MARKET DATELINE

• PP 7767/09/2010(025354)

12 August 2010
Malaysia

Economic Update

Resilient, But Slowing Economic Growth

Executive Summary
‹ In line with a slowdown in exports, real GDP growth is estimated to have eased to around
8.1% yoy in the 2Q, from +10.1% in the 1Q. Indeed, the slowing growth will likely continue
into the 2H of the year, on the back of a softening in external demand for the country’s
exports on account of a slowdown in the global economy.

‹ Real export growth is likely to have moderated to 12.6% yoy in the 2Q, from +19.3% in
the 1Q. This was the first easing after returning to a positive growth in the 4Q, as global
demand for the country’s exports softened and the exceptionally high growth in exports due
to the low base effect normalised. Domestic demand, underpinned by a resilient consumer
spending and a revival private investment, however, would provide some cushion.

‹ On the supply side, the manufacturing sector expanded at a more moderate pace in the 2Q,
as output of the export-oriented industries slackened. Similarly, the services sector is
estimated to have grown at a slower pace, in tandem with a slowdown in trade activities.
Also, construction and agriculture sectors grew at a slower pace. These, however, were
mitigated by a pick-up in mining output during the quarter.

‹ Going forward, the global economy is likely to slow down in 2H 2010, as worldwide stimulus
spending dissipates and austerity measures in some European countries to address fiscal
deficit and debt problems begin to bite. This will likely be compounded by the policy
normalisation and tightening measures introduced in some countries, particularly in Asia, that
will likely slow down economic activities in these countries. As a whole, we expect the
country’s exports to slow down in 2H 2010, after a strong pick-up in the 1H.

‹ Slower export growth will likely translate into a slower increase in domestic demand, as
business and consumer confidence will likely be impacted. As a result, consumer spending
is envisaged to expand at a slower pace, while business spending will likely slow down. As
a whole, we expect real GDP growth to slow down to 4.5% yoy in 2H 2010, from +9.1%
estimated for the 1H. For the full-year, real GDP will likely expand by 6.8% in 2010, a
rebound from -1.7% in 2009.

Peck Boon Soon

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

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 Resilient, But Slowing Economic Growth

The Malaysian economic growth is estimated to have moderated to 8.1% yoy in

the 2Q, from +10.1% in the previous quarter. This was due to a slowdown in
external demand for the country’s exports and as the exceptionally high export
growth normalised. A pick-up in domestic demand, on the back of a resilient
consumer spending and a turnaround in private investment, however, provided
some cushion. The slowdown in economic growth will likely continue into the
2H of the year, as the impact of worldwide fiscal spending dissipates and
austerity measures in some European countries begin to bite. These will likely
be made worse by policies tightening in some countries, particularly in Asia. As
a result, we expect real GDP growth to soften to 4.5% yoy in 2H 2010, from
+9.1% in the 1H. Overall, real GDP is envisaged to recover to +6.8% in 2010,
from -1.7% in 2009.

Real GDP Eased In The 2Q, After Reaching A Peak In The 1Q

In line with a moderation in exports and as the exceptionally high export growth Real GDP growth is
normalised, real GDP growth is estimated to have eased to around 8.1% yoy estimated to have eased
in the 2Q, from +10.1% in the 1Q (see Chart 1). Indeed, the slowing growth will to around 8.1% yoy in the
likely continue into the 2H of the year, on the back of a slowdown in the global 2Q, from +10.1% in the
economy, as the impact of worldwide fiscal spending dissipates and austerity 1Q
measures in some European countries begin to bite. These will likely be made worse
by policies tightening in some countries, particularly in Asia. As a result, we expect
real GDP growth to soften to 4.5% yoy in 2H 2010, from +9.1% in the 1H.
Compared to the previous quarter, real GDP growth, however, is estimated to have Economic growth is
bounced back to increase by 2.7% qoq in the 2Q, from -2.6% in the 1Q, as the 1Q envisaged to slow down
was affected by shorter working days as a result of the festive season. Overall, real further in 2H 2010
GDP is envisaged to recover to +6.8% in 2010, from -1.7% in 2009.

