth mix

-2

-1

0

1

2

3

4

-2

-1

0

1

2

3

4

Consumer* Mining inv. Business investment

Net X GDP

ppts cont'

2012f 2013f 2014f

ppts cont'

Sources: ABS, Westpac Economics

contributions to GDP growthupdated: Mar ’13

* includes housing

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

Westpac Coast-to-Coast March 2013

Domestic demand growth

-6

-3

0

3

6

9

12

15

18

-6

-3

0

3

6

9

12

15

18

Dec-90 Dec-94 Dec-98 Dec-02 Dec-06 Dec-10 Dec-14

% ann% annWA, NT (16%) NSW, Qld, ACT (53%)Vic, SA, Tas (31%)

Sources: ABS, Westpac Economics

latest 6mths(annualised)

smoothed

0.5

2.1 2.3 2.4

4.0

6.7

3.4

1.0

1.8 2.0 2.0

3.8

6.0

2.9

1.5

2.5 2.5 2.8

3.5

5.0

2.4

0

1

2

3

4

5

6

7

8

Tas SA Vic NSW Qld WA Aus

% chg

2011/12 2012/13f 2013/14f

Sources: State budget papers, Westpac Economics

Westpacf/cs

Government f/cs

Growth: state government forecasts

States overview

0.62.7

0.9

9.2

1.9

4.6

9.9

-4.6

-0.1

0.32.2 2.4

3.5

14.2

-6

-3

0

3

6

9

12

15

18

Tas Vic SA Qld NSW Aus WA

% ann

Dec-11 yr Dec-12 yr

Sources: ABS, Westpac Economics

Demand growth: annual

Ongoing domestic headwinds shaped conditions, particularly in the southern states. In this low-growth environment, businesses across the broader economy are reluctant to invest and jobs growth has been sub-trend. Indeed, hours worked across the nation contracted in 2012.

Consumers felt the pinch from a slowing of wage incomes. At the same time, households remain focused on reducing debt from current high levels. This combination of weak incomes and a stretched balance sheet led to a tightening of belts. Consumer spending approached stalling speed over the second half of 2012 in Qld (0.7%), NSW (0.4%) and SA (0.3%), while consumers cut spending in Victoria (–0.2%) and Tasmania (–1.2%). In WA, spending growth moderated from 4.3% to 2.4% between the two half years.

A shift to a low interest rate environment is having some impact. The housing sector is beginning to respond and consumer confidence has improved across the nation, boosted by a rise in household wealth.

The Australian economy experienced a loss of momentum during 2012. This was a trend across the states, although understandably from differing starting points. Domestic demand growth over the second half of 2012 was weaker than the initial six months of the year in each of the states.

In the December quarter, only NSW (0.4%) and WA (0.5%) experienced positive state demand. Qld experienced a flat quarter, while declines were recorded in the three southern non-mining states of Victoria (–1.1%), South Australia (–0.5%) and Tasmania (–0.6%).

These outcomes reflected the combined impact of a global downturn and ongoing domestic headwinds. The mining sector was not immune. A slump in global commodity prices and rising domestic costs led to an abrupt deceleration of mining investment. Private infrastructure investment, centred on mining, jumped more than 40% over the first half of 2012 in WA, but rose only 2.6% over the second half of the year.

However, the upswing of new dwelling construction is uneven and is likely to remain so. NSW, suffering from a shortage of housing stock, led the upturn over the second half of 2012, up 11.5%. A recovery is evident in WA, up 7.4% over this period, but not yet in Qld. An abundance of supply is likely to temper any recovery during 2013 in the southern states.

The most recent forecasts from each of the state governments pre-date the disappointing December quarter state demand figures, published in early March.

Westpac Economics is of the view that sub-trend growth is likely to persist in 2013 and 2014 as mining investment begins to decline. Business confidence remains fragile, compounded by Federal Election uncertainty and the high Australian dollar. While the household sector is constrained by high debt. In addition, in our view the recent strengthening of global growth, while a plus for now, is likely to falter.

Page 6: Westpac Coast to Coast (March2013)

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.

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Westpac Coast-to-Coast March 2013

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-3

0

3

6

9

12

15

18

Dec-12 Dec-12 Dec-11 Dec-12 Dec-11 Dec-12

ppts ’annHousing Business construction Public demand Demand

Sources: ABS, Westpac Economics

Qld WA

Tas

State demand, contributions

-3

-2

-1

0

1

2

3

4

Dec-11 Dec-12 Dec-11 Dec-12 Dec-11 Dec-12

ppts ’ann

Housing Business construction Public demand Demand

Sources: ABS, Westpac Economics

NSW Vic SA

State demand, contributions

Dwelling approvals, private

50

100

150

200

Jan-07 Jan-11

NSW Vic Tas

index

Sources: ABS, Westpac Economics50

100

150

200

Jan-07 Jan-11

SA Qld WA

indexJan '09 = 100 3mth m.a.

Business investment: by state

0

4

8

12

16

20

24

Dec-91 Dec-99 Dec-07

NSW + Vic

WA + Qld

$bn Equipment

’03/04 to ’07/08

0

4

8

12

16

20

24

Dec-91 Dec-99 Dec-07

NSW + Vic

WA + Qld

$bnConstructionSources: ABS, Westpac Economics

Exports trend higher in NSW, Qld & WA

-25

-15

-5

5

15

25

Dec-97 Dec-03 Dec-09

NSW Vic

% ann

Sources: ABS, Westpac Economics

smoothed

-25

-15

-5

5

15

25

Dec-97 Dec-03 Dec-09

Qld WA

% ann

Qld & WA exports hit by disruptions

Established house prices turn

-20

-10

0

10

20

30

40

50

Dec-00 Dec-08

Sydney

Melbourne

% ann

Sources: ABS, Westpac Economics

latest 6mths(annualised)

-20

-10

0

10

20

30

40

50

Dec-00 Dec-08

Brisbane

Perth

% ann

States overview

Page 7: Westpac Coast to Coast (March2013)

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.

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Westpac Coast-to-Coast March 2013

Consumers: a state view

Consumption per capita: by state

-4

-2

0

2

4

6

8

10

-4

-2

0

2

4

6

8

10

Dec-88Dec-91Dec-94Dec-97Dec-00Dec-03Dec-06Dec-09Dec-12

%%NSW VicQld WASA

Sources: ABS, Westpac Economics

* smoothed, real

Labour income per capita: by state

-15

-10

-5

0

5

10

15

-15

-10

-5

0

5

10

15

Dec-88Dec-91Dec-94Dec-97Dec-00Dec-03Dec-06Dec-09Dec-12

%%NSW VicQld WASA

Sources: ABS, Westpac Economics

* smoothed, real

0

5

10

15

20

25

30

0

5

10

15

20

25

30

10 11 12 10 11 12 10 11 12 10 11 12 10 11 12 10 11 12

Aus NSW Vic Qld WA SA

ann%ann%gross*net

Sources: ABS, Westpac Economics

*includes depreciation of assets, net savings estimate not available for states

Household savings rates: by state Consumer spending experienced a marked slowdown in 2012 as households opted to maintain high savings rates in the face of slowing income growth. Looking at the slowdown by state and adjusting for differentials in population growth, the most pronounced weakening was in Vic, followed by a milder but still significant moderation in Qld. NSW, SA and WA were relatively steady, the latter at a notably higher rate than other states.

Total labour income stalled flat in 2012 across the big eastern states and slowed markedly in WA (albeit at still relatively strong rates). Consumers' unemployment expectations – a proxy for their sense of job security – have improved in 2013, particularly in WA & Qld. But available state data suggests household savings rates remain high in most states. This caution is also reflected in survey-based measures of consumers' risk aversion which remains high nationally but varied by state.

