India Economic Analysis

Economic Snapshot
Indias economy will strengthen in the near term in line with the domestic and global recovery. Following growing service sector, which accounts for more than half of the Indian economy, will remain a key driver in upcoming quarters, along with the crucial industrial sector. Lower domestic interest rates will help offset the global credit crunch and support domestic demand. India will likely see a sharp retreat in private investment that will help push industrial growth lower in adverse credit conditions. Robust economic expansion will keep India on track to register one of the highest growth rates in the world again in 2010. Finance Minister Chidambaram indicated that the Indian government was planning to speed up market overhauls, construction, and infrastructure improvements to sustain economic growth. Following growth of 7.6% in FY 2009-2010, GDP growth will accelerate at trend rates to 8.1% in FY 2010-2011 and 8.2% in FY 2011-2012.
Regional Overview

modest economic growth in fiscal year (FY) 2009-2010, growth will accelerate quickly. Indias fast-

4.0
Unit Sales (in Millions)

India Light Vehicle Sales

7.0% 6.0%
Global Market Sales Share

3.0

5.0% 4.0% 3.0% 2.0% 1.0%

2.0

1.0

0.0 2009 2010 2011 2012 2013 2014 2015 2016

0.0%

GDP at 1999 Prices in % Rs Billions Change

GDP at Chained 2000 Prices in US$ Billions

% Share of Population Change World GDP in Millions

% Change

Share of World Population

GDP per Capita at 1999 Prices in Rs

GDP per Capita at Unemploy- Consumer Chained ment Rate Price % 2000 Prices % % of Labor 2001=100 Change in US$ Change Force % Change

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

19376.4 20338.4 21211.3 22743.4 24855.5 30187.3 32922.4 34922.4 37239.3 40268.1 43578.5 47074.8 50786.8 54774.6 59076.1 63682.0

1.1% 5.0% 4.3% 7.2% 9.3% 9.7% 9.1% 6.1% 6.6% 8.1% 8.2% 8.0% 7.9% 7.9% 7.9% 7.8%

454.8 477.4 497.9 533.9 583.5 708.6 772.8 819.8 874.1 945.2 1023.0 1105.0 1192.2 1285.8 1386.7 1494.9

1.1% 5.0% 4.3% 7.2% 9.3% 9.7% 9.1% 6.1% 6.6% 8.1% 8.2% 8.0% 7.9% 7.9% 7.9% 7.8%

1.47% 1.48% 1.52% 1.60% 1.71% 1.82% 1.93% 2.03% 2.07% 2.23% 2.35% 2.47% 2.58% 2.69% 2.81% 2.92% 3.05%

1046.24 1064.16 1081.90 1099.49 1116.99 1134.40 1151.75 1169.02 1186.19 1203.25 1220.18 1236.98 1253.64 1270.13 1286.44 1302.54 1318.41

1.8% 1.7% 1.7% 1.6% 1.6% 1.6% 1.5% 1.5% 1.5% 1.4% 1.4% 1.4% 1.3% 1.3% 1.3% 1.3% 1.2%

17.08% 17.16% 17.22% 17.29% 17.35% 17.41% 17.47% 17.52% 17.62% 17.71% 17.81% 17.90% 17.99% 18.07% 18.16% 18.24% 18.32%

18,520 19,112 19,606 20,685 22,252 24,265 26,210 28,162 29,441 30,949 33,002 35,230 37,550 39,985 42,578 45,355 48,302

-0.6% 3.2% 2.6% 5.5% 7.6% 9.0% 8.0% 7.4% 4.5% 5.1% 6.6% 6.8% 6.6% 6.5% 6.5% 6.5% 6.5%

435 449 460 486 522 570 615 661 691 726 775 827 881 939 999 1,065 1,134

-0.6% 3.2% 2.6% 5.5% 7.6% 9.0% 8.0% 7.4% 4.5% 5.1% 6.6% 6.8% 6.6% 6.5% 6.5% 6.5% 6.5%

12.3% 12.1% 12.4% 11.5% 10.2% 9.9% 9.5% 9.3% 9.5% 9.5% 9.5% 9.3% 9.1% 8.9% 8.7% 8.5% 8.2%

