March 2017

Brian Redican

Risks and Opportunities in 2017

Economic and Financial

Outlook

Unclassified / 2 of 22Economic and Financial Outlook

Higher US interest rates would exert upward pressure on global rates

Is the 35-year secular decline in rates over?

Unclassified / 3 of 22Economic and Financial Outlook

Fewer young people vs more old people

Demographics and saving behaviour

Unclassified / 4 of 22Economic and Financial Outlook

Slower population growth and demand

Unclassified / 5 of 22Economic and Financial Outlook

Global bond yields have risen as has inflation…

Unclassified / 6 of 22Economic and Financial Outlook

When rates are flat, currencies are crucial

Unclassified / 7 of 22Economic and Financial Outlook

Looser Chinese policy boosted activity…

Unclassified / 8 of 22Economic and Financial Outlook

…boosting commodity prices and inflation

Unclassified / 9 of 22Economic and Financial Outlook

Higher oil prices have driven up inflation…

Unclassified / 10 of 22Economic and Financial Outlook

Global manufacturing growth has improved…

Unclassified / 11 of 22Economic and Financial Outlook

Firms rebuild inventories and fiscal drag ends

Unclassified / 12 of 22Economic and Financial Outlook

Tight US labour market but wages still weak

Unclassified / 13 of 22Economic and Financial Outlook

Markets are prepared for modest inflation

Unclassified / 14 of 22Economic and Financial Outlook

Two risks for the US economy…

Unclassified / 15 of 22Economic and Financial Outlook

Global manufacturing has improved…

Unclassified / 16 of 22Economic and Financial Outlook

Europe is yet to see inflation rise sustainably…

Unclassified / 17 of 22Economic and Financial Outlook

Political events loom large in Europe in 2017

15 March Netherlands General Election

March UK Article 50 Trigger

23 April French Presidential Election

7 May

2Q17/1Q18 Risk of Italian Election

24 September German Federal Election

Unclassified / 18 of 22Economic and Financial Outlook

5% chance that the Eurozone disintegrates?

Unclassified / 19 of 22Economic and Financial Outlook

Australian growth and inflation remain sombre

Unclassified / 20 of 22Economic and Financial Outlook

Weak wages growth ensures ‘real’ debt

burden will remain high

Little scope for further debt-fuelled

economic growth

Aussie households face high debt & weak wages

Unclassified / 21 of 22Economic and Financial Outlook

Still lots of work in NSW and VictoriaDetached house activity diverges

Housing construction is still boosting growth

Unclassified / 22 of 22Economic and Financial Outlook

But are we about to see much stronger growth?

Unclassified / 23 of 22Economic and Financial Outlook

US economic growth has been slowing

4.2

3.2

2.5

2.0

0

1

2

3

4

5

50's-60's 70's-80's 90's-00's 2010+

US Average Growth% y/y

Unclassified / 24 of 22Economic and Financial Outlook

Source: PIMCO

Reviving ‘animal spirits’ or destroying global trade?

The Trump Effect