60

80

100

120

140

160

180

200

60

80

100

120

140

160

180

200

Mar-06 Mar-08 Mar-10 Mar-12 Mar-06 Mar-08 Mar-10 Mar-12

index index NSW Vic Qld WA SA Tas

Source: Melbourne Institute, Westpac Economics *smoothed

unemp exp’d to rise

unemp exp’d to fall

Consumers’ unemployment expectations: by state

-30

0

30

60

-30

0

30

60

Mar-06 Mar-08 Mar-10 Mar-12 Mar-06 Mar-08 Mar-10 Mar-12

index index

NSW Vic Qld WA SA Tas

Source: Melbourne Institute, Westpac Economics * index based on responses to ‘wisest place for savings’, smoothed

Consumers’ risk aversion: by state

risk averse

risk seeking

Page 8: Westpac Coast to Coast (March2013)

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.

8

Westpac Coast-to-Coast March 2013

Capital city dwelling prices

-20

-10

0

10

20

30

-20

-10

0

10

20

30

Mar-07 Mar-08 Mar-09 Mar-10 Mar-11 Mar-12 Mar-13

%%

Sydney Melbourne BrisbanePerth Adelaide

Sources: ABS, RP Data-Rismark, APM, Residex, Westpac Economics

* all dwellings, composite of all measures, annualised, seasonally adjusted

Auction activity: more convincing recovery

-3

-2

-1

0

1

2

3

4

-3

-2

-1

0

1

2

3

4

Mar-03 Mar-07 Mar-11 Mar-03 Mar-07 Mar-11

st. devnsst. devnsSydney (14%) Adelaide (6%)Melbourne (20%) Perth (0.5%)^Brisbane (2.5%) Hobart (3%)^

Sources: APM, RP Data-Rismark, Westpac Economics

*seas. adjusted by Westpac, smoothed figures show avg proportion of properties sold via auction (i.e. vs private treaty)

auction clearance rates

deviation from long run average

Consumers: house price expectations

-40

-20

0

20

40

60

80

100

-40

-20

0

20

40

60

80

100

Jan-09 Jan-11 Jan-13 Jan-09 Jan-11 Jan-13

net %net %NSW Vic Qld SA WA Tas

Source: Westpac-Melbourne Institute

*% reporting expected rise minus % reporting expected fall

house prices, next 12mths

After moving through an extended correction across most markets in 2011-12, dwelling prices have firmed across the board since mid 2012. More timely data shows a strong start to 2013 for auction market activity, suggesting further improvement.

Conditions vary markedly across states though. Price wise, Perth and Sydney have been notably stronger for longer, with Melbourne a more recent improver, and patchy performances continuing for Brisbane and Adelaide. Most consumers expect price gains to continue although expectations are patchier outside of NSW and WA and outright pessimistic in Tasmania. From investors' perspective, gross rental yields on units have pushed above 5% in most capital cities, with Melbourne and Adelaide notable exceptions. On the supply side, approvals have risen strongly in WA & NSW but have been more uneven in Vic, flat in Qld and weak for SA and Tasmania.

Housing: state update

Rental yields

2

3

4

5

6

7

8

9

10

2

3

4

5

6

7

8

9

10

Dec-88 Dec-98 Dec-08 Dec-88 Dec-98 Dec-08

%%Sydney AdelaideMelbourne PerthBrisbane Hobart

Source: REIA, Westpac Economics

median gross rental yield*

*median rent on 2bdrm unit as % median unit price, adjusted for vacancies

national avg since 1980

latest as at Dec

Dwelling approvals by state

20

40

60

80

100

120

140

160

180

20

40

60

80

100

120

140

160

180

Jan-02 Jan-05 Jan-08 Jan-11 Jan-02 Jan-05 Jan-08 Jan-11

indexindexNSW (23%) SA (7%)Vic (29%) WA (14%)Qld (23%) Tas (2%)

Sources: ABS, Westpac

trend, Jan 2002 = 100figures in brackets show %national last 10yrs

Page 9: Westpac Coast to Coast (March2013)

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.

9

Westpac Coast-to-Coast March 2013

Employment and activity: a state view

State jobs markets

94

96

98

100

102

104

106

108

Feb-09 Feb-12

NSW Vic

index

Sources: ABS, Westpac Economics

Dec ’10 = 100

94

96

98

100

102

104

106

108

Feb-09 Feb-12

Qld WA

index

Australia: jobs & domestic demand

-6

-4

-2

0

2

4

6

8

-4

-2

0

2

4

6

Dec-87 Dec-92 Dec-97 Dec-02 Dec-07 Dec-12

% ann% ann

Jobs * (lhs)

Domestic demand, adv 2qtrs (rhs)

Sources: ABS, Westpac Economics updated Mar ’13

Jobs undershoot* qtrly average

-3-2-101234567

-4

-2

0

2

4

6

8

10

Dec-87 Dec-92 Dec-97 Dec-02 Dec-07 Dec-12

% ann% annDomestic demand adv 2 qtrs *, lhs

Jobs **, rhs

Sources: ABS, Westpac Economics

* smoothed, ** qtrly, average

NSW: jobs & demand

-8

-6

-4

-2

0

2

4

6

8

-8

-6

-4

-2

0

2

4

6

8

10

Dec-87 Dec-92 Dec-97 Dec-02 Dec-07 Dec-12

% ann% ann

Domestic demand adv 2 qtrs *, lhs

Jobs **, rhs

Sources: ABS, Westpac Economics

* smoothed, ** qtrly, average

Victoria: jobs & demand

-4

-2

0

2

4

6

8

-6-4-202468

101214

Dec-87 Dec-92 Dec-97 Dec-02 Dec-07 Dec-12

% ann% ann

Domestic demand adv 2 qtrs *, lhsJobs **, rhs

Sources: ABS, Westpac Economics

* smoothed, ** qtrly, average

Qld: jobs & demand

-4

-2

0

2

4

6

8

10

-8

-4

0

4

8

12

16

20

Dec-87 Dec-92 Dec-97 Dec-02 Dec-07 Dec-12

% ann% annDomestic demand adv 2 qtrs *, lhs

Jobs **, rhs

Sources: ABS, Westpac Economics

* smoothed, ** qtrly, average

WA: jobs & demand

Page 10: Westpac Coast to Coast (March2013)

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.

10

Westpac Coast-to-Coast March 2013

NSW: jobs by sector, annual change

-80 -60 -40 -20 0 20 40 60 80

GovernmentConstruction

RetailFinance & real estate

UtilitiesMining

Business servicesAgriculture

ManufacturingWholesale & transp.Health & education

Leisure & hospitality

’000 change in employment

Q4 '11, Q1 '12

Q4 '12, Q1 '13 Sources: ABS, Westpac Economics

Vic: jobs by sector, annual change

-60 -40 -20 0 20 40 60

ManufacturingUtilities

AgricultureMining

GovernmentConstruction

Leisure & hospitalityBusiness services

Finance & real estateWholesale & transp.Health & education

Retail

’000 change in employment

Q4 '11, Q1 '12

Q4 '12, Q1 '13

Sources: ABS, Westpac Economics

Qld: jobs by sector, annual change

-40 -20 0 20 40 60 80

UtilitiesManufacturing

AgricultureFinance & real estate

GovernmentRetail

Health & educationBusiness services

Leisure & hospitalityConstruction

MiningWholesale & transp.

’000 change in employment

Q4 '11, Q1 '12

Q4 '12, Q1 '13

Sources: ABS, Westpac Economics

WA: jobs by sector, annual change

-20 0 20 40 60

Finance & real estateLeisure & hospitality

GovernmentManufacturing

Wholesale & transp.Construction

Health & educationMining

AgricultureUtilities

RetailBusiness services

’000 change in employment

Q4 '11, Q1 '12

Q4 '12, Q1 '13

Sources: ABS, Westpac Economics

Employment by industry

SA: jobs by sector, annual change

-30 -20 -10 0 10 20 30

AgricultureFinance & real estate

ManufacturingLeisure & hospitality

RetailUtilities

ConstructionMining

GovernmentWholesale & transp.

Business servicesHealth & education

’000 change in employment

Q4 '11, Q1 '12

Q4 '12, Q1 '13

Sources: ABS,Westpac Economics

Tas: jobs by sector, annual change

-9 -6 -3 0 3 6 9 12

RetailLeisure & hospitality

ConstructionAgriculture

GovernmentWholesale & transp.