4.0% 3.7% 4.4% 3.8% 3.8% 4.2% 5.8% 6.4% 8.4% 10.9% 11.4% 6.7% 5.8% 5.0% 4.7% 4.6% 4.7%
1

27525.7 10.7%

646.1 10.7%

3Q 2010

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India Economic Analysis

Economic Analysis
GDP, Real
Indias economy has rebounded strongly, highlighting broad upside risks in its outlook. Indias economy rebounded compellingly with torrid growth rates in the JanuaryMarch 2010 quarter (fourth quarter of the fiscal year) from the previous quarters tempered growth, as the key manufacturing and service sectors surged and the droughthit agricultural sector began to recover. Growth soared in the final quarter of the year. During the fourth fiscal quarter of 2009-2010 (ending in March 2010), real GDP expanded 8.6% year-over-year (y-o-y) on a factor-cost basis, according to the Central Statistical Organization. Growth in the fourth quarter rose sharply from 5.8% a year earlier and the 6.5% registered in the OctoberDecember 2009 quarter. GDP, Real
12.0 10.0 8.0 Y/Y % Change 6.0 4.0 2.0 0.0 -2.0

Regional Overview

Exchange Rate
IHS Global Insight expects the rupee to strengthen under a combination of domestic and external factors through the near term. We expect a mild appreciation of the Indian rupee, resulting from higher domestic demand and renewed prospects for higher capital inflows. The rupee has appreciated 2% versus the US dollar since the beginning of 2010. Previously, in 2009, the rupee appreciated 5% against the US dollar as capital inflows began to resume while the global financial crisis receded, and investors once again started favoring emerging-market currencies following their previous global flight to safety. Given Indias robust domestic demand, monetary authorities seem willing to tolerate greater currency strength to curb fears of overheating. Increasing globalization and the expected rapid growth of IT-related services also have potential implications for the exchange rate path of the rupee. More far-reaching trade liberalization could counter some of the upward pressure on the rupee, however. The central bank is likely to continue to moderate the upward pressure on the rupee in the medium term because of the concerns about the competitiveness of exports and maintaining a stimulating macroeconomic environment. The rupee is expected to reach 44.40 rupees/US dollar by the end of 2010 and 43.53 rupees/ US dollar by the end of 2011.

-4.0 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 India Industrial Countries

Exchange Rate
50.0 48.0 46.0 Rupees/US$ 44.0 42.0 40.0 38.0 36.0 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Rupees/US$ (l ) (l.) Rupees/Euro (r.) (r ) 80.0 70.0 60 0 60.0 Rupees/Euro 50.0 40.0 30.0 20.0 10.0 0.0

Labor Market
India has one of the most regulated labor markets in the world and employment regulations are regarded as being one of the greatest obstacles to an improvement in productivity. The market is heavily regulated, a legacy of government intervention to protect employees and direct wage outcomes. Although some work has been carried out on the labor laws, more is needed, not least because over-regulation and problems such as industrial action deter potential investors and place obstacles in the path of those already involved in the Indian market. As with previous administrations, Prime Minister Manmohan Singh has committed the United Progressive Alliance (UPA) to addressing the labor reform issue, but no specific policy prescriptions have been proposed. The political environment clouds prospects for wholesale labor reform, especially for the UPA government, given the influence of leftist parties in its coalition. The state is both a dominant employer and an enforcer of protective labor legislation, a situation incompatible with the needs of an open market economy. The prolabor legislation has given undue influence to the fragmented trade union movement. 2

Labor Market
12.0 10.0 8.0 6.0 4.0 2.0 0.0 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Unemployment Rate (l.) Employment (r.) 3.0 2.5 Y/Y Y/Y % Change Y/Y % Change Y/Y % Change Y/Y % Change Y/Y % Change 2.0 1.5 1.0 0.5 0.0