A Slowdown In Exports As The Exceptionally Strong Growth

Normalised

We estimate that real export growth is likely to have moderated to 12.6% Real export growth is
yoy in the 2Q, from +19.3% in the 1Q. This was the first easing after returning likely to have moderated
to a positive growth in the 4Q, due to softer global demand and as the exceptionally to 12.6% yoy in the 2Q,
high growth in exports due to the low base effect normalised. The slower growth due to softer global
was reflected in a softening of demand for the country’s exports from the US and demand and as the
European Union (EU), which eased to 5.6% and 22.8% yoy respectively in the 2Q exceptionally high export
(in nominal terms), from the corresponding rates of +10.6% and +29.1% in the 1Q. growth due to the low base
Similarly, exports to China, Hong Kong and Asean slackened to 28.2%, 24.9% and effect normalised
17.2% yoy respectively in the 2Q, from the corresponding rates of +67.9%, +36.8%
and +38.6% in the 1Q. These were, however, mitigated by a pick-up in exports to
Japan, which strengthened to 33.9% yoy in the 2Q, from +14.0% in the 1Q.

Chart 1 Chart 2
Slower Exports And real GDP Growth In E&E and Non-E&E Exports Slowing Down
The 2Q But Commodities Picking Up
% yoy % yoy
25 Domestic 80
Exports demand
20
➤ 60
15
➤

40
10

5 20

0
➤

0
-5
-20
-10
GDP
-15 -40
Non-E&E mfg.goods E&E Commodity
-20
00 01 02 03 04 05 06 07 08 09 10 -60
97 00 03 06 09

ECONOMIC 2 UPDATE
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 In terms of products, the slowdown in exports was due to slower increases in the The slowdown was due to
exports of electrical & electronic (E&E) products and non-E&E manufactured goods slower increases in the
(see Chart 2). These were, however, mitigated by a pick-up in the exports of major exports of E&E and non-
commodity products. The exports of E&E products weakened to 16.1% yoy in the E&E products
2Q, from +36.3% in the 1Q and compared with +18.3% in the 4Q. The slowdown
was broad-based, from the exports of electrical machinery & apparatus (largely
semiconductors) to office machines & auto data processing equipment (largely
computers) and telecommunications equipment. The exports of semiconductors and
telecommunications equipment slackened to 20.4% and 17.5% yoy respectively in
the 2Q, from the corresponding rates of +34.6% and +43.5% in the 1Q. The former
The exports of major
was in tandem with a slower growth in worldwide semiconductor sales, which
commodity products
moderated to 47.1% yoy in the 2Q, from +53.4% in the 1Q and compared with
+10.4% in the 4Q. These were made worse by a slowdown in the exports of picked up during the
computers, which slowed down sharply to 8.4% yoy in the 2Q, from +36.0% in the quarter
1Q.

In the same vein, the exports of non-E&E manufactured goods moderated to an The exports of non-E&E
estimate of 20.5% yoy in the 2Q, from +29.9% in the 1Q and compared with +5.1% manufactured goods
in the 4Q, indicating that demand for these products are beginning to slow. This was moderated to +20.5%
due to a slowdown in the exports of wood, rubber, paper & pulp, chemical &
yoy in the 2Q
chemical, metal products, optical & scientific equipment, toys & sporting goods and
furniture & parts as well as a decline in the exports of transport equipment and non-
metallic mineral products. These were, however, mitigated by a pick-up in the
exports of food and petroleum products. The exports of major commodity products,
on the other hand, strengthened to +40.3% yoy in the 2Q, from +22.3% in the 1Q
and compared with -18.0% in the 4Q. This was reflected in a turnaround in the
exports of liquefied natural gas (LNG), which recorded an increase of 62.3% yoy in
the 2Q, from -13.7% in the 1Q and -43.0% in the 4Q. This was, however, offset
partially by a slowdown in the exports of crude petroleum and palm oil, which eased
to 59.4% and 16.5% yoy respectively in the 2Q, from the corresponding rates of
+69.3% and +44.1% in the 1Q.