Finance & real estateUtilitiesMining

Business servicesManufacturing

Health & education

’000 change in employment

Q4 '11, Q1 '12

Q4 '12, Q1 '13

Sources: ABS, WestpacEconomics

Page 11: Westpac Coast to Coast (March2013)

11

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

Westpac Coast-to-Coast March 2013

NSW's economy experienced a loss of momentum over the second half of 2012, mirroring a trend nationally. The outlook is for a modest improvement on the back of lower interest rates, constrained by persistent headwinds.

State domestic demand expanded by 1.9% over the first half of 2012, slowing to a rise of 0.5% over the second half of the year. Annual demand growth moderated from 3.8% in Q2 to 2.4% in Q4, an outcome below the historic average of 3.2%.

Consumer spending stalled over the second half of 2012, with rises of only 0.1% in Q3 and 0.3% in Q4. Government cash payments did see a bring forward of spending into Q2. More fundamentally, consumers adjusted to softer wage incomes.

Consumer spending is likely to recover somewhat, supported by an improvement in household wealth. Notably, the Westpac-MI Consumer Sentiment Index for NSW rebounded to 113 in the month of March, from an average 98 in Q3 and 104 in Q4.

Public demand was the other key driver of recent softer demand. Government revenues have been dented by the current low growth environment. Also, a pull-forward of public investment into the 2011/12 financial year led to a temporary let down effect over the second half of 2012.

The NSW economy stands to benefit more than most from a shift to a low interest rate environment given a sizeable degree of pent-up demand for housing stock. A response is underway, with new dwelling construction rebounding 14% over 2012, returning to the peak of late 2010. However, this improvement in 2012 was fully offset by a slump in renovation activity, down 15%.

NSW's mining sector, with a focus on coal, has responded to relatively high global commodity prices. This is evident from an upswing in private infrastructure investment, which advanced 35% over the year, following on from a 25% lift during 2011. The payoff is becoming evident, with additional coal shipments.

NSW exports of goods increased by 8.3% in 2012, an outcome exceeding the historic average of 6.8%. Also, this contrasts with the non-mining states of Victoria, SA and Tasmania, which experienced a drop-off in exports during 2012.

The uptrend in total business investment is set to extend into 2013. However, just how strong investment will be is unclear. Gains of 7% and 5% were recorded for 2011 and 2012 respectively. Infrastructure activity, 20% of total business investment, will remain a key driver with the pipeline of work up 30% in the six months to September 2012. The pipeline of non-residential building work has grown as well, as the Barangaroo project proceeds. The weak link to date is equipment investment, at a time of patchy consumer spending. A recovery in household demand from recent weakness will be supportive of investment. However fragile business confidence poses a downside risk.

Contributions to state final demand

2.4

0.4

0.6

0.0

1.3

1.9

-0.3

0.9

-0.2

1.5

-0.6 0.0 0.6 1.2 1.8 2.4 3.0

Final demand

Public

Investment

Housing

Consumption

ppts

yr Dec 11

yr Dec 12

Sources: ABS,Westpac Economics

-4

-2

0

2

4

6

8

-6

-4

-2

0

2

4

6

8

10

Dec-92 Dec-96 Dec-00 Dec-04 Dec-08 Dec-12

% ann% ann

Labour income

ConsumptionSources: ABS, Westpac Economics

real

Consumption: +2.2%yr 25 year avg: +3.0%yr

Consumers: consumption & wage income

-60

-40

-20

0

20

40

60

-80

-60

-40

-20

0

20

40

60

80

Dec-92 Dec-96 Dec-00 Dec-04 Dec-08 Dec-12

% ann% annNew dwelling investment (lhs)Approvals, adv 2qtrs# (rhs)

Sources: ABS, Westpac Economics

# smoothed

New dwelling upswing underway

NSW: a tough year for consumers ...

Page 12: Westpac Coast to Coast (March2013)

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.

12

Westpac Coast-to-Coast March 2013

-2

0

2

4

6

8

-2

0

2

4

6

8

1990/91 1995/96 2000/01 2005/06 2010/11

% chg% chg

GSP State demand

Sources: ABS, NSW Gov't, Westpac Economics

Gov'tf/cs(Dec ‘12)

GSP: 2.6% avg.

NSW economic performance & outlook

-4

-2

0

2

4

6

8

10

-4

-2

0

2

4

6

8

10

Dec-96 Dec-00 Dec-04 Dec-08 Dec-12

% ann% ann

NSW Australia

Sources: ABS, Westpac Economics

Historic avg:NSW, 3.2% ann

Domestic demand

... construction a bright spot

-10

0

10

20

30

40

50

-10

0

10

20

30

40

50

Dec-86 Dec-90 Dec-94 Dec-98 Dec-02 Dec-06 Dec-10

% ann% ann

Sydney

Capital cities, average

Sources: ABS, Westpac Economics

2 qtr change,annualised

Established house prices, advanced in 2012

Non-residential construction pipeline expands

0

2

4

6

8

10

12

Dec-90 Dec-98 Dec-06

Work doneYet to be doneApprovals

$bn Non-res. building

0

2

4

6

8

10

12

Dec-90 Dec-98 Dec-06

Work doneYet to be doneCommencements *

$bnInfrastructure

Sources: ABS, Westpac Economics

* 2qtr avg

Business investment: equipment spend stalls

0

1

2

3

4

5

6

7

0

1

2

3

4

5

6

7

Dec-88 Dec-92 Dec-96 Dec-00 Dec-04 Dec-08 Dec-12

% of demand% of demand

Equipment *Non-residential buildingEngineering

Sources: ABS, Westpac Economics

* Smoothed, excludes computer software etc

NSW exports on the up, boosted by coal

-10

0

10

20

-10

0

10

20

Dec-90 Dec-94 Dec-98 Dec-02 Dec-06 Dec-10

% ann% ann

NSW Australia

Sources: ABS; Westpac Economics

exports of goods, smoothed

WA & Qld exportshit by cyclones & flooding

NSW: +8.3%yr

Page 13: Westpac Coast to Coast (March2013)

13

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

Westpac Coast-to-Coast March 2013

Victoria: ouch ...

-8-6-4-20246810

-8-6-4-202468

10

Dec-88 Dec-93 Dec-98 Dec-03 Dec-08

% ann% ann

Victoria Australia

Sources: ABS, Westpac Economics

Domestic demand: Vic crunched

Victoria: contributions to state final demand

-0.1

-2.1

0.5

0.3

1.1

2.7

0.5

0.6

0.2

1.6

-4 -2 0 2 4

Final demand

Public*

Investment*

Housing

Consumption

ppts

yr Dec 11

yr Dec 12

Sources: ABS,Westpac Economics

*Dec-12 figure is a Westpac estimate, see text for details

Vic employment: extreme volatility over Jan-Feb

-8

-6

-4

-2

0

2

4

6

8

-40

-30

-20

-10

0

10

20

30

40

Feb-07 Feb-09 Feb-11 Feb-13

% ann'000

jobs, mth chg (lhs) jobs, 6mth chg, annual'd* (rhs)

Sources: ABS, Westpac Economics

* smoothed

In the Dec 2012 edition of Coast-to-Coast we noted Vic's abrupt slowdown had resulted in a 'demand recession' (2 successive quarters of contracting state demand), with weakness across multiple fronts and a pronounced drag from the public sector. The picture has mostly deteriorated since then, albeit with more mixed signals from the Vic labour market and some signs of improvement in the housing sector.

The Q4 national accounts were very poor for Vic. The state experienced another contraction in demand, the 3rd quarter in a row and, at –1.1%, the worst to date. Demand has stalled on an annual basis, with Vic's –0.1%yr in stark contrast to the 3.5%yr gain nationally. The Q4 detail is partially obscured by a large asset transfer from the private to the public sector that has seen several components of state investment withheld by the ABS due to confidentiality reasons. The transfer appears to be Vic's $4.5bn desalination plant which was completed late last year. Where applicable we have presented Q4 estimates assuming this is the missing figure.