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Percentage e

3Q 2010

India Economic Analysis

Economic Analysis cont.
Foreign Trade
Indias external accounts were hit hard by the severe global recession. IT and related exports, which usually have helped shore up Indias balance of payments, are facing challenges in an environment of collapsing external demand. The outlook for the external sector is much gloomier, however. Annual growth of merchandise exports will recover and expand around 26% in 2010 and 14% in 2011. Prior to 2009, Indias robust growth of merchandise exports was largely due to high growth in world trade and Indias increasing exposure to the global economy. Indias exports are also well diversified, comprising textiles and garments, automobile parts, and chemicals and pharmaceuticals. Nevertheless, the sharp and protracted global recession will hit Indias export sector hard. Foreign Trade
30.0 25.0 20.0 Y/Y % Change 15.0 10.0 5.0 0.0 -5.0 -10.0 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Inflation
The overall trends in the inflation picture are expected to ease gradually from current elevated levels over the longer term. Interest rates are likely to rise steadily in 2010 and 2011, given the resumption of robust domestic economic activity in India, the easing of the global recession, and continuing price pressures. The cycle of accommodative monetary policy in 2008 and 2009 is well past. The central banks focus will shift to containing inflationary pressures from aggressively supporting growth. Starting in early 2010, policy interest rates are expected to rise rapidly. In general, the central banks monetary policy has been successful in maintaining price stability in recent years, despite periodically spiraling oil and food prices. Consumer price index (CPI) inflation is expected to average 11.3% in 2010 and 6.7% in 2011, given higher oil and global food prices and the current robust stage of Indias domestic growth cycle. Until recently, the central Reserve Bank of India (RBI) had maintained price stability by falling in line with plunging global interest rates. Continued interest rate hikes are likely in the near term, and sustained tightening is expected through the end of 2011. Substantial overall monetary easing over the medium term, in any case, is very unlikely in the current adverse fiscal environment. In the medium term, repeated fiscal disappointments, coupled with rapid economic growth, are expected to generate CPI inflation averaging 6.0%.

Imports

Exports

Consumer Prices
12.0 10.0 8.0 6.0 4.0 2.0 0.0 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Y/Y % Change

India

Industrial Countries

Interest Rate
With the 20082009 easing cycle, the RBIs demand-supportive policy has led to generally lower real interest rates in India, especially relative to historical levels. Nevertheless, real interest rates in India remain relatively high, compared with the global average, and remain a deterrent factor for businesses. Any interest rate reductions are extremely unlikely in the near and medium term. Substantial easing, in any case, is unlikely in the current fiscal environment. Overshooting expenditures, combined with the absence of tough fiscal measures in the budget, constrain hopes of further significant RBI cuts. Monetary policy in India is primarily constrained by the severe limitations imposed on it by fiscal policy. A sustained pickup in inflation would also impede rate cuts. In the medium term, banking sector deregulation could assist a reduction in real interest rates, but this is not seen as a short-term priority.

Interest Rate
9.0 8.0 7.0 6.0 60 Percentage 5.0 4.0 3.0 2.0 1.0 0.0 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Policy Rate

Long-Term Rate

3Q 2010

Copyright 2010 CSM Worldwide

Regional Overview

Indonesia Economic Analysis

Economic Snapshot

Indonesias growth will accelerate modestly in 2010. Following a 4.5% expansion in 2009, Indonesias
Regional Overview

economic growth will accelerate slightly to 5.7% in 2010. The improvement will not be as pronounced as elsewhere in Asia, but that is partly due to lesser pent-up demand since there was no recession to speak of in Indonesias case. Growth will be broad-based, with both domestic and external demand making good contributions. Investment spending is set to accelerate in the context of a broader global recovery and ongoing improvements in Indonesias own business environment. Private consumption will continue to expand, although higher inflation will cap momentum. Net exports will make a positive contribution as well.

1.0
Unit Sales (in Millions)

Indonesia Light Vehicle Sales

2.0%
Global Market Sales Share

1.5%

0.5

1.0%

0.5%

0.0 2009 2010 2011 2012 2013 2014 2015 2016

0.0%

GDP at 2000 Prices in Rp Billions

GDP at 2000 Prices and Exchange Rates in % US$ % Change Billions Change

Share of World GDP

Population in Millions

% Change

Share of World Population

GDP per Capita at 2000 Prices in Rp

GDP per Capita at 2000 Prices Unemployment Rate and % of Exchange Labor % Rates in % Force Change US$ Change