Stronger Domestic Demand Provided Some Cushion

Domestic demand, on the other hand, is estimated to have grown at a faster pace Domestic demand is
of 6.9% yoy in the 2Q, compared with +5.4% in the 1Q and +2.8% in the 4Q of estimated to have grown
last year (see Table 1). This was on account of a stronger growth in consumer at a faster pace, on
spending, which is estimated to have held up relatively well at 5.4% yoy in the 2Q, account of a resilient
faster than +5.1% recorded in the 1Q, amidst a drop in confidence and a slowdown consumer spending
in job market. Indeed, consumption credit strengthened to 10.7% yoy at end-June,
from +9.5% at end-March and compared with +7.7% at end-2009, indicating that
consumers continued to borrow and spend. This was reflected in a pick-up in loans
extended for the purchase of houses and passenger cars as well for credit cards.
Similarly, sales tax collection fell by a smaller magnitude of 2.1% yoy in the 2Q,
compared with -29.8% in the 1Q. However, there were signs of weakness in
consumer spending as reflected in a moderation in new car sales, which eased
to 16.5% yoy in the 2Q, from +22.0% in the 1Q. Similarly, the imports of
consumption goods slowed down to 13.2% yoy in the 2Q, from +18.5% in the 1Q,
while commodity prices moderated somewhat during the quarter. Also, service tax
collection slowed down to 12.5% yoy in the 2Q, from +22.2% in the 1Q. Meanwhile,
the Malaysian Institute of Economic Research’s (MIER) consumer sentiment index fell There were, however,

to 110.4 in the 2Q, from 114.2 in the 1Q (see Chart 3). Despite the decline, the signs of weakness in
index was still above the 100-mark, indicating that consumer confidence remained consumer spending
intact even though they have turned slightly cautious.

ECONOMIC 3 UPDATE
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 Table 1
GDP By Demand Aggregate (2000=100)

2007 2008 2009 2009 2010 2010(f) 2011(f)

2Q 3Q 4Q 1Q 2Q(e)
% Growth in Real Terms

GDP 6.5 4.7 -1.7 -3.9 -1.2 4.4 10.1 8.1 6.8 5.0
Consumption:
Private 10.5 8.5 0.7 0.3 1.3 1.6 5.1 5.4 5.0 6.0
P u b lic 6.6 10.7 3.1 1.5 9.4 0.7 6.3 1.8 -1.5 4.5
Total investment 9.4 0.7 -5.6 -9.6 -7.9 8.2 5.4 13.3 9.0 8.6
Private 13.1 1.0 -17.2 n.a n.a n.a n.a n.a 6.9 12.7
Public 5.3 0.5 8.0 n.a n.a n.a n.a n.a 10.8 4.9
Goods & services:
Exports 4.1 1.6 -10.4 -17.9 -12.9 6.0 19.3 12.6 11.4 7.9
Imports 5.9 2.2 -12.3 -19.4 -13.2 7.0 27.5 21.9 17.2 10.5
Agg.domestic demand 9.6 6.8 -0.5 -2.2 0.1 2.8 5.4 6.9 4.9 6.4