The public sector has been the main swing factor in Vic's under-performance. Consumer spending has been weak, rising just 0.3% in Q4, but is broadly in line with the weakness seen nationally. Private investment has been flatter in Vic than that seen nationally, not surprising given Vic's 'non-mining' status, but, on our estimates still made a small positive contribution to annual demand growth in 2012, despite an estimated 4% pull back in Q4 (from a 5.3% gain in Q3).

In contrast, public demand contracted by close to 10% in 2012. Government consumption (direct purchases of goods and services by the public sector) declined 2.4% over the second half of the year – the biggest 6mth contraction since the early 1990s recession, which was a particularly harrowing experience for Vic. The more spectacular decline was in public investment though. This item was heavily impacted by the aforementioned asset transfer but our estimates suggest underlying 'new' public investment collapsed by 60-70% over 2012H2. Fiscal austerity and the end of a major round of public investment has effectively taken over 2ppts off demand.

The weak economic performance is also evident in Vic's labour market but with a fair few 'quirks' in the data. Employment stalled flat over 2012H2 after rising at a 2.6% annual pace over H1. Government dominated sectors added 0.3ppt to headline jobs growth in 2012, compared to close to 1ppt in 2011. The employment numbers for early 2013 suggest some improvement but are extremely problematic due to extreme volatility, some of which appears to be a survey quality issue.

Latest data on Vic's housing sector has had a better tone in 2013. Housing investment rose over the second half of 2012, with activity up 4.6% in Q4, 5.1%yr. Approvals point to more modest gains ahead. In the established market, auction activity has shown a marked improvement in 2013 with clearance rates lifting to be back near long-run averages vs soft levels late last year. Monthly house price measures also suggest these have stabilised in 2013 after showing more persistent slippage through 2012 than that seen nationally.

Page 14: Westpac Coast to Coast (March2013)

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.

14

Westpac Coast-to-Coast March 2013

Business investment uneven

0

1

2

3

4

5

6

7

0

1

2

3

4

5

6

7

Dec-92 Dec-96 Dec-00 Dec-04 Dec-08 Dec-12

$bn$bn

equipment

non-residential building

engineering

Sources: ABS, Westpac Economics

*new

Vic: public demand

-6

-4

-2

0

2

4

6

-6

-4

-2

0

2

4

6

Dec-98 Dec-02 Dec-06 Dec-10

% ann% anntotal*state & localstate & local - investment only

Sources: ABS, Westpac Economics

*excl. asset transfers, Dec-12 is Westpac estimate, 6mth annualised contribution to state final demand

... growth flattened by fiscal punch

Vic employment by sector

-3

-2

-1

0

1

2

3

4

-3

-2

-1

0

1

2

3

4

Feb-05 Feb-07 Feb-09 Feb-11 Feb-13

pptspptsmining, utilities, constn business servicesmanufacturing consumereduc, health, govt

Source: ABS, Westpac Economics

*contribution to total state employment growth (ann avg)

last 6mthsann’d

-40

-20

0

20

40

60

-40

-20

0

20

40

60

Dec-91 Dec-95 Dec-99 Dec-03 Dec-07 Dec-11

%ann%annnew dwelling investmentapprovals, adv 2qtrs

Sources: ABS, Westpac Economics

Housing construction: modest rally in approvals House prices: Melb stabilises

-10

0

10

20

30

40

-10

0

10

20

30

40

Mar-92 Mar-96 Mar-00 Mar-04 Mar-08 Mar-12

% ann% ann

Melbourne

capital cities avg.

Sources: RP Data; Westpac Economics

Vic: household income growth stalls

-4

-1

2

5

8

11

-4

-1

2

5

8

11

Dec-00 Dec-04 Dec-08 Dec-12

% ann% ann

labour income consumption

Sources: ABS, Westpac Economics

*real

avg since 2008

Page 15: Westpac Coast to Coast (March2013)

15

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

Westpac Coast-to-Coast March 2013

Queensland: returns to new normal ...

Queensland remained in the doldrums in Q4, with state final demand growth a whisker below zero following a 0.8% decline in Q3. Annual growth has now decelerated to just 2.2%yr, a fraction of Q4 2011's 9.2%yr result.

The impetus behind 2011’s strong growth came from business investment, specifically rapid growth in engineering construction associated with three large LNG projects. While the completion of these projects is still a way off, the majority of the available growth dividend has been received; from here on out, growth in engineering construction is likely to maintain a much more modest pace.

Herein is reason to suspect that Queensland's recent ‘return to earth’ is more likely permanent than not. What’s more, with the Qld coal industry facing challenging times and the high Australian dollar severely impacting the state's competitiveness in other externally-focused industries (specifically, tourism and education), Qld’s future growth prospects will largely rest on domestic demand.

In Q4, household consumption growth was soft at 0.3%; annual growth remained a healthy 3.4%yr, although that is softer than the 4.4%yr seen during H1 2012.

Housing investment rebounded in Q4, rising 5.3%; however, that followed a 8.9% fall in Q3, and leaves annual growth at just 2.9%yr. Renovation work has been much weaker than new dwelling construction: in Q4, new dwelling investment recovered the ground lost in Q3, but renovation activity only managed to recover a fraction of Q3's 8.3% fall; over the year, new dwelling construction is up 14%yr, but renovation work is little changed.

Softer household consumption growth and weakness in renovation work is not a Qld-only phenomena. Rather, it is in line with a broad-based trend which is a function of consumer caution and low credit growth. Housing finance data up to January points to activity in this sector remaining weak. What is particularly concerning is that first-home buyers – key for new construction – remain largely absent.

For Qld at least, a key part of the underlying story is an absence of job creation. In trend terms, employment has risen by a meagre 0.3% over the year to February. Had it not been for a 0.9ppt decline in the participation rate over the same period, the Qld unemployment rate would be well above 6%, versus its current 5.8%.

Not only do businesses seem reluctant to hire additional staff, they are also becoming more reluctant to invest. Annual investment growth has slowed from near 50%yr in late 2011 to just 5%yr currently. As noted above, this has primarily been due to a marked slowdown in engineering investment. However, we have also seen non-residential investment growth decline (to near flat), and equipment spending fall.

Finally, the public sector clearly remains under pressure, with public demand down 1.6%yr on declining investment, down 16% through H2 2012.

-9

-6

-3

0

3

6

9

12

15

-9

-6

-3

0

3

6

9

12

15

Dec-90 Dec-94 Dec-98 Dec-02 Dec-06 Dec-10

% ann% ann

Qld Australia

Sources: ABS, Westpac Economics

Qld domestic demand: growth on the slide

Qld: Contributions to state final demand

2.2

-0.4

1.1

0.1

1.7

9.2

0.0

7.3

-0.4

1.7

-2 0 2 4 6 8 10 12

Final demand

Public

Investment

Housing

Consumption

ppts

yr to Dec 2011

yr to Dec 2012

Sources: ABS, Westpac Economics

0

20

40

60

80

100

120

140

-4.0

-3.0

-2.0

-1.0

0.0

1.0

2.0

3.0

2011/12 2012/13 2013/14 2014/15 2015/16

%revenue%GDP

fiscal balance (lhs)underlying' fiscal balance (lhs)*net financial liabilities (rhs)

Sources: Queensland Treasury, Westpac Economics

‘AAA’ credit range

* excluding net disaster –related transaction

Qld budget: austerity drive to regain ‘AAA’ rating

Page 16: Westpac Coast to Coast (March2013)

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.

16

Westpac Coast-to-Coast March 2013

... following LNG-induced surge

Construction investment surge topping out

0

1

2

3

4

5

6

7

Dec-90 Dec-98 Dec-06

work done

work yet to be done

approvals

$bn non-res building

0

10

20

30

40

50

60

Dec-90 Dec-98 Dec-06

work done

yet to be done

commencements

$bninfrastructureSources: ABS, Westpac Economics

Qld: business investment, activity still strong

0

2

4

6

8

0

2

4

6

8

Dec-92 Dec-96 Dec-00 Dec-04 Dec-08 Dec-12

$bn$bn

Equipment

Non-residential building

Infrastructure

Sources: ABS, Westpac Economics

Up 164% on end 2010; just 18%on end 2011.