Consumer Price 1996=100 % Change

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

1459.6 10.2% 1526.0 1559.7 1644.3 1724.4 1823.5 1923.8 2044.5 2168.5 2267.1 2397.4 2531.1 2679.5 2835.7 2997.5 3166.7 3343.7 4.6% 2.2% 5.4% 4.9% 5.7% 5.5% 6.3% 6.1% 4.5% 5.7% 5.6% 5.9% 5.8% 5.7% 5.6% 5.6%

175.0 10.2% 183.0 187.0 197.1 206.7 218.6 230.6 245.1 260.0 271.8 287.4 303.5 321.2 340.0 359.4 379.7 400.9 4.6% 2.2% 5.4% 4.9% 5.7% 5.5% 6.3% 6.1% 4.5% 5.7% 5.6% 5.9% 5.8% 5.7% 5.6% 5.6%

0.57% 0.57% 0.57% 0.59% 0.60% 0.62% 0.63% 0.64% 0.66% 0.69% 0.71% 0.73% 0.75% 0.77% 0.78% 0.80% 0.82%

211.69 214.57 217.47 220.35 223.22 226.06 228.86 231.63 234.34 237.00 239.60 242.13 244.60 246.99 249.31 251.57 253.74

1.4% 1.4% 1.4% 1.3% 1.3% 1.3% 1.2% 1.2% 1.2% 1.1% 1.1% 1.1% 1.0% 1.0% 0.9% 0.9% 0.9%

3.46% 3.46% 3.46% 3.47% 3.47% 3.47% 3.47% 3.47% 3.48% 3.49% 3.50% 3.50% 3.51% 3.51% 3.52% 3.52% 3.53%

6,895 7,112 7,172 7,462 7,725 8,066 8,406 8,827 9,254 9,566 10,006 10,454 10,954 11,481 12,023 12,588 13,178

8.7% 3.1% 0.8% 4.0% 3.5% 4.4% 4.2% 5.0% 4.8% 3.4% 4.6% 4.5% 4.8% 4.8% 4.7% 4.7% 4.7%

827 853 860 895 926 967 1,008 1,058 1,109 1,147 1,200 1,253 1,313 1,376 1,441 1,509 1,580

8.7% 3.1% 0.8% 4.0% 3.5% 4.4% 4.2% 5.0% 4.8% 3.4% 4.6% 4.5% 4.8% 4.8% 4.7% 4.7% 4.7%

6.1% 8.1% 9.1% 9.5% 9.9% 11.2% 10.3% 9.1% 8.4% 7.9% 8.1% 7.6% 7.2% 6.8% 6.6% 6.4% 6.2%

3.7% 11.5% 11.9% 6.6% 6.2% 10.5% 13.1% 6.3% 10.1% 4.6% 4.8% 5.8% 5.3% 5.3% 4.6% 4.7% 4.7%

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3Q 2010

Indonesia Economic Analysis

Economic Analysis
GDP, Real
Growth will accelerate modestly in 2010. Following 4.5% growth in 2009, we forecast expansion of 5.7% in 2010 thanks to higher investment spending and somewhat stronger private consumption. Nonetheless, Indonesia will enjoy less pent-up demand than its regional peers. A gradual withdrawal of monetary and fiscal stimuli will also restrain growth, although the impact of these factors will be relatively muted given that Indonesias use of policy stimulus during 2009 was initially rather limited. GDP, Real
8.0 6.0 4.0 2.0 0.0 -2.0 -4.0 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Indonesia Industrial Countries

Exchange Rate
Carry trade offers near-term support, but it also raises the risk of subsequent correction. Improving external balances, such as the widening current account surplus, should offer fundamental support in the coming quarters. Nevertheless, experience shows that fundamental factors tend to be overwhelmed by technical and cyclical forces in determining the outlook for the rupiah. Since interest rates in both the United States and Europe are likely to remain close to zero well into 2010, there is reason to believe that the carry trade will continue to lend support to Indonesias rupiah in the near term, possibly through mid-2010. We expect Indonesias central bank to initiate a gradual monetary tightening cycle sometime in late spring/ early summer, so the interest rate differential will become more favorable for the rupiah. In addition, growth is also expected to outperform. Nevertheless, there is a significant risk that the carry trade will unwind sooner if confidence in the recovery begins to falter and investors begin to once again seek the security of the dollar. Clear evidence of this came in May, when heightened risk aversion among global investors amid Eurozone debt worries caused most Asian currencies, including Indonesias rupiah, to depreciate against the US dollar.