(f): RHBRI's forecasts (e): RHBRI’s estimates

Chart 3
Consumer Confidence Turning Weaker

Index MIER
140

120

100

80

60

40

20

0
96 97 98 99 00 01 02 03 04 05 06 07 08 09 10

In the same vein, private investment is estimated to have turned around and Private investment is
recorded a positive growth in the 2Q even though business confidence has weakened estimated to have turned
somewhat. As it stands, the imports of capital goods rebounded to +26.5% yoy in around and recorded a
the 2Q, from +9.6% in the 1Q and compared with +18.4% in the 4Q, suggesting that positive growth in the 2Q
businesses continued to spend, albeit cautiously. Similarly, corporate loan growth
strengthened in June, on the back of a pick-up in business loans which grew at a
faster pace of 7.2% yoy in June, compared with +4.3% in March. This was, however,
offset partially by a decline in loans extended for small- and medium-scale
enterprises (SMEs), which fell by 0.3% yoy in June, compared with +3.1% in March.
The pick-up in business loans was reflected in a pick-up in loans extended to
agriculture; manufacturing; wholesale, retail trade, hotel & restaurant; construction;
transport, storage & communication; finance, insurance & business; and education
& healthcare sectors.

Public investment, however, is estimated to have slowed down to 11.0% yoy in Public investment is
the 2Q, from +11.9% in the 1Q, in line with a slowdown in the disbursement of estimated to have slowed
government funds. Nevertheless, fixed capital formation is estimated to have down but fixed capital
grown at a faster pace of 13.3% yoy in the 2Q, compared with +5.4% in the 1Q, formation picked up
due to a turnaround in private investment. The public consumption expenditure, during the quarter
however, is estimated to have slowed down during the quarter, after a strong pick-
up in the previous quarter.

ECONOMIC 4 UPDATE
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 More Moderate Increases In Manufacturing And Services Activities

On the supply side, value added in the manufacturing sector is estimated to The manufacturing sector
have moderated to 15.2% yoy in the 2Q, from +16.9% in the 1Q and after growth is estimated to
returning to a growth of 5.3% for the first time in a year in the 4Q (see Table 2). have softened in the 2Q,
As it stands, output of the export-oriented industries moderated to 17.4% yoy in in line with a slowdown in
May, after reaching a high of +21.3% in March. This was on account of a moderation output of the export-
in the production of E&E products; chemical; wood & wood products; rubber oriented industries
products; and paper, pulp & board products. These were made worse by a decline
in the production of textiles & apparels. These were, however, mitigated by a pick-
up in the production of petroleum products during the period. A pick-up in output
of domestic-oriented industries, which strengthened to 23.3% yoy in May, from
+18.2% in March, however, mitigated the slowdown. This was due to a pick-up in
the production of construction-related materials and beverages as well as a rebound
in the production of food.

Table 2
GDP By Industrial Origin At 2000 Prices

2007 2008 2009 2009 2010 2010(f) 2011(f)

2Q 3Q 4Q 1Q 2Qe
% Growth in Real Terms

GDP 6.5 4.7 -1.7 -3.9 -1.2 4.4 10.1 8.1 6.8 5.0

Agriculture 1.3 4.3 0.4 0.4 -0.4 5.9 6.8 2.0 3.2 2.8
Mining 2.0 -2.4 -3.8 -3.5 -3.6 -2.8 2.1 2.5 2.1 2.0
Manufacturing 2.8 1.3 -9.4 -14.5 -8.6 5.0 16.9 15.2 11.2 8.0
Construction 7.3 4.2 5.8 4.5 7.9 9.3 8.7 6.8 4.8 2.8
Services 10.2 7.4 2.6 1.7 3.4 5.2 8.5 6.5 6.1 4.8

(f) : RHBRI's forecasts (e): RHBRI’s estimates

Similarly, the services sector is estimated to have grown at a more Services activities are
moderate pace of 6.5% yoy in the 2Q, compared with +8.5% in the 1Q. This was estimated to have grown
due to a slowdown in services activities in utilities, transport & storage, finance & at a more moderate pace,
insurance, real estate & business and communications sub-sectors, in tandem with in tandem with a
a slower increase in trade activities. In the same vein, activities in accommodation slowdown in trade
& restaurants sub-sector are likely to have weakened due to a slowdown in tourist
activities
arrivals. Activities in the wholesale & retail trade sub-sector, however, are likely to
have held up relatively well during the quarter.

