PP 7767/09/2010(025354)

Economic Highlights
Global
•
MARKET DATELINE

16 April 2010

1 China’s Real GDP Growth Picked Up To 11.9% Yoy In

the 1Q

2 US Manufacturing Activities In Philadelphia Region

Strengthened In April But Industrial Production Slowed
Down In March

3 China’s Industrial Output Picked Up, But Investment,

Retail Sales And Inflation Moderated In March

4 India’s Inflation Rate Held Stable In March

Tracking The World Economy...

Today’s Highlight

China’s Real GDP Growth Picked Up To 11.9% Yoy In the 1Q

China’s real GDP grew at a faster pace of 11.9% yoy in 1Q 2010, compared with +10.7% in the 4Q of last year and
+6.1% in the corresponding quarter of 2009. This was the fourth consecutive quarter of picking up, underpinned by a
surge in external demand for the country’s exports and a pick-up in consumer spending as a result of the cumulative
effect from the government stimulus spending. As it stands, nominal exports rebounded to increase by 28.7% yoy in
the 1Q, from +0.2% in the 4Q. In terms of sectors, the stronger growth was driven by the secondary industry (mining
& quarrying, manufacturing and construction), which strengthened to 14.5% yoy in the 1Q, from +5.3% in the corresponding
quarter of 2009. This was aided by a stronger growth in tertiary industry (services), which picked up to 10.2% yoy in
the 1Q, from +7.4% in the corresponding quarter of 2009. Similarly, primary industry (agriculture, forestry and fishing)
inched up to 3.8% yoy in the 1Q, from +3.5% in the corresponding quarter of 2009.

Despite stronger economic growth, inflation eased somewhat in March. This suggests that China may delay its move
to raise interest rates and allow the currency to appreciate, where it has refrained itself from doing so. Instead, China
preferred to use administrative measures to cool down inflation and property prices. Indeed, in a latest move announced
on 15 April, China set a 30% minimum down payment for purchase of first homes larger than 90 square meters and
raised the down payment for the second home for the second time this year to 50% from 40% previously. Earlier, China
targets to cut banks’ new loans by 22% in 2010 from a record of US$1.4trn in 2009 and it has re-imposed a tax on homes
sold within five years of their purchase in January. At the same time, developers are required to pay a higher deposit
for land purchases and China banned banks from lending to builders found to be hoarding land or holding back home
sales in anticipation of higher prices. In addition, the People’s Bank of China raised banks’ reserve requirement twice
to soak up liquidity from the system.

The preference for regulatory measures such as outright caps on lending, as opposed to price-based measures such as
interest rates to influence the market for loans, reflects the legacy of China’s command-based economy, while almost
all banks are government controlled. Furthermore, the authorities are concerned raising interest rates in the current
economic environment could attract capital inflows and complicate its monetary tightening, and they see rising risks from
the external global environment and worry about the sustainability of the recovery. Indeed, China’s cabinet signalled
caution in ending crisis policies on 14 April, as it said current economic growth was largely driven by stimulus policies
and a comparison with low levels in 2009.
Peck Boon Soon
(603) 9280 2163
Please read important disclosures at the end of this report.
bspeck@rhb.com.my

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 16 April 2010

The US Economy

Manufacturing Activities In Philadelphia Region Strengthened In April

◆ The Philadelphia Business Outlook Survey’s diffusion index of current general activity rose to 20.2 in
April, from 18.9 in March and 17.6 in February. The Philadelphia Fed region, which comprises eastern Pennsylvania,
southern New Jersey and Delaware, is more exposed to the auto sector and less influenced by financial services
and trade than the New York region. This was the third consecutive month of picking up and the strongest in four
months, suggesting that factory activities expanded at a faster pace during the month. This was underpinned
by a pick-up in new orders and average workweek as well as a smaller decline in unfilled orders. As a result,
manufacturers started to build up inventory. These were, however, offset partially by a slowdown in shipments and
delivery time, while manufacturers turned cautious in increasing work force. Input costs continued to rise but selling
prices were flat, suggesting that firms continued to face margin squeeze. Over the next six months, the future
general activity index moderated to 44.2 in April, from 52.0 in March but higher than 35.8 in February. This
suggests that manufacturing activities are likely to continue expanding in the months ahead, albeit at a more
moderate pace. The moderation was reflected in a slowdown in shipments and average workweek. These were,
however, mitigated by a pick-up in new orders, unfilled orders, delivery time and inventory. As a result, firms
indicated that they may increase business spending in the months ahead but may slow down recruitment. Meanwhile,
firms expect input costs to ease slightly but selling prices to inch up, suggesting that they plan to raise prices in
the near term.