Y/Y % Change

Exchange Rate
10,600.0 10,400.0 10,200.0 10,000.0
Rupiah/US$

16,000.0 14,000.0 12 000 0 12,000.0 10,000.0 8,000.0 6,000.0 4,000.0 2,000.0 0.0 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Rupiah/US$ (l ) (l.) Rupiah/Euro (r.) (r )
Rupiah/Euro

9,800.0 9,600.0 9,400.0 9,200.0 9,000.0 8,800.0 8,600.0 8,400.0

Labor Market
High unemployment is here to stay. High domestic unemployment will likely remain one of Indonesias most significant economic and political challenges in years to come. Although population and labor force growth per se are not particularly rapid compared with their growth in other countries in the region (such as India, for instance), job creation will be similarly weakreflecting moderate economic growth and relatively more rigid labor laws. Indeed, many foreign and domestic investors have pointed out that increasing worker protectionism and labor market regulations, such as extremely generous termination packages, have significantly raised labor costs over the past several years and have stymied new hiring. Given the growing political influence of organized labor (there are some 180 unions and five national labor confederations), this trend will be difficult to alter significantly in the future. In addition, with the rise of Vietnam, Cambodia, and others as a new regional manufacturing center, Indonesia will likely experience continued loss of manufacturing jobs in the coming years. One offsetting trend would be a corresponding increase in expatriate Indonesian workers that would take on lower-skilled jobs elsewhere in the region.

Labor Market
12.0 10.0 8.0 6.0 4.0 2.0 0.0 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Unemployment Rate (l.) Employment (r.) 5.0 4.5 4.0 3.5 3.0 2.5 2.0 1.5 1.0 0.5 0.0 Y/Y Y/Y % Change Y/Y % Change Y/Y % Change Y/Y % Change Y/Y % Change

3Q 2010

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Percentage e

Regional Overview

Indonesia Economic Analysis

Economic Analysis cont.
Foreign Trade
External balances will remain favorable over the medium term. We expect Indonesia to maintain trade and current account surpluses over the next five years. Temporary reversals, however, are possible. There is even a near-term risk that a reversal in the carry trade may push the income account into deep deficit at some point over the next few quarters. Another factor that might contribute to lower trade surpluses over the medium term is our expectation of stronger foreign direct investment inflows, which will be accompanied by higher investment goods exports. In such a scenario, however, the narrowing of trade surpluses would not be a problematic development since higher imports would be not only financed through these investment inflows but would also contribute to boosting productive capacity and competitiveness. Recognizing the inherent volatility associated with global trade and capital flows, we believe that steady improvements in competitiveness will allow Indonesia to keep its trade balance in surplus over the medium term. Foreign Trade
15.0 10.0 5.0 Y/Y % Change 0.0 -5.0 -10.0 10 0 -15.0 -20.0 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Imports Exports

Regional Overview

Consumer Prices

Inflation
Inflation will increase from now on. The 23% annual inflation rates seen between July and October 2009 likely marked the bottom of the disinflationary cycle. With firmer commodity prices, demand conditions improving, and the favorable base effect turning unfavorable, headline inflation rates will move notably higher during the first half of 2010. Nevertheless, the indefinite delay of earlier plans to reduce energy subsidies means there is likely to be lesser upward pressure on prices than we had previously estimated. Therefore, we have lowered our 2010 inflation forecast to 4.8%, slightly above the 4.6% in 2009.

