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PP 7767/09/2010(025354)

Economic Highlights
Global

MARKET DATELINE

13 May 2010

1 Euroland’s Real GDP Picked Up In The 1Q, But Will Likely


Drag By Austerity Measures In Highly Indebted Countries

2 US Exports Picked Up M-o-m But Trade Deficit Widened


In March

3 Euroland’s Industrial Production Bounced Back In March

4 India’s Industrial Production Moderated In March

Tracking The World Economy...

Today’s Highlight

Euroland’s Real GDP Picked Up In The 1Q, But Will Likely Drag By Austerity Measures In Highly Indebted
Countries

The Euroland’s real GDP grew by 0.2% qoq in 1Q 2010, after remaining unchanged in the 4Q of last year. This was
driven by a stronger growth in exports, in tandem with a recovery in global economic activities. Stronger exports had
boosted activities in manufacturing and services sectors, which continued to expand and at a faster pace during the
quarter. In terms of country, the pick-up in real GDP growth was underpinned by a rebound in Italy, Spain, Latvia,
Hungary and Portugal’s economies. These were, however, offset partially by a slowdown in France, Belgium, Czech
Republic and Slovakia’s economies, while German and Greece’s economies remained stable. Yoy, the Euroland economy
returned to a positive growth of 0.5% in the 1Q, compared with -2.2% in the 4Q. This was the first increase in more
than a year, indicating that the region’s economic recovery is becoming more sustainable. The pace of growth, however,
will likely be modest, drags by the austerity measures undertaken by highly indebted nations in the region. The European
Commission forecast the Euroland economy to grow by 0.9% in 2010, a rebound from -4.1% in 2009.

As it stands, Spain and Portugal are stepping up their efforts to cut budget deficits to prevent their economies from being
infected by the Greek crisis. Spain announced the biggest round of budget reductions in 30 years on 12 May where it
plans to cut its budget deficit to 9.3% of GDP in 2010 and further to 6.5% in 2011, from -11.2%% in 2009. Separately,
Portugal said that it is prepared for social tension after announcing additional budget cuts.

Meanwhile, the European Commission proposed a permanent mechanism for providing financial support to distressed
governments in the region, while giving the European Union (EU) national governments more influence over each other’s
budgets to prevent debt crises from happening. In the new budget process, the European Council, which represents the
national governments, would identify the EU’s main economic challenges early in each year. The governments would then
take this analysis into account when preparing their budgets for the following 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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13 May 2010

The US Economy

Exports Picked Up M-o-m But Trade Deficit Widened In March

◆ The US exports strengthened to 3.2% mom in March, from +0.3% in February and compared with -0.2% in
January. This was the 10th month of increase in 11 months, indicating that a recovery in global demand continued
to drive US exports. Stronger growth was on account of a pick-up in the exports of consumer goods, industrial
supplies and food & beverage. This was aided by a stronger increase in the exports of capital goods, on the back
of smaller declines in the exports of computers & parts and civilian aircraft. These were, however, offset partially
by a slowdown in the exports of semiconductors and automotives as well as a sharper drop in the exports of
telecommunication equipment. Yoy, the US exports strengthened to 20.4% in March, from +14.4% in February and
+15.3% in January, suggesting that exports have recovered strongly along with a global economic recovery and
partly boosted by a low base effect. Similarly, imports grew at a faster pace of 3.1% mom in March,
compared with +1.6% in February and -1.8% in January, due to a pick-up in the imports of civilian aircraft,
computers & parts, telecommunication equipment, food & beverage and automotives. A strong pick-up in the
imports of crude oil also boosted imports during the month. Yoy, imports strengthened to 24.2% in March, from
+20.4% in February and +11.8% in January. Meanwhile, the US trade deficit widened to US$40.4bn in March, from
a deficit of US$39.4bn in February. In 1Q 2010, the US trade deficit widened by 26.7% to US$116.8bn, from
a deficit of US$92.2bn in the corresponding period of 2009, in tandem with a recovery in domestic demand. The
deterioration in trade deficit, coupled with a huge fiscal deficit, will likely hurt the US dollar.

The Euroland Economy

Industrial Production Bounced Back In March

◆ Euroland’s industrial production rebounded to 1.3% mom in March, from +0.7% in February and compared
with +1.9% in January. This was on account of a pick-up in the production of capital goods, durable- and non-
durable consumer goods. A smaller decline in energy output during the month also helped. These were, however,
offset partially by a slowdown in the production of intermediate inputs during the month. Yoy, industrial production
strengthened to 6.9% in March, from +3.9% in February. This was the third straight month of picking up, after
20 months of contraction, suggesting that a recovery in the region’s industrial output is gaining strength.

Asian Economies

India’s Industrial Production Moderated In March

◆ India’s industrial production moderated to 13.5% yoy in March, from +15.1% in February and +16.7% in
January. The was the third straight month of easing, indicating that economic activities in India are losing
momentum but growth will likely remain strong in 1Q 2010, after recording a slower growth of 6.0% yoy in the
4Q. The slowdown in industrial activities was due to a moderation in manufacturing and mining output. These were,
however, mitigated by a pick-up in electricity output. A sustained economic growth, coupled with rising inflationary
pressure, has prompted India’s Finance Minister Mukherjee to reverse some of the tax cuts initiated in 2009 in the
budget tabled on 26 February. This includes raising the excise tax on almost all consumer products to 10%, from
8% and increased customs duty on overseas purchases of crude oil. At the same time, the Reserve Bank of India
raised its key policy rate twice in a month to control inflation. The Reserve Bank of India increased the repurchase
rate by 25 basis points to 5.25% and the banks’ reserve required ratio to 6% from 5.75% previously on 20 April.
The Reserve Bank of India’s Governor described India’s inflation as “worrisome” and is aiming to slow it by
restraining consumer demand. As a result, it indicated that an interest rate move before the next monetary policy
meeting scheduled for 27 July cannot be ruled out. This suggests that the central bank will still likely raise its
interest rate further in order to contain inflation.

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13 May 2010
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