Also, construction activities are estimated to have moderated somewhat to Construction sector
6.8% in the 2Q, from +8.7% in the 1Q and after hitting a 13-year high of +9.3% growth moderated
in the 4Q, in line with a slower increase in the Government’s stimulus spending and somewhat on account of a
housing activities. As it stands, the issuance of new permits in selling houses and slower increase in
housing approvals slowed down to 15.8% and 7.4% yoy respectively in the 2Q, from government spending
the corresponding rates of +32.0% and +13.9% in the 1Q. Similarly, the renewal
of permits in selling houses fell by a larger magnitude of 22.6% yoy, compared with
-19.4% during the same period, indicating that construction activities in residential
housing segment have moderated somewhat.

In the same vein, agriculture output is estimated to have slowed down to 2.0% Agriculture output is
yoy in the 2Q, from +6.8% in the 1Q, as palm oil production fell and growth in the estimated to have slowed
previous quarter was boosted by the low base effect. As a result, the production down due mainly to a drop
of palm oil contracted by 0.4% yoy in the 2Q, compared with +1.9% in the 1Q and in palm oil production
+6.4% in the 4Q of last year. This was made worse by a slowdown in rubber output,
which eased to 9.1% yoy in April-May, from +34.6% in the 1Q, while the production
of saw logs slipped into a contraction of 3.0% yoy, compared with +57.6% during
the same period. Similarly, the production of cocoa fell by a larger magnitude during
the quarter.

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 Mining output, however, is estimated to have picked up to 2.5% yoy in the 2Q, Mining output bounced
from +2.1% in the 1Q. This was on the back of a stronger increase in LNG output, back during the quarter
which strengthened to 10.0% yoy in the 2Q, from +8.8% in the 1Q and +0.4% in due to a stronger increase
the 4Q. A larger drop in the production of crude oil, which fell by 3.1% yoy in the in LNG output
2Q, compared with -2.5% in the 1Q, however, offset part of the gain.

Global Economic Growth Will Likely Moderate In The 2H

Going forward, the global economy is likely to slow down in 2H 2010, as The global economy is
worldwide stimulus spending dissipates and austerity measures in some European likely to slow down in the
countries to address fiscal deficit and debt problems begin to bite. This will likely 2H
be compounded by the policy normalisation and tightening measures introduced in
some countries, particularly in Asia, that will likely slow down economic activities in
these countries. As it stands, signs of a slowdown in the global economy are
becoming more apparent. Indeed, global manufacturing and services activities
softened for the third consecutive month in July (see Chart 4). In the same vein,
the OECD composite leading indicator’s 12-month rate of change has peaked in
March and it moderated for three consecutive months to 6.7% in June, from +8.3%
in May (see Chart 5), indicating that OECD economies are likely to ease in the
months ahead.

Chart 4 Chart 5
Global Manufacturing And Services OECD Composite Leading
Activities Heading South Indicator Points To Slower Economic
Growth Ahead
Index PMI
65 Services % 12-mth annualised rate of change
30
➤

60
25

55 20

15
➤

50
10

45 5

40
PMI 0
Manufacturing -5
35 -10
Total OECD Japan US Euro area China
-15
30
05 06 07 08 09 10 -20
00 01 02 03 04 05 06 07 08 09 10