14.0 12.0 10.0 Y/Y % Change 8.0 6.0 4.0 2.0 0.0 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Indonesia

Industrial Countries

Interest Rate
Monetary tightening has been delayed amid mild inflation. Given still-low headline inflation and delays in electricity tariff increases, we have pushed back the timing of the first interest rate hike to August. Comments from Bank Indonesia remain quite dovish for the time being, although the latest bout of financial market panic in May could prove inflationary by causing rupiah depreciation. Nonetheless, Indonesias business cycle has been much milder than elsewhere in the region, and much less emergency support was injected into the system by the central bank during the crisis. This also means that there is less immediacy for removing that emergency component in the early stages of the recovery. Interest Rate
12.0

10.0

8.0 Percentage

6.0

4.0

2.0

0.0 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Policy Rate

Short-Term Rate

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3Q 2010

Malaysia Economic Analysis

Economic Snapshot
Growth will accelerate sharply in 2010. Although the economy contracted 1.7% in 2009, conditions had recovery taking hold in 2010, with real GDP growth of 6.6% boosted by favorable base comparisons, positive contributions from inventories, and better performance from investment and private consumption. These forces have already converged to push first-quarter GDP growth to a stronger-than-expected 10.1%. Nevertheless, the medium-term sustainability of this upward burst in activity remains highly doubtful given fundamental constraints to final export demand growth, on which Malaysia so depends. In effect, we believe that growth will moderate a little in 2011, as Chinese demand and the waning of fiscal stimulus weigh on performance.
Regional Overview

been improving steadily from the depth of the recession in the first quarter of 2009. We see a robust

Malaysia Light Vehicle Sales

1.0
Unit Sales (in Millions)

2.0%
Global Market Sales Share

1.5% 0.5 1.0% 0.5% 0.0 2009 2010 2011 2012 2013 2014 2015 2016 0.0%

GDP at 2000 GDP at Prices and 1987 Prices Exchange in % Rates in % RM Billions Change US$ Billions Change

Share of World GDP

Population in Millions

% Change

Share of World Population

GDP per Unemployment Rate Consumer Capita at 2000 % of GDP per Price Prices and Labor Capita at 1987 % 2005=100 Exchange % Force Prices in RM Change Rates in US$ Change % Change

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

356.4 358.2 377.6 399.4 426.5 449.3 475.2 504.9 528.3 519.2 552.9 583.2 616.6 648.6 681.1 716.4 752.5

8.5% 0.5% 5.4% 5.8% 6.8% 5.3% 5.8% 6.3% 4.6% -1.7% 6.5% 5.5% 5.7% 5.2% 5.0% 5.2% 5.0%

93.8 94.3 99.4 105.1 112.2 118.2 125.1 132.9 139.0 136.6 145.5 153.5 162.3 170.7 179.2 188.5 198.0

8.6% 0.5% 5.4% 5.8% 6.8% 5.3% 5.8% 6.3% 4.6% -1.7% 6.5% 5.5% 5.7% 5.2% 5.0% 5.2% 5.0%

0.30% 0.29% 0.30% 0.32% 0.33% 0.33% 0.34% 0.35% 0.35% 0.34% 0.37% 0.38% 0.39% 0.40% 0.40% 0.41% 0.42%

23.27 23.77 24.26 24.73 25.19 25.65 26.11 26.57 27.03 27.48 27.92 28.36 28.79 29.21 29.63 30.05 30.46

2.3% 2.1% 2.1% 1.9% 1.9% 1.8% 1.8% 1.8% 1.7% 1.7% 1.6% 1.6% 1.5% 1.5% 1.4% 1.4% 1.4%

0.38% 0.38% 0.39% 0.39% 0.39% 0.39% 0.40% 0.40% 0.40% 0.40% 0.41% 0.41% 0.41% 0.42% 0.42% 0.42% 0.42%

15,316 15,071 15,563 16,151 16,932 17,515 18,200 19,003 19,545 18,894 19,804 20,565 21,416 22,205 22,987 23,841 24,706

6.1% -1.6% 3.3% 3.8% 4.8% 3.4% 3.9% 4.4% 2.9% -3.3% 4.8% 3.8% 4.1% 3.7% 3.5% 3.7% 3.6%

4,031 3,966 4,096 4,250 4,456 4,609 4,790 5,001 5,144 4,972 5,212 5,412 5,636 5,843 6,049 6,274 6,502

6.1% -1.6% 3.3% 3.8% 4.8% 3.4% 3.9% 4.4% 2.9% -3.3% 4.8% 3.8% 4.1% 3.7% 3.5% 3.7% 3.6%