Industrial Production Slowed Down In March

◆ US industrial production slowed down to 0.1% mom in March, from +0.3% in February. This was due to
a sharp decline in utilities output, which fell by 6.4% mom in March, after remaining unchanged in February. These
were, however, mitigated by a pick-up in manufacturing production and mining output during the month. Manufacturing
production bounced back to +0.9% mom in March, from +0.2% in February, mainly on account of a pick-up in the
production of motor vehicle & parts and machinery, while the production of computers & electronic products slowed
down during the month. As a result, industrial capacity utilisation rate inched up to 73.2% in March, from 73.0%
in February and 69.5% a year ago. Similarly, the capacity utilisation rate in the manufacturing sector rose to 70%
in March, from 69.4% in February and 66.0% a year ago. As a whole, industrial activities held up relatively well
in the 1Q, indicating that the US economy will likely continue expanding during the quarter.

Asian economies

China’s Industrial Output Picked Up, But Investment, Retail Sales And Inflation Moderated In March

◆ China’s industrial output rebounded to increase by 18.1% yoy in March, from +12.8% in February, as
factories resumed their production after a long holiday break. This suggests that industrial activities picked up, on
the back of a sustained increase in demand. Stronger production was reflected in a pick-up in the production of
crude oil, raw coal, pig iron, rolled steel, cement and motor vehicles. These were aided by a pick-up in electricity
output during the month.

◆ China’s urban fixed-asset investment, however, moderated to 26.4% yoy in January-March, from +26.6% in
January-February and compared with +28.8% in the corresponding period of last year. This points to a moderation
in fixed-asset investment, after a strong pick-up in the previous year. The slowdown was reflected in a slower
increase in investment in services industries, which was mitigated by a pick-up in investment in primary and
manufacturing industries. Consequently, investment in utilities and railway transportation slowed down. Similarly,
investment in non-metal minerals and oil & gas softened. These were, however, mitigated by a pick-up in
investment in real estate, ferrous and non-ferrous metals as well as coal mining.

◆ Similarly, China’s retail sales grew at a slower pace of 18.0% yoy in March, compared with +22.1% in
February, as the previous month’s retail sales were boosted by festive spending. Despite the moderation, retail
sales were still considered strong, suggesting that consumer spending remained resilient. This will likely complement
a recovery in exports and helped sustain the Chinese economic expansion in the 1Q.

◆ China’s inflation rate moderated to 2.4% yoy in March, after rising to a 16-month high of +2.7% in February
and compared with +1.5% in January. This suggests that price pressure eased somewhat amid a pick-up in

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 16 April 2010

economic growth. Slower increase in inflation was due to a moderation in food prices, which eased to 5.2% yoy
in March, after a rebound to +6.2% in February and compared with +3.7% in January. The costs of non-food items,
on the other hand, remained stable at 1.0% yoy in March, the same rate of increase as in February and compared
with +0.5% in January. A pick-up in the costs of healthcare and housing as well as smaller declines in prices of
clothing and household items were offset a moderation in the costs of transport & communication and recreation
& education. Mom, inflation fell by 0.7% in March, compared with +1.2% in February.

India’s Inflation Rate Held Stable In March

◆ India’s inflation rate, as measured by wholesale prices, held stable at 9.9% yoy in March, the same rate
of increase as in February and compared with +9.4% in January. A pick-up in the costs of energy such as power,
fuel and light was offset by a more moderate increase in prices of primary articles such as food and non-food
articles as well as the prices of manufactured products. Although inflation rate remained stable, it was the highest
in 17 months. This will likely make policymakers uneasy and the Reserve bank of India is expected to raise
its interest rates again in April. In a surprise move, the central bank raise its key policy rate by 25 basis
pints to 5.0% on 19 March, the first time in almost two years and a month before the scheduled monetary policy
announcement, as inflation rate exceeded its estimate of 8.5% by 31 March.

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