Qld housing approvals remain weak

6

7

8

9

10

11

12

13

1

2

3

4

5

Jan-90 Jan-94 Jan-98 Jan-02 Jan-06 Jan-10

'000'000Qld (lhs) Australia, ex Qld (rhs)

Sources: ABS, Westpac EconomicsPeakMar 2010

*smoothed

private dwelling approvals

Qld labour market soft

0

2

4

6

8

10

12

54

56

58

60

62

64

66

Feb-91 Feb-95 Feb-99 Feb-03 Feb-07 Feb-11

% %

employment to population ratio (lhs)

unemployment rate, trend (rhs)Sources: ABS, Westpac Economics

labour market weaker than unemprate suggests

0.5

1.0

1.5

2.0

2.5

3.0

3.5

0.5

1.0

1.5

2.0

2.5

3.0

3.5

Jun-82 Jun-87 Jun-92 Jun-97 Jun-02 Jun-07 Jun-12

% ann% ann

Qld, 1.9%yr (lhs)

Aust, 1.6%yr (rhs)

Sources: ABS, Westpac Economics

Avg: 2.5%yr

Population growth accelerating

Qld consumers: mining boom mk2 much less fun

-4

-2

0

2

4

6

8

10

12

14

-4

-2

0

2

4

6

8

10

12

14

Dec-00 Dec-04 Dec-08 Dec-12

% ann% annlabour incomeconsumption

Sources: ABS, Westpac Economics

*realperiod averages

Page 17: Westpac Coast to Coast (March2013)

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.

Westpac Coast-to-Coast March 2013

-8

-4

0

4

8

12

16

-8

-4

0

4

8

12

16

Dec-88 Dec-92 Dec-96 Dec-00 Dec-04 Dec-08 Dec-12

% ann% ann

WA Aust

Sources: ABS, Westpac Economics

State demand: strongest year yet for WA’s boom

WA: contributions to state final demand

14.2

0.5

11.0

-0.6

3.0

9.9

0.9

6.5

-0.2

2.6

-4 0 4 8 12 16

Final demand

Public

Investment

Housing

Consumption

ppts

yr Dec 11

yr Dec 12

Sources: ABS, Westpac Economics

-10-8-6-4-20246810

-10-8-6-4-202468

10

Feb-83 Feb-88 Feb-93 Feb-98 Feb-03 Feb-08 Feb-13

% ann% ann

WA Australia

Sources: ABS, Westpac Economics

Total hours worked: WA vs Aus

last 6 mthsannualised3mth rolling average

Western Australia: another record year ...

Despite a strong rise in state demand over 2012, WA is starting to show distinct signs that the latest ramp up in the mining boom is starting to reach a crest.

Demand quarter to quarter has shown a significant deceleration: rising just 0.5% in Q4 vs 2.9% in Q3, 2.1% in Q2 and 8.2% in Q1. Some of this is likely to be a temporary 'soft patch' reflecting the sharp jolt to confidence mid to late last year when slumping commodity prices and associated project cancellations/deferrals and cost cutting saw severe fears of a hard landing for the mining sector.

Commodity prices have since rallied and confidence has mostly been restored. However, the construction pipeline, which has been shrinking steadily since mid-2011, is clearly pointing to a moderation in WA's investment-dominated demand growth.

Even with the soft finish, 2012 will still go down as the strongest year yet for WA's mining boom. State demand increased 14.2% through the year and, although that annual pace has been eclipsed (in 2011 and 2006), the 13.6%yr rise for the combined 2012 calendar year is a new record, a feat all the more impressive given the high starting point.

The December quarter on its own was less robust though. Household consumption continued to record solid growth, rising 1.1% (6.9%yr), but housing investment fell back 1.5%qtr (–9.8%yr). Business investment flattened out, with an estimated 2.8% decline in non-residential and engineering construction (Westpac estimates some of the Q4 spending detail was withheld by the ABS due to confidentiality requirements - see Vic for more detail).

On public demand, there is little to say: it was little changed in the quarter and up 2.8%yr.

The deceleration is also apparent in WA's labour market. After rising 8.2% in the year to May 2012, growth in hours worked hit a wall mid-year and have declined over the six months to Feb. The turnaround has been less apparent in employment but trend growth here has also moderated from 4.7%yr to 3%yr. The disconnect may reflect the confidence 'jolt' in Q3 last year, with firms putting orders on hold and reducing staff loading but keeping the same headcount – the nightmare of securing skilled workers out west no doubt fresh in many memories. What is also interesting though is that the rapid cool off appears to have flowed through very quickly to wages, with growth in wages pulling back in line with the national average over the second half of 2012.

Looking ahead, retail sales suggest the jobs slowdown may be feeding through to demand. The key though will be how WA's still massive pipeline of mining capex work flows into quarter-to-quarter activity from here on.

Page 18: Westpac Coast to Coast (March2013)

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.

18

Westpac Coast-to-Coast March 2013

WA wages growth reconverging?

0

1

2

3

4

5

6

7

0

1

2

3

4

5

6

7

Dec-98 Dec-00 Dec-02 Dec-04 Dec-06 Dec-08 Dec-10 Dec-12

% ann% annWage Cost Index, WA

Australia, ex WA*

Sources: ABS, Westpac Economics

*Westpac estimateMining boom MkI MkII

avg 5%yr 4.5%yr

H2 ann’d

WA labour market

2

4

6

8

10

12

-6

-4

-2

0

2

4

6

8

Feb-93 Feb-97 Feb-01 Feb-05 Feb-09 Feb-13

% ann %

WA jobs (lhs)Aust jobs (lhs)un. rate, WA (rhs)

Sources: ABS, Westpac Economics

*trend; ̂ year average

WA govt estimates and

forecasts^

Retail sales: WA slows abruptly

-0.3

0.0

0.3

0.6

0.9

1.2

1.5

-0.3

0.0

0.3

0.6

0.9

1.2

1.5

Jun-06 Jun-07 Jun-08 Jun-09 Jun-10 Jun-11 Jun-12

% chg% chg

WA Australia ex WA

Sources: ABS, Westpac Economics

trend, mth % chg

0.5

1.0

1.5

2.0

2.5

3.0

3.5

0.5

1.0

1.5

2.0

2.5

3.0

3.5

Jun-92 Jun-96 Jun-00 Jun-04 Jun-08 Jun-12

% ann% ann

WA Aust

Sources: ABS, Westpac Economics

WA’s population influx on again Construction pipeline peaks but still massive

0

1

2

3

4

5

Dec-89 Dec-97 Dec-05

work doneyet to be doneapprovals

$bn non-res. building

0

10

20

30

40

50

60

70

Dec-88 Dec-96 Dec-04 Dec-12

work done

yet to be done

commencements

$bninfrastructureSources: ABS, Westpac Economics

WA consumers: income and spending

-4

0

4

8

12

16

-4

0

4

8

12

16

Sep-00 Sep-04 Sep-08 Sep-12

% ann% annlabour incomeconsumption

Sources: ABS, Westpac Economics

*real

Mining boom MkI MkII

period averages

... but with a very shaky finish

Page 19: Westpac Coast to Coast (March2013)

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.

Westpac Coast-to-Coast March 2013

South Australia: concern builds ...

South Australia remains a key point of concern. In Q4, it experienced its second consecutive decline in activity (–0.5%) following Q3's –2.7% print. Activity is now 3.1% lower than June 2012, back near its year-ago level.

Of greater concern is that, had it not been for a 3.1% rise in public demand, the Q4 outcome would have been much worse, with private demand falling 1.5% in the quarter.