Despite the weakness, we do not expect the global economy to fall into a Despite the weakness, we
double-dip even though there is a risk of a sharper-than-expected do not expect the global
slowdown, given that policy normalisation and tightening remain gradual. Also, the economy to fall into a
US economic recovery is becoming more sustainable, as its recovery, which started double-dip even though
from the government stimulus and inventory rebuilding, has now spread to consumer there is a risk of a
spending. In Europe, we expect the sovereign debt problems to be manageable sharper-than-expected
despite the lingering concerns, following the announcement of an emergency slowdown
stabilisation loan of €750bn and the €110bn rescue package for Greece. Indeed,
Spain, Portugal, Ireland and Greece have successfully sold their bonds since 13 July
and the results of the stress test also helped as well. Nonetheless, the austerity
drives in Europe will likely affect Malaysia’s exports to some extent given that 10.7%
of the country’s exports went straight to Europe. There would be indirect impact as
well since 13% of Malaysia’s exports go to China, and Europe is China’s largest
export market (accounting for 19.7% of its total exports). Furthermore, the ringgit
We expect the country’s
has appreciated by 7.8% year-to-date, the sharpest in the region. As a whole, we
real exports to slow down
expect the country’s real exports to slow down to 7.6% yoy in 2H 2010, from
in the 2H 2010
+15.9% in the 1H, bringing the full-year growth to +11.4% compared with -10.4%
in 2009.

ECONOMIC 6 UPDATE
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 Chart 6 Chart 7
US : Consumer Spending Losing US : Manufacturing Activities Slowing Down,
Momentum But Will Likely Be Resilient While Services Holding Up But Off The Peak

% annualised (Personal consumption expenditure) Index

70 ISM
5
Manufacturing
4 65

3 60

➤
2 55
1
50

➤
0
45
-1
40
-2

-3 35 ISM
Services
-4 30
2005 2006 2007 2008 2009 2010 05 06 07 08 09 10

In the US, the economy is showings signs of moderating, after recording a slower The US economy is
annualised rate of +2.4% in the 2Q. As it stands, retail sales fell by 0.5% mom in projected to grow at a
June, the second straight month of decline, while personal consumption expenditure more moderate pace of
grew at the slowest pace in five months during the month (see Chart 6). Similarly, 2.8% in 2H 2010
existing home sales declined for the second consecutive month in June and housing
starts fell to the lowest level in eight months in June. This suggests a renewed
weakness in the housing sector, after the expiration of the tax incentive in April and
its recovery will likely be slow in the months ahead. Also, private employers added
fewer workers to payrolls in May-July, compared with March-April, indicating that
employers have turned cautious as well. Elsewhere, manufacturing activities slowed
down for the third straight month in July, while services activities bounced back
during the month but was off the peak recorded in May (see Chart 7). As a whole,
the US economy is projected to grow at a more moderate pace of 2.8%
in 2H 2010, compared with +3.1% in the first half, bringing the full-year growth to
around +3.0%, a rebound from -2.4% in 2009.

Similarly, the austerity drives will likely hurt some of the countries such as Spain, The Euroland’s economic
Portugal, Ireland and Greece in the Euroland. Still, Germany, which could leverage recovery will likely be slow
on the weak euro to export, would provide some cushion. As it stands, and the Japanese
manufacturing and services activities in the region rebounded in July (see Chart 8),
economy will likely be hurt
after a slowdown in June, while business and consumer confidence improved
by a slowdown in exports
somewhat in July. These suggest that the Euroland economy will unlikely fall off
the cliff but the recovery will likely be slow in the months ahead. In the same vein,
the Japanese economy will likely slow down in the 2H of the year, on the back of
a slowdown in global demand for the country’s exports. As it stands, Japan’s exports
slowed down for the fourth consecutive month in June and unemployment is trending
up in recent months (see Chart 9).

Chart 8 Chart 9
Euroland: Manufacturing And Services Japan : Weaking Exports And Rising
Activities Holding Up Unemployment
Index % yoy % of labour force
65 PMI
Services 60
Unemployment
6

60 rate
40 (RHS) 5

55
➤

20 4
50

0 3
45
➤

-20 2
➤
40

Total
35 PMI Manufacturing ➤ -40 exports 1
(LHS)
30
-60 0
05 06 07 08 09 10
05 06 07 08 09 10

ECONOMIC 7 UPDATE
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 In China, manufacturing activities slowed down to the slowest pace in more than a The key economic
year in July, while industrial production headed south for the third straight month and indicators suggest that
it eased to 13.7% yoy in June, indicating industrial activities are slowing down (see China’s economy is likely
Chart 10). Similarly, retail sales grew at the weakest pace of 18.3% in three months to soften in the 2H
in June and fixed-asset investment in urban areas slowed down to 25.5% yoy in
January-June, from the corresponding period of +33.6% in 2009. This suggests that
China’s domestic demand is moderating, in tandem with the government’s tightening
measures to cool down its property market. As a whole, the key economic indicators
suggest that China’s economy is likely to slow down further in the 2H of the
year, after recording a more moderate growth of +10.3% yoy in the 2Q.

