PP 7767/09/2010(025354)

Economic Highlights
Global
•MARKET DATELINE

3 May 2010

1 US Real GDP Growth Moderated In The 1Q But The

Recovery Is Becoming More Sustainable

2 Greece Obtained US$146bn Rescue Package From The

EU and IMF

3 Euroland’s Inflation Picked Up And Unemployment Rate

Held Stable At A high Level

4 Japan’s Manufacturing Activities, Industrial Production

And Unemployment Increased, While Deflation Remained
Stable

5 China Increased Banks’ Reserve Ratio And Manufacturing

Activities Picked up In April

6 Thailand’s Economic Activities Improved In March

Tracking The World Economy...

Today’s Highlight

US Real GDP Growth Moderated In The 1Q But The Recovery Is Becoming More Sustainable

The US real GDP growth moderated to an annualised rate of 3.2% in the 1Q, from +5.6% in the 4Q of last
year. This was the third straight quarter of growth, albeit at a more moderate pace, suggesting that the US
economic recovery is more entrenched. Although growth was weaker than the previous quarter, the
composition of growth is a lot more encouraging, as it was driven by a pick-up in consumer spending rather
than inventory rebuilding. Consumer spending rebounded to increase by 3.6% in the 1Q, after slowing down
to +1.6% in the 4Q. This indicates that a recovery in the economy, which started from the government
stimulus and inventory rebuilding, has now spread to consumer spending, making the recovery more sustainable
going forward. The pick-up in consumer spending, however, was offset partially by a slowdown in gross
private investment, which eased to 14.8% in the 1Q, from +46.1% in the 4Q. This was attributed to a
slower growth in business spending on equipment & software (+13.4% in the 1Q versus +19.0% in the 4Q)
and a decline in residential investment (-10.9% in the 1Q versus +3.8% in the 4Q). A slowdown in inventory
rebuilding during the quarter worsened the situation. At the same time, exports slowed down at a faster pace
than that of imports, resulted in net exports subtracting 0.6 percentage point from GDP growth in the 1Q,
compared with a contribution of 0.3 percentage point in the 4Q. Similarly, government spending contracted by
a larger magnitude of 1.8% in the 1Q, compared with -1.3% in the 4Q. Meanwhile, personal consumption
expenditure (PCE) price index moderated to 1.5% yoy in the 1Q, from +2.5% in the 4Q and +1.6% in the
3Q, pointing to easing price pressure. Similarly, the core PCE price index slowed down to 0.6% in the 1Q,
from +1.8% in the 4Q and a high of +2.0% in the 2Q of last 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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 3 May 2010

The Euroland Economy

Greece Obtained US$146bn Rescue Package From The EU and IMF

◆ The Euroland countries and the International Monetary Fund (IMF) have agreed to provide a rescue
package amounting to €110bn (US$146bn) for Greece to prevent a default and the problem from spreading. The
Euroland countries will contribute €80bn at a rate of around 5% and the IMF will make up the rest. The first payment
will be made before Greece’s next bond redemption on 19 May. The financial lifeline is meant for three years and
Greece has agreed to budget measures worth 13% of GDP and to cut the budget deficit to below the European Union’s
limit of 3% of GDP by the end of 2014, a year later than originally planned. The move will result in a contraction of
4.0% in Greece economy in 2010 and -2.6% in 2011, before returning to growth in 2012. The package will also set up
a financial stabilisation fund to help banks with potential bad loans stemming from the austerity measures.

Euroland’s Inflation Picked Up And Unemployment Rate Held Stable At A high Level

◆ Euroland’s preliminary headline inflation rate inched up to 1.5% yoy in April, from +1.4% in
March. This was the sixth straight month of increase and the fastest in 16 months, pointing to an
upward price pressure on the back of surging energy costs. The recovery in economic growth, coupled
with a pick-up in inflation, has prompted the European Central Bank (ECB) to pull back some emergency
measures since late 2009. Nevertheless, the ECB is not likely to raise its key policy rate soon,
given the deepening government debt problem in some European countries.

◆ Euroland’s unemployment rate held stable at a high level of 10.0% of total labour force in
March, the same level as in February and compared with 9.9% in January. This was the highest level
since the introduction of the single currency more than a decade ago, indicating that the recovery in job
markets continued to be slow despite an improvement in the economy. Unemployment rates in countries
like Belgium, Bulgaria, Ireland, Spain, Latvia, Poland and Portugal continued to inch up. These were
made worse by an increase in unemployment rate in Italy, which inched up to 8.8% in March, from
8.6% in February. Germany’s unemployment rate, however, eased to 7.3% in March, from 7.4% in
February, while France’s unemployment rates held stable at a high level of 10.1% during the month.
The high level of unemployment rate suggests that the recovery in consumer spending and the
Euroland economy will likely be slow.