The key area of weakness for SA is housing investment. It declined throughout 2012 to be down 16%yr. And, in contrast to the rest of the nation, new dwelling construction and renovation work have both fallen significantly in SA.

Highlighting the pervasiveness of this trend, new dwelling construction is now 25% off its peak level (June 2011). Renovation work has declined by 16% over the 9 months to December.

Household consumption meanwhile fell 0.2% in Q4. Available data on retail sales gives reason to suspect that household demand is on the improve, but growth is likely to remain modest.

Total employment has risen by just 1.5k over the year to February in trend terms and the unemployment rate has risen by 0.7ppts to 5.8%. What's more, the participation rate remains 0.8ppts below its late-2008 peak.

Not only is the jobs market providing little in the way of momentum, but SA population growth is also weak relative to the other states, limiting the natural growth impulse.

With manufacturing in a depressed state and the high Australian dollar also impacting the key agricultural sector, this situation is unlikely to change much in the near term.

Given the state of the household sector, the impact of the high Australian dollar and the absence of any big resource projects for the state, it is hardly surprising that business investment fell 6.5% in Q4 and is flat over the year.

The weakness in investment is broad based. Despite a 6.3% rebound in Q4, equipment investment declined by 14% over 2012. Infrastructure and non-residential building both rose over the year (13%yr and 4.4%yr respectively), but activity in these sub-sectors fell sharply in Q4 (–19% and –6% respectively).

Of concern for the outlook, the pipeline of work to be completed looks to have peaked. This suggests that the business sector will likely continue to provide little in the way of support for growth in 2013. All told, 2013 will prove challenging for SA with growth hard to come by.

-2

0

2

4

6

8

10

-2

0

2

4

6

8

10

Dec-92 Dec-96 Dec-00 Dec-04 Dec-08 Dec-12

% ann% ann

SA Australia

Sources: ABS, Westpac Economics

Domestic demand, a worrying trend

SA: contributions to state final demand

0.3

-0.1

0.0

-0.8 1.2

0.9

-0.1

1.0

0.0

0.2

-1.0 -0.5 0.0 0.5 1.0 1.5

Final demand

Public

Investment

Housing

Consumption

ppts

yr to Dec 2011

yr to Dec 2012

Sources: ABS, Westpac Economics

AUD a significant burden for SA

-30

-20

-10

0

10

20

30

40

-30

-20

-10

0

10

20

30

40

Dec-92 Dec-96 Dec-00 Dec-04 Dec-08 Dec-12

% ann% ann

SA Australia

Sources: ABS; Westpac Economics

* exports of goods, smoothed

Page 20: Westpac Coast to Coast (March2013)

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.

20

Westpac Coast-to-Coast March 2013

... as growth prospects dwindle

Business investment

0.0

0.4

0.8

1.2

1.6

0.0

0.4

0.8

1.2

1.6

Dec-90 Dec-94 Dec-98 Dec-02 Dec-06 Dec-10

$bn$bn

Equipment

Non-residential building

Infrastructure

Sources: ABS, Westpac Economics

Construction pipeline starting to run off

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

Dec-90 Dec-98 Dec-06

Work done

Yet to be done

Approvals

$bn Non-res. building

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

Dec-90 Dec-98 Dec-06

Work done

Yet to be done

$bnInfrastructure

Sources: ABS, Westpac Economics

0.0

0.5

1.0

1.5

2.0

2.5

0.0

0.5

1.0

1.5

2.0

2.5

Jun-92 Jun-96 Jun-00 Jun-04 Jun-08 Jun-12

% ann% ann

SA Australia

Sources: ABS, Westpac Economics

regional migration schemes expanded

Population growthSA jobs market, is the burst fading?

-5

-3

-1

1

3

5

7

9

-10

-5

0

5

10

15

20

Feb-07 Feb-09 Feb-11 Feb-13

% ann'000

Jobs, mth chg (lhs)Jobs 6mth chg, annls'd* (rhs)

Sources: ABS, Westpac Economics * smoothed

Private dwelling approvals still very weak

7

9

11

13

15

17

19

0.3

0.5

0.7

0.9

1.1

1.3

Jan-91 Jan-95 Jan-99 Jan-03 Jan-07 Jan-11

'000'000

SA (lhs) Australia (rhs)

Sources: ABS, Westpac Economics

SA retail sales underperform

-0.5

-0.3

-0.1

0.1

0.3

0.5

0.7

0.9

-0.5

-0.3

-0.1

0.1

0.3

0.5

0.7

0.9

Jan-09 Jan-10 Jan-11 Jan-12 Jan-13

% chg% chg

SA Australia

Sources: ABS, Westpac Economics

trend, mth % chg

Page 21: Westpac Coast to Coast (March2013)

21

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

Westpac Coast-to-Coast March 2013

Tasmania: underperforms ...

Tasmania: contributions to state demand

-4.6

-0.6

-2.4

-0.7

-0.9

0.6

0.2

1.4

0.6

-1.3

-6 -4 -2 0 2

Final demand

Public

Investment

Housing

Consumption

ppts

yr Dec 11

yr Dec 12

Sources: ABS, Westpac Economics

-0.5

0.0

0.5

1.0

1.5

2.0

2.5

-0.5

0.0

0.5

1.0

1.5

2.0

2.5

Jun-85 Jun-91 Jun-97 Jun-03 Jun-09

% ann% ann

Tasmania Australia

Sources: ABS, Westpac EconomicsSlowest population growth since 2001

Population growth

-3

0

3

6

9

-3

0

3

6

9

1990/91 1995/96 2000/01 2005/06 2010/11

% chg% chg

GSP

State demand

Sources: ABS, Tas Gov't, Westpac Economics

Gov'tf/cs(Dec ‘12)GSP:

2.0% avg.

Tas economic performance & outlook

The Tasmanian economy is particularly vulnerable to the current low-growth environment, reinforced by a loss of momentum in the mainland economy during 2012.

Tasmania's starting point was weaker than that of the other states, with the winds of structural change particularly hard felt. Tasmanian state demand was broadly flat in 2011, managing a rise of only 0.6%. This compares with an average rise of around 2% in NSW, Victoria and South Australia, and 4.6% nationally over this period.

Weaker international conditions and ongoing domestic headwinds led to a downturn of the Tasmanian economy in 2012, with state demand contracting by 4.6% over the four quarters. Victoria and South Australia were the next weakest of the states, with demand broadly flat.

Private and public demand in Tasmania both experienced a set back in 2012, declining by 5.5% and 2.2% respectively.

Consumers cut spending for a second year as wage incomes declined, household wealth fell and debt levels remained elevated. Consumption fell by 1.8% in 2012, following a 2.2% fall during 2011.

Business equipment investment staged a rebound in 2011. However, this was largely unwound in 2012. Equipment spending subtracted 1.7ppts from annual state demand over the last year, following a 1.4ppts addition the year earlier.

Despite this weakness, non-residential building activity and private infrastructure work managed to stabilise during 2012, albeit at weak levels. Indeed, there is some upside to infrastructure activity in the near-term, as evident from a lift in the work pipeline, boosted by Hydro Tasmania's $425mn wind farm at Musselroe Bay.

Overall, the business investment environment is likely to remain challenging if household demand growth is sub-par and given a general lack of business confidence.

The state government, in the December budget update, downgraded their growth forecasts in light of a weaker than expected outcome in 2011/12. GSP increased by only 0.5% in 2011/12 and is forecast to improve gradually to 1.0% in 2012/13 and to 1.5% in 2013/14.

Tasmania will benefit from a shift to a low interest rate environment. An improvement in conditions on the mainland in the non-mining sectors, from a weak second half of 2012, will also be a plus. Consumer confidence has rebounded in Tasmania, to 105 in the month of March, up from around 85 for much of the second half of 2012. Tempering this, population growth has slowed sharply and dwelling approvals softened further late in 2012, early 2013.

On balance, the risks to the state government's already low growth forecasts are skewed to the downside.

Page 22: Westpac Coast to Coast (March2013)

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.