3.1% 3.6% 3.5% 3.6% 3.6% 3.6% 3.3% 3.2% 3.3% 3.7% 3.4% 3.1% 3.1% 3.0% 2.9% 2.8% 2.8%

1.6% 1.4% 1.7% 1.2% 1.5% 3.0% 3.6% 2.0% 5.4% 0.6% 1.7% 2.3% 2.2% 2.8% 2.5% 2.7% 2.8%
7

3Q 2010

Copyright 2010 CSM Worldwide

Malaysia Economic Analysis

Economic Analysis
GDP, Real
Economic growth will accelerate sharply in 2010. Although the economy contracted on an annual basis in 2009, conditions improved steadily over the course of the year. The situation will improve markedly in 2010, with growth lifted by a number of factors, including stronger final demand domestically and abroad, and, very importantly, the end of destocking. This latter element is particularly significant in Malaysias case because the extent of the inventory cuts experienced last year was unprecedented. We have further upgraded our 2010 growth forecast to 6.6%, compared with 6.5% in May and 5.6% at the start of 2010. GDP, Real
8.0 6.0 4.0 2.0 0.0 -2.0 -4.0 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Malaysia Industrial Countries

Regional Overview

Exchange Rate
Appreciation pressures will return in the longer term. Malaysias currency, the ringgit, enjoys strong fundamental support from large current account surpluses, which continued even amid the depth of the current recession. As such, risks of speculative attacks on the currency have diminished, given that external debt burdens have steadily declined since the Asia crisis. Depreciation episodes should therefore be mild and sporadic, with pressures more likely to intensify in the opposite direction, leading to currency appreciation. At the same time, an acute rise in investor risk aversion will undoubtedly lead to some currency depreciation, such as what happened in May, amid fears of a sovereign default in the Eurozone.

Y/Y % Change

Exchange Rate
3.8 3.7 3.6 Ringgit/US$ 3.5 3.4 3.3 3.2 31 3.1 3.0 2.9 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Ringgit/US$ (l ) (l.) Ringgit/Euro (r ) (r.) 6.0 5.0 4.0 Ringgit/Euro Ringgit/Euro Ringgit/Euro Ringgit/Euro Ringgit/Euro 3.0 2.0 1.0 0.0

Labor Market
Unemployment will moderate gently in 2010. With labor markets having already experienced notable improvements since the early part of 2009, there is limited scope for further declines in the unemployment rate. This is particularly so given that as the economy expands anew, the labor force may do so as well, since job seekers become more optimistic about job prospects. Therefore, we expect only a very gradual decline in the headline unemployment rate from 3.5% at the end of 2009 to 3.1% by the end of 2010.

Labor Market
4.0 3.5 3.0 Y/Y % Change Percentage e 25 2.5 2.0 1.5 1.0 0.5 0.0 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Unemployment Rate (l.) Employment (r.) 0.5 0.0 2.0 1.5 1.0 3.0 2.5

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3Q 2010

Malaysia Economic Analysis

Economic Analysis cont.
Foreign Trade
Exports are growing again. We expect a 22.5% gain in nominal merchandise exports in 2010 following a 21.1% contraction in 2009. Although impressive at first glance, this is actually a fairly muted recovery by historical standards and reflects ongoing uncertainty about the sustainability of the economic recovery in some of Malaysias key export markets such as the United States and Europe. Even with the increase penciled in for this year, exports in 2010 will remain below the 2008 annual average. The forces of deleveraging, with consumers in these countries working through their debt burdens and raising their savings rates, and insufficient compensatory demand from China and other emerging markets, growth in demand for Malaysias exports will likely be lackluster, even over the medium term. Foreign Trade
20.0 15.0 10.0 Y/Y % Change 5.0 0.0 -5.0 50 -10.0 -15.0 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Imports Exports

Inflation
Inflation will remain contained in 2010. Malaysias deflationary episode is now over, and headline inflation rates are set to move slightly higher in the coming months. Base effects will turn increasingly unfavorable as we get closer to summer, and commodity prices appear to have stabilized at levels that are considerably above those in early 2009. Stronger demand conditions will also resurrect concerns about inflation during the course of 2010. Nevertheless, these price pressures are likely to be well contained, most importantly by very competitive conditions and the inability of producers to implement price increases. Therefore, we expect to see the average inflation rate reach 1.71.8% in 2010 in line with recent historical norms.