Asian Economies

Japan’s Manufacturing Activities, Industrial Production And Unemployment Increased, While Deflation Remained
Stable

◆ Japan’s Purchasing Managers Index (PMI) for the manufacturing sector rose to 53.5 in April, after remaining
relatively stable at 52.4-52.5 in January-March. This was the 10th straight month the index stayed at above the 50-
mark, suggesting that manufacturing activities in Japan continued to expand and at a faster pace during the month. As
a whole, the expansion in April’s manufacturing activities suggests that growth in the Japanese economy will likely be
sustained into the 2Q.

◆ Japan’s industrial production inched up 0.3% mom in March, a rebound from -0.6% in February. This suggests
that Japan’s industrial activities have rebounded but the pace remained modest. The pick-up in industrial production
was due stronger growth in the production of electrical machinery and precision instruments as well as a rebound in
the production of non-ferrous metals, electronic parts & devices and transport equipment. These were, however,
offset partially by a decline in the production of fabricated metals, general machinery and information electronic during
the month. Yoy, industrial production moderated slightly to 30.7% in March, from +31.3% in February. This was the
fourth straight month of increase, pointing to an improvement in industrial activities.
◆ Japan’s unemployment rate rose to 5.0% of total labour force in March, after remaining stable at 4.9%
January-February and compared with a peak of 5.6% in July last year. This suggests that job market is improving,
albeit gradually, in tandem with the recovery in the global economic activities. Meanwhile, Japan’s real household
spending rebounded to increase by 5.9% mom in March, from -1.6% in February. This was the first increase
in three months, suggesting that consumer spending is improving, albeit slowly. Yoy, the real household spending
grew by 4.4% in March, a rebound from -0.5% in February.

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 3 May 2010

◆ Japan’s inflation rate held stable at -1.1% yoy in March, the same level as in February but by a smaller
magnitude compared with -1.3% in January. This suggests that Japan was still in deflation but it is showing signs of
emerging from a deflation given that Tokyo’s CPI fell by a smaller magnitude in April. Similarly, the core inflation,
which excludes fresh fruit, fish and vegetables, held steady at 1.2% yoy in March, the same rate of decline as in
February and compared with -1.3% in January. As a whole, the Bank of Japan will likely keep its key policy rate
unchanged in the near term after it doubled a lending programme for banks to ¥20 trn in March.

China Increased Banks’ Reserve Ratio And Manufacturing Activities Picked up In April

◆ The People’s Bank of China said that it would raise banks’ reserve requirement by 50 basis points effective
10 May. The current level is 16.5% for the biggest banks and 14.5% for smaller ones. This was the third increase this
year in a move to absorb liquidity from the system and to complement other measures to cool down inflation and
property prices in the country. The move suggests that China still prefers to fine-tune its policy rather than using
broader impact instruments like raising interest rates and allowing currency to appreciate.

◆ China’s Purchasing Managers Index (PMI) for the manufacturing sector rose to 55.7 in April, from 55.1 in
March and 52.0 in February. This suggests that manufacturing activities expanded at a faster pace, on the
back of a sustained increase in exports and resilient domestic demand. Stronger growth was reflected in a pick-up in
output, new orders, backlogs of work and supplier delivery time. As a result, manufacturers recruited more workers
to meet rising production and increased inventory during the month. Similarly, input prices picked up in March and
April, pointing to an upward price pressure. New export orders, on the other hand, remained stable in April. As a
whole, the readings suggest that economic activities in China will likely sustain its expansion into 2Q 2010,
after recording a stronger growth of 10.9% yoy in the 1Q.

Thailand’s Economic Activities Improved In March

◆ Thailand’s manufacturing production strengthened to 32.6% yoy in March, from 30.5% in February, due partly to the
low base effect. This was the seventh consecutive month of picking up, suggesting that Thailand’s manufacturing
activities continued to improve. The pick-up was underpinned by higher production of iron & steel, vehicle & equipment,
electronic products and electrical appliances and rubber & rubber products. This was in line with a stronger growth in
exports, which surged by 41.0% yoy in March, compared with +23.5% in February. This was the fifth successive
month of picking up, on the back of a recovery in global demand for the country’s exports. A pick-up in exports
boosted business confidence. As a result, private business investment indicator strengthened to 18.2% yoy in March,
from +12.1% in February, suggesting businesses are coming back to invest. Private consumption indicator, however,
moderated to 7.4% yoy, from +9.7% during the period, as confidence was somewhat affected by a political crisis in the
country. As a whole, the major economic indicators suggest that Thailand’s economy is likely to strengthen
in the 1Q, after returning to a positive growth of 5.8% yoy in the 4Q.

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