22

Westpac Coast-to-Coast March 2013

... challenges to persist

-16-12-8-404812162024

600

650

700

750

800

850

900

950

Dec-92 Dec-96 Dec-00 Dec-04 Dec-08 Dec-12

% chg$mnAUDmn, 4qtr avg (lhs) Growth, yr avg (rhs)

Sources: ABS, Westpac Economics

12% decline4 yrs to Dec ’11

Goods exports

-8

-4

0

4

8

12

16

-8

-4

0

4

8

12

16

Dec-92 Dec-96 Dec-00 Dec-04 Dec-08 Dec-12

% ann% ann

Tasmania

Australia

Sources: ABS, Westpac Economics

Domestic demand

Consumer Sentiment: Australia & Tasmania

70

80

90

100

110

120

130

70

80

90

100

110

120

130

Mar-07 Mar-08 Mar-09 Mar-10 Mar-11 Mar-12 Mar-13

indexindex

Australia Tas*

Sources: Westpac Economics, Melbourne Institute

* 2 month average

Non-residential construction

0.0

0.1

0.2

0.3

0.4

Dec-90 Dec-98 Dec-06

work done

yet to be done

approvals *

$bn Building

* 2qtr avg

Sources: ABS, Westpac Economics

0.0

0.3

0.6

0.9

1.2

Dec-90 Dec-98 Dec-06

work done

yet to be done

commencements *

$bnInfrastructure

* 2qtr avg

Business investment

0.0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

Dec-92 Dec-97 Dec-02 Dec-07 Dec-12

$bn$bn

Equipment *

Non-residential building

Infrastructure

Sources: ABS, Westpac Economics

Basslink

* including computer software etc

-10

0

10

20

30

40

50

-10

0

10

20

30

40

50

Dec-86 Dec-90 Dec-94 Dec-98 Dec-02 Dec-06 Dec-10

% ann% ann

Hobart

Capital cities, average

Sources: ABS, Westpac Economics

2 qtr change,annualised* ABS established house price series

Hobart house prices, slower to respond

Page 23: Westpac Coast to Coast (March2013)

23

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.

Westpac Coast-to-Coast March 2013

Summary indicators

Exports of goods & services

40

21

20

11

4

1

0 10 20 30 40

WA

NSW

Qld

Vic

SA

Tas

% Share of national

2011/12

52

14

22

11

15

15

0 10 20 30 40 50 60

%Share of output

Aust = 21%

Sources: ABS,Westpac Economics

Gross State Product

31

22

19

16

6

2

0 20 40

NSW

Vic

Qld

WA

SA

Tas

Shares %

2011/12

62.0

58.1

61.5

100.1

55.3

47.4

40 60 80 100 120

$'000 GSP per capita

Aust: 64.7

Sources: ABS, Westpac Economics

7.3

5.6

4.6

2.4

1.7

0.5 0.4 0.20

1

2

3

4

5

6

7

8

NSW Vic Qld WA SA Tas ACT NT

mnSources: ABS, Westpac Economics

Australia: 22.7 million

Jun 2012

Population

40.4 40.236.5

9.7

20.6

2.5 1.4 2.8

30.0

50.4

27.3

8.8

17.8

2.2 1.34.4

0

10

20

30

40

50

60

NSW Vic Qld SA WA Tas NT ACT

’000

20yr avg 2011/12

Sources: ABS, Westpac Economics

Australia 20yr avg: 154,1002011/12: 142,300

Dwelling commencements

Industry mix: share of gross value addAustralia NSW Vic Qld WA SA Tas NT ACT

Agriculture 2.5 1.8 2.8 2.8 1.6 6.1 7.8 2.8 0.1

Mining 10.3 3.5 2.2 10.6 36.3 5.2 1.8 19.9 0.1

Manufacturing 7.9 8.4 9.1 8.0 5.4 10.0 8.7 7.0 1.4

Construction 8.0 5.7 6.3 9.3 12.4 7.1 7.5 12.9 10.2

Transport, utilities 7.7 7.8 7.4 8.7 6.8 8.0 11.2 5.1 4.8

Wholesale, retail 9.4 9.2 10.8 11.0 6.6 10.1 9.6 5.1 4.4

Health, social assistance 6.3 6.8 6.9 6.6 3.6 7.5 9.3 6.0 5.7

Household services 9.7 10.8 11.2 9.0 5.7 10.4 12.8 8.7 13.4

Finance 10.2 14.7 13.4 6.6 3.8 9.1 8.2 3.2 4.2

Business services 14.6 17.7 17.4 12.6 9.6 12.3 9.3 9.5 15.6

Public administration 5.3 4.9 4.1 5.6 2.7 6.0 6.9 8.7 32.9

Ownership of dwellings 8.1 8.6 8.5 9.1 5.6 8.1 6.9 11.1 7.3

Sources: ABS, Westpac Economics. For the 2011/12 financial year.

Page 24: Westpac Coast to Coast (March2013)

24

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

Westpac Coast-to-Coast March 2013

Forecasts: state activity and employment

2011/12 2012/13f 2013/14f

Govt f/cs Westpac Govt f/cs Westpac

Australia * GDP 3.4 3.0 2.9 3.2 2.4

Employment 1.1 0.8 1.1 1.5 0.8

NSW GSP 2.4 2.00 2.3 2.75 2.6

Employment 0.6 0.75 1.4 1.00 0.9

Vic GSP 2.3 2.00 1.8 2.50 2.0

Employment 0.8 0.50 0.7 1.50 0.6

Qld GSP 4.0 3.75 3.4 3.50 2.6

Employment 1.2 0.25 0.2 2.25 0.9

SA GSP 2.1 1.75 1.5 2.50 1.7

Employment 0.5 0.00 –0.2 1.00 0.5

WA GSP 6.7 6.00 5.8 5.00 3.4

Employment 3.7 3.25 3.3 2.25 1.4

Tasmania GSP 0.5 1.00 0.8 1.50 1.1

Employment –1.1 –0.25 –0.3 0.50 0.3

* Government forecasts for Australia are a weighted average of the state government forecasts. State government forecasts from most recent state budget papers (December mid year updates) Westpac's state numbers are calculated to be consistent with the national forecasts.

Gross State Product2004/05 2005/06 2006/07 2007/08 2008/09 2009/10 2010/11 2011/12

NSW 1.8 2.1 2.1 2.9 1.0 2.0 2.6 2.4

Vic 3.8 2.1 3.8 3.5 1.1 1.9 2.7 2.3

Qld 6.0 5.6 5.7 4.8 1.0 1.4 1.0 4.0

SA 1.6 1.5 2.0 5.8 1.9 1.0 2.3 2.1

WA 3.0 4.9 6.2 3.9 4.3 4.3 4.0 6.7

Tas 2.4 2.4 2.7 2.9 2.4 0.1 0.2 0.5

NT 4.4 3.3 5.7 7.0 4.8 1.2 1.2 4.4

Source: ABS. Note, estimates of GSP are only on an annual basis.

Employment2004/05 2005/06 2006/07 2007/08 2008/09 2009/10 2010/11 2011/12

NSW 1.2 2.0 2.1 2.9 0.7 0.9 2.7 0.6

Vic 3.1 2.3 3.2 3.2 0.9 2.5 3.0 0.8

Qld 5.4 4.0 4.8 3.0 2.9 0.6 1.8 1.2

SA 1.6 2.5 2.0 2.1 1.7 0.9 1.4 0.5

WA 4.1 5.5 3.0 4.1 4.0 –0.2 3.2 3.7

Tas 2.5 3.4 0.8 2.9 2.9 –1.7 1.2 –1.1

Source: ABS.

