Australia Update (Feb 09 Week 1)

The government announced its second stimulus plan to spend a further A$42 billion ($27 billion) which is bigger than the first stimulus plan to avoid falling into recession. Main allocation from the stimulus plan is $18.3bn for infrastructure, schools and housing follow by $8.1bn cash payments for low and mid-income earners to be paid in March. This stimulus plan will plunge the annual budget into a A$22.5 billion ($14.2 billion) deficit which is 1.9% of gross domestic product for the fiscal year ending June 2009.

Australia’s central bank cut its benchmark interest rate to 3.25% which the lowest level in 45 years. AUD do not fall further on the rate cut and we believe that effect of reversal in carry trade is largely over by.

The government raised its jobless forecast to 7 percent for the year ending June 2010. Current jobless rate is at 2 year high of 4.5% in December 08.

Average home prices fell for the 3rd consecutive quarter in the 4Q 2008. Incentive schemes and lower borrowing rates have failed to increase the new home sales as new home sales fell 1.7% in December 08.

Sentiment on business confidence has improved in Dec 08 as the index measuring Business confidence climbed 10 points. However consumer confidence slipped in January as pessimists outnumber optimists.

Conference Board leading and Westpac leading indicator down 1% in November as approvals to build new homes declined, share prices slid and exports of rural goods slowed.

Australia's third largest diversified miner OZ Minerals Ltd is forced to sell mines and refinance debt facilities totalling $US560 million ($A815 million).

Australia

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Company tax revenue would plunge by A$50 billion ($32 billion) in the next four years ass exports plunge because of the rapid decline in economic growth among Australia's largest trading partners - China, Japan and the United States. Revenue from income tax and other taxes would also plummet.

IMF predicts that Australia's economy was likely to contract by 0.2 percent in 2009, delivering Australia's first recession since 1991.

Oz Minerals Ltd, struggling to sell off mines and refinance debt, will take a A$100 million charge for the second half due to negative price adjustments caused by falling metals prices. Failure to make the payment could force Oz, whose shares have not traded since late November, into bankruptcy.

Second stimulus plan will plunge the annual budget into a A$22.5 billion ($14.2 billion) deficit - 1.9 percent of gross domestic product - for the current fiscal year ending June 30, the prime minister said.

The government on Tuesday raised its jobless forecast to 7 percent for the year ending June 30, 2010, from the current rate of 4.5 percent.

Yang
Australia's leader unveiled a new stimulus package Tuesday to try to shield the economy from the global downturn, promising 42 billion Australian dollars ($26 billion) in spending. The package comes on top of one launched late last year worth A$10.4 billion ($7.4 billion). The plan aimed to support 90,000 jobs - through a combination of creating new positions and saving existing jobs - while boosting economic growth by half a percentage point to 1 percent in the current fiscal year.The plan also aims to turn an economic contraction in the following year to 0.75 percent growth, government documents said.

6 Feb 09
Australia's central bank on Friday slashed its growth and inflation forecasts while warning that the unemployment rate will rise as shrinking global demand for mineral and energy exports undermines the national economy.

The Reserve Bank of Australia said in its latest quarterly statement that it expects gross domestic product growth to almost stall, slipping to a pace of 0.25 percent in the 12 months through June, before improving slightly to 0.5 percent in the year ending December.
The forecasts are a major downward revision from the bank's November projections of 1.5 percent growth for the current fiscal year through June and 1.75 percent for the calendar year.

Global

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THE International Monetary Fund (IMF), in its updated World Economic Outlook (WEO) published in November 2008, forecast a global recession in 2009. The IMF revised its projection of 2009 world output growth to 2.2%, down from the 3% projected in the October WEO.

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China, on the other hand, announced in November 2008 an aggressive stimulus package that represented about 16% of its GDP and 66% of its annual budget in 2008.)

Malaysia

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It is possible that the much hoped-for multiplier effect from the stimulus spending may be muted. This is because the construction sector employs a substantial number of foreign workers and remittances made by them to their home countries constitute a leakage from the domestic economy.

Despite falling interest rates, the cost of funding for corporates is still high. In fact, the credit spread between corporate papers and government bonds is expected to widen further on the back of rising credit risk amidst weaker company earnings. Since early last October, five-year MGS yields have fallen by between 100bps and 120bps to about 2.8% currently, while AA-graded five-year corporate bond yields eased by about 40bps.

Panasonic Electronic Devices Malaysia Sdn Bhd will close down one of its three electronic component factories as it discontinues production of film capacitors due to falling demand for cathode ray tube (CRT) television


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November 2008, Malaysia announced a RM7bil economic stimulus package to avoid a possible recession in 2009. Malaysia’s RM7bil stimulus package has also been criticised as being too small. The amount works out to about 1% of Malaysia’s gross domestic product (GDP).

The construction sector is, thus, the most likely to benefit from the stimulus package