Chart 10
China : Industrial Activities Slowing Down

% yoy IPI Index

25 (LHS) 70
PMI mfg.
(RHS)
60
20
➤

➤
50

15
40

30
10

20

5
10

0 0
05 06 07 08 09 10

Meanwhile, demand for E&E products, which accounts for about 45% of Malaysia’s Demand for E&E products
total exports in 2009, will likely be softer in the 2H of the year, in line with a will likely be softer in the
slowdown in global economic activities. As it stands, worldwide semiconductor sales 2H of the year, in line with
eased to 42.6% yoy in June, from +48.6% in May and after reaching a high of a slowdown in global
+58.4% in March. This suggests that a sharp rebound in sales due to a spike-up
economic activities
in demand and inventory rebuilding is normalising.

Real GDP Growth To Soften In The 2H

A softer export growth will likely translate into slower increases in jobs and We envisage domestic
production, which will likely affect consumer spending and business investment as demand to ease in 2H
well. As a result, we envisage domestic demand to ease to 3.8% yoy in 2H 2010, on the back of a
2010, from +6.1% in the 1H, bringing the full-year growth to 4.9% in 2010, a slowdown in consumer
rebound from -0.5% in 2009. This will likely be reflected in a more moderate spending
increase in consumer spending, which is projected to grow at a slower pace of
4.7% yoy in the 2H versus +5.3% in the 1H. Already, consumer spending is showing
signs of weakness as reflected in a moderation in new car sales, the imports of
consumption goods and service tax collection in the 2Q. Also, the Malaysian Institute
of Economic Research’s (MIER) consumer sentiment index fell to 110.4 in the 2Q,
from 114.2 in the 1Q, indicating that consumers have turned cautious. Consumer
spending, however, will likely be resilient on the back of high savings and rising
consumerism. For the full-year, consumer spending, however, will likely bounce back
to +5.0% in 2010, from +0.7% in 2009.

Similarly, the private investment is projected to soften to 6.4% yoy in 2H 2010, The private investment is
from +7.3% in the 1H, as businesses turn cautious when excess production capacity projected to soften as well
builds up. As a result, businesses will not be in a hurry to invest and they would in the 2H of the year
delay their investment. As it stands, MIER’s business conditions index fell by 4.4
percentage points to 119.6 in the 2Q. In the same vein, public investment is
projected to expand at a slower pace of 10.2% yoy in the 2H of the year, compared
with +11.5% in the 1H, as the government stimulus spending fizzles out.

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 Consequently, we expect fixed capital formation to ease to 8.4% yoy in 2H 2010, We expect real GDP
from +9.5% in the 1H, bringing the full-year growth to 9.0% during the year, growth to slow down to
compared with -5.6% in 2009. Public consumption, on the other hand, will likely 4.5% yoy in 2H 2010, from
contract by 5.4% yoy in the 2H of the year, compared with +4.0% in the 1H, on the +9.1% in the 1H
back of a fiscal consolidation. As a whole, the public sector expenditure will exert
a less expansionary impact on the economy. Still, we expect real GDP growth
to slow down to 4.5% yoy in 2H 2010, from +9.1% in the 1H. For the full-year,
real GDP will likely expand by 6.8% in 2010, a rebound from -1.7% in 2009.

ECONOMIC 9 UPDATE
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Lim Chee Sing

Director

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