economic update
By David Marshall, Chief Financial Officer

A recovery in the Australian economy was further evidenced by December jobs data showing another drop in the unemployment rate. Australia's unemployment now sits at 5.5% - significantly better than expected. The Reserve Bank of Australia is now odds-on expected to raise the official cash rate by a further 25 basis points in February, after it lifted rates to 3.75% at the December Meeting, the third rise in a row from the 3.0% low that prevailed until the October meeting. This again highlights the out-performance of the Australian economy this year with the RBA the first central bank to lift rates.

The global economy appears to continue to recover, while in Australia business and consumer confidence remain solid, house prices are rising strongly and the unemployment rate is now thought by many to have peaked under 6%. The RBA expects that Australian GDP growth in 2010 will be close to trend and inflation close to target.

The most recent Australian Markets Monthly expects that the economy is likely now to notch up growth this year of 1.3%, with growth increasing to around trend over the next one to two years. This represents an upgrade of their growth outlook for the Australian economy.

The just released NAB Business Survey for November revealed yet another increase in business confidence to almost record levels. The continuation of above-average business conditions reflects an out-performing economy through the current half year with the Survey pointing to annualised domestic demand growth of 4¾%.

The Business Survey reported some further pick up in Retail sector activity in November. Consumer sentiment did ease back in early December after the latest rate rise but remains comfortably above its long term average. Expectations for growth in the current half year have been upwardly reviewed, to now be expecting that when the Q3 national accounts are released on December 16, it will report that the economy had grown by 0.9% in the quarter. NAB is looking for further growth of ½% in the current quarter.

There continue to be mixed expectations regarding our currency, with some forecasting expectations that the AUD/USD will reach parity as early as March 2010.

Source: ABS, OECD, IMF, Australian Markets Monthly - "A monthly outlook for Australia, Key Global Economies and Markets" December 2009