Page 25: Westpac Coast to Coast (March2013)

25

Publication enquiries, Westpac Economics, Telephone (61-2) 8254 8720, [email protected]

Westpac Economics

LondonCamomile Court,23 Camomile St,London EC3A 7LLUnited KingdomTelephone (44–20) 7621 7061Facsimile (44–20) 7621 7527

James ShuggSenior Economist

SydneyLevel 2, 275 Kent StreetSydney NSW 2000AustraliaTelephone (61–2) 8254 8372Facsimile (61–2) 8254 6934

Bill EvansChief Economist Global Head of Economics & Research

Andrew HanlanSenior Economist

Matthew HassanSenior Economist

Huw McKaySenior International Economist

Justin SmirkSenior Economist

Elliot ClarkeEconomist

AucklandTakutai on the SquareLevel 8, 16 Takutai SquareAuckland, New ZealandTelephone (64–9) 336 5671Facsimile (64–9) 336 5672

Dominick StephensChief Economist, New Zealand

Michael GordonSenior Economist

Felix DelbrückSenior Economist

Nathan PennyEconomist

Page 26: Westpac Coast to Coast (March2013)

26

Things you should know: If you are located in Australia, this material and access to this website is provided to you solely for your own use and in your capacity as a wholesale client of Westpac Institutional Bank being a division of Westpac Banking Corporation ABN 33 007 457 141 AFSL 233714 (‘Westpac’). If you are located outside of Australia, this material and access to this website is provided to you as outlined below.

This material and this website contains general commentary only and does not constitute investment advice. Certain types of transactions, including those involving futures, options and high yield securities give rise to substantial risk and are not suitable for all investors. We recommend that you seek your own independent legal or financial advice before proceeding with any investment decision. This information has been prepared without taking account of your objectives, financial situation or needs. This material and this website may contain material provided by third parties. While such material is published with the necessary permission none of Westpac or its related entities accepts any responsibility for the accuracy or completeness of any such material. Although we have made every effort to ensure the information is free from error, none of Westpac or its related entities warrants the accuracy, adequacy or completeness of the information, or otherwise endorse it in any way. Except where contrary to law, none of Westpac or its related entities intends by this notice to exclude liability for the information. The information is subject to change without notice and none of Westpac or its related entities is under any obligation to update the information or correct any inaccuracy which may become apparent at a later date. The information contained in this material and this website does not constitute an offer, a solicitation of an offer, or an inducement to subscribe for, purchase or sell any financial instrument or to enter a legally binding contract. Past performance is not a reliable indicator of future performance. The forecasts given in this material and this website 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 ultimate outcomes may differ substantially from these forecasts.

Transactions involving carbon give rise to substantial risk (including regulatory risk) and are not suitable for all investors. We recommend that you seek your own independent legal or financial advice before proceeding with any investment decision. This information has been prepared without taking account of your objectives, financial situation or needs. Statements setting out a concise description of the characteristics of carbon units, Australian carbon credit units and eligible international emissions units (respectively) are available at www.cleanenergyregulator.gov.au, as mentioned in section 202 of the Clean Energy Act 2011, section 162 of the Carbon Credits (Carbon Farming Initiative) Act 2011 and section 61 of the Australian National Registry of Emissions Units Act 2011. You should consider each such statement in deciding whether to acquire, or to continue to hold, any carbon unit, Australian carbon credit unit or eligible international emissions unit.“

Additional information if you are located outside of Australia

New Zealand: The current disclosure statement for the New Zealand division of Westpac Banking Corporation ABN 33 007 457 141 or Westpac New Zealand Limited can be obtained at the internet address www.westpac.co.nz. Westpac Institutional Bank products and services are provided by either Westpac Banking Corporation ABN 33 007 457 141 incorporated in Australia (New Zealand division) or Westpac New Zealand Limited. For further information please refer to the Product Disclosure Statement (available from your Relationship Manager) for any product for which a Product Disclosure Statement is required, or applicable customer agreement. Download the Westpac NZ QFE Group Financial Advisers Act 2008 Disclosure Statement at www.westpac.co.nz.

China, Hong Kong, Singapore and India: Westpac Singapore Branch holds a wholesale banking licence and is subject to supervision by the Monetary Authority of Singapore. Westpac Hong Kong Branch holds a banking license and is subject to supervision by the Hong Kong Monetary Authority. Westpac Hong Kong branch also holds a license issued by the Hong Kong Securities and Futures Commission (SFC) for Type 1 and Type 4 regulated activity. Westpac Shanghai and Beijing Branches hold banking licenses and are subject to supervision by the China Banking Regulatory Commission (CBRC). Westpac Mumbai Branch holds a banking license from Reserve Bank of India (RBI) and subject to regulation and supervision by the RBI.

U.K.: Westpac Banking Corporation is registered in England as a branch (branch number BR000106) and is authorised and regulated by The Financial Services Authority. Westpac Europe Limited is a company registered in England (number 05660023) and is authorised and regulated by The Financial Services Authority. This material and this website and any information contained therein is directed at a) persons who have professional experience in matters relating to investments falling within Article 19(1) of the Financial Services Act 2000 (Financial Promotion) Order 2005 or (b) high net worth entities, and other persons to whom it may otherwise be lawfully communicated, falling within Article 49(1) of the Order (all such persons together being referred to as “relevant persons”). The investments to which this material and this website relates are only available to and any invitation, offer or agreement to subscribe, purchase or otherwise acquire such investments will be engaged in only with, relevant persons. Any person who is not a relevant person should not act or rely upon this material and this website or any of its contents. In the same way, the information contained in this material and this website is intended for “eligible counterparties” and “professional clients” as defined by the rules of the Financial Services Authority and is not intended for “retail clients”. With this in mind, Westpac expressly prohibits you from passing on the information on this material and this website to any third party. In particular this material and this website, website content and, in each case, any copies thereof may not be taken, transmitted or distributed, directly or indirectly into any restricted jurisdiction.

Disclaimer

Page 27: Westpac Coast to Coast (March2013)

27

U.S.: Westpac operates in the United States of America as a federally licensed branch, regulated by the Office of the Comptroller of the Currency. Westpac is also registered with the US Commodity Futures Trading Commission (“CFTC”) as a Swap Dealer, but is neither registered as, or affiliated with, a Futures Commission Merchant registered with the US CFTC. Westpac Capital Markets, LLC (‘WCM’), a wholly-owned subsidiary of Westpac, is a broker-dealer registered under the U.S. Securities Exchange Act of 1934 (‘the Exchange Act’) and member of the Financial Industry Regulatory Authority (‘FINRA’). This communication is provided for distribution to U.S. institutional investors in reliance on the exemption from registration provided by Rule 15a-6 under the Exchange Act and is not subject to all of the independence and disclosure standards applicable to debt research reports prepared for retail investors in the United States. WCM is the U.S. distributor of this communication and accepts responsibility for the contents of this communication. All disclaimers set out with respect to Westpac apply equally to WCM. If you would like to speak to someone regarding any security mentioned herein, please contact WCM on +1 212 389 1269. All disclaimers set out with respect to Westpac apply equally to WCM.

Investing in any non-U.S. securities or related financial instruments mentioned in this communication may present certain risks. The securities of non-U.S. issuers may not be registered with, or be subject to the regulations of, the SEC in the United States. Information on such non-U.S. securities or related financial instruments may be limited. Non-U.S. companies may not subject to audit and reporting standards and regulatory requirements comparable to those in effect in the United States. The value of any investment or income from any securities or related derivative instruments denominated in a currency other than U.S. dollars is subject to exchange rate fluctuations that may have a positive or adverse effect on the value of or income from such securities or related derivative instruments.

The author of this communication is employed by Westpac and is not registered or qualified as a research analyst, representative, or associated person under the rules of FINRA, any other U.S. self-regulatory organisation, or the laws, rules or regulations of any State. Unless otherwise specifically stated, the views expressed herein are solely those of the author and may differ from the information, views or analysis expressed by Westpac and/or its affiliates.

For the purposes of Regulation AC only: Each analyst whose name appears in this report certifies that (1) the views expressed in this report accurately reflect the personal views of the analyst about any and all of the subject companies and their securities and (2) no part of the compensation of the analyst was, is, or will be, directly or indirectly related to the specific views or recommendations in this report.

Disclaimer continued

Page 28: Westpac Coast to Coast (March2013)

© 2013. A division of Westpac Banking Corporation ABN 33 007 457 141