PP 7767/09/2010(025354)

Economic Highlights
Global
•MARKET DATELINE

5 March 2010

1 Euroland Held Its Key Policy Rate Unchanged But Will

Continue To Phase out Some Emergency Tools

2 US Factory New Orders Strengthened In January

3 Euroland’s 4Q Real GDP Slowed Down, No Revision To

The Initial Estimate

4 Indonesia Kept Its Key Policy Rate Unchanged

Tracking The World Economy...

Today’s Highlight

Euroland Held Its Key Policy Rate Unchanged But Will Continue To Phase out Some Emergency Tools

The European Central Bank kept the key policy rate unchanged at 1.0%. At the same time, the ECB said that it will
tighten the terms of its three-month market operations on 28 April by returning to the pre-crisis practice of offering the
funds at a variable rate. The ECB has started pulling back stimulus in December, when it stopped offering 12-month
loans. Today, the ECB tightened the conditions of this month’s final six-month tender, saying the rate paid will be indexed
to the average of the ECB’s main rate over the life of the loans. That means banks would pay more than the current
1%, if the ECB raises its benchmark. The ECB, however, reiterated that the moves should not be taken as a signal for
tighter monetary policy and it believes the current key policy rate remains at an appropriate level, signaling that it has
no immediate plans to raise rates.

The ECB, however, will keep offering banks fixed-rate unlimited funds for seven days and one month at its benchmark
rate until at least 12 October. As a whole, this suggests that the phasing out of some emergency tools by the ECB will
continue, albeit at a much slower pace.

Meanwhile, the ECB expects real GDP to accelerate to 1.5% in 2011, from +0.8% in 2010. Inflation will remain subdued
and the ECB expects inflation to average 1.2% in 2010 and 1.5% in 2011.

Separately, the ECB pressed Greece to halt its flirtation with the International Monetary Fund aid and work with European
allies to tame its record budget deficit. For the ECB, using the IMF would be an admission that Europe has no ability
to deal with its own problems. In Germany, the government is facing domestic opposition to extending any financial
lifeline to Greece after it promised determined and coordinated action to support Greece on 11 February’s EU summit.
Meanwhile, it was reported that Greece’s bond offers received good response from investors yesterday. Greece will face
its biggest challenge in April and May when more than €20bn of debt comes due for repayment. So far, it has raised
€13.6bn via the sale of Treasury bills and €8.0bn bond syndication and it plans to issue a total of €54bn of debt this year.

Peck Boon Soon

(603) 9280 2163
Please read important disclosures at the end of this report.
bspeck@rhb.com.my

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The US Economy

Factory New Orders Strengthened In January

◆ Factory new orders strengthened to 1.7% mom in January, from +1.5% in December and +1.0% in
November, boosted mainly by a pick-up in new orders for aircraft. This was the fifth straight month of increase,
suggesting that manufacturing activities will likely sustain its expansion in the months ahead. Stronger growth was
reflected in a pick-up in new orders for computers & electronic products, electrical equipment, non-defence (which
is often volatile) and defence aircraft. These were, however, offset partially by a slowdown in new orders for
primary metals and declines in new orders for machinery (particularly industrial, photographic and metal working
machinery as well as turbines) and automobile. Excluding transportation, factory new orders slowed down to 0.1%
mom in January, from +1.5% in December. Non-defence capital goods new orders excluding aircraft, on
the other hand, fell by 4.1% mom in January, the first decline in three months and compared with +3.0% in
December. This suggests that businesses are likely to increase spending, albeit cautiously, in the months
ahead. Yoy, factory new orders strengthened to 8.8% in January, after returning to a growth of 3.7% in December,
while non-defence capital goods new orders excluding aircraft rose by 7.4%, compared with +0.6% during the
same period.

The Euroland Economy

4Q Real GDP Slowed Down, No Revision To The Initial Estimate

◆ Euroland real GDP grew by 0.1% qoq in 4Q 2009, the same level when the preliminary number was
announced on 12 February, and a slowdown from +0.4% in the 3Q of last year. This suggests that the
Euroland’s economy almost came to a halt, on the back of a decline in government spending. Similarly, exports
weakened somewhat in the 4Q. At the same time, companies continued to cut spending, albeit at a slower pace,
and consumer spending stagnated during the quarter, after suffering a decline in the 3Q. The Germany economy,
Europe’s largest, stagnated in the 4Q, after rising by 0.7% qoq in the 3Q, while Italian real GDP fell by 0.2%, after
a gain of 0.6% during the same period. Recession in Greece deepened, while Spain real GDP continued to mire
in contraction and Portugal economy stagnated in the 4Q. France’s economic expansion, however, accelerated to
+0.6% in the 4Q, from +0.2% in the 3Q. Yoy, real GDP fell by a smaller magnitude of 2.1% in the 4Q, compared
with -4.1% in the 3Q and the worst of -5.1% in the 1Q, pointing to a gradual improvement in the Euroland
economy.

Asian Economies

Indonesia Kept Its Key Policy Rate Unchanged

◆ Indonesia’s central bank kept its key policy interest rate unchanged at 6.5% for a seventh straight
month on 4 March. This suggests that Bank Indonesia is probably waiting for further evidence of a sustaining
economic growth and is in no hurry to raise its key policy rate. Furthermore, although inflation rate inched up
to 3.8% yoy in February, from +3.7% yoy in January, it was still within the central bank’s target of 4-6% and Bank
Indonesia does not foresee inflationary pressure to build up significantly in 1H 2010. In addition, Indonesia’s
commercial lenders have just been asked to cut loan rates by between 1-2 percentage points in February and the
central bank will probably not want to contradict with this instruction at this stage.

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