Consumer Prices
6.0 5.0 4.0 3.0 2.0 1.0 0.0 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Y/Y % Change

Malaysia

Industrial Countries

Interest Rate
The interest rate normalization cycle kicked off in March 2010. The Bank Negaras decision on 4 March to raise the policy rate by 25 basis points to 2.25% ended a 13-month-long hold stance and marked the beginning of a gradual move toward monetary policy normalization. We had anticipated the shift and agreed with the banks own assessment that this is by no means a departure from a still-supportive policy stance. Another rate hike followed in May, as we had predicted, on the day of the first-quarter GDP release, which showed that the economy had grown 10.1% y-o-y.

Interest Rate
6.0 5.0 4.0 40 Percentage 3.0 2.0 1.0 0.0 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Policy Rate

Long-Term Rate

3Q 2010

Copyright 2010 CSM Worldwide

Regional Overview

Thailand Economic Analysis

Economic Snapshot
Real GDP growth is set to accelerate sharply in 2010. The economic recovery appears broad-based,
Regional Overview

with stronger export orders propelling an expansion of industrial output, while consumer spending seems to be reviving as well. One area of weakness remains private investment spending, the recovery of which is being delayed by excess capacity and a more cautious attitude on the part of businesses. The end of destocking will also provide a temporary lift to GDP in coming quarters, boosting annual growth to 7.1%. What is less certain is the sustainability of this upward burst in activity, particularly if conditions in the key Organisation for Economic Co-operation and Development economies do not materially improve by 2011, by which time stimulus support would have largely faded.

Thailand Light Vehicle Sales

1.0
Unit Sales (in Millions)

2.0%
Global Market Sales Share

1.5% 0.5 1.0% 0.5% 0.0 2009 2010 2011 2012 2013 2014 2015 2016 0.0%

GDP at 2000 Prices and Exchange GDP at 1988 Rates in Prices in % US$ % Bt Billions Change Billions Change

Share of World GDP

Population in Millions

% Change

GDP per Capita at Unemployment Rate Consumer GDP per 2000 Prices % of Share of Price Capita at and Labor World 2002=100 1988 Prices in % Exchange % Force Population % Change Bt Change Rates in US$ Change

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
10

3022.4 3113.5 3247.5 3462.7 3695.7 3934.7 4137.2 4341.1 4448.1 4346.7 4621.3 4829.1 5073.5 5299.3 5550.0 5824.7 6106.3

5.2% 3.0% 4.3% 6.6% 6.7% 6.5% 5.1% 4.9% 2.5% -2.3% 6.3% 4.5% 5.1% 4.4% 4.7% 5.0% 4.8%

123.4 127.2 132.6 141.4 150.9 160.7 169.0 177.3 181.7 177.5 188.7 197.2 207.2 216.4 226.7 237.9 249.4

5.2% 3.0% 4.3% 6.6% 6.7% 6.5% 5.1% 4.9% 2.5% -2.3% 6.3% 4.5% 5.1% 4.4% 4.7% 5.0% 4.8%

0.40% 0.39% 0.41% 0.42% 0.44% 0.45% 0.46% 0.47% 0.46% 0.44% 0.48% 0.49% 0.50% 0.51% 0.51% 0.52% 0.53%

60.67 61.19 61.67 62.13 62.57 63.00 63.44 63.88 64.32 64.73 65.12 65.49 65.84 66.16 66.47 66.76 67.04

1.0% 0.9% 0.8% 0.7% 0.7% 0.7% 0.7% 0.7% 0.7% 0.6% 0.6% 0.6% 0.5% 0.5% 0.5% 0.4% 0.4%

0.99% 0.99% 0.98% 0.98% 0.97% 0.97% 0.96% 0.96% 0.96% 0.95% 0.95% 0.95% 0.94% 0.94% 0.94% 0.93% 0.93%

49,817 50,883 52,659 55,733 59,065 62,455 65,214 67,958 69,155 67,152 70,966 73,738 77,059 80,098 83,496 87,248 91,084

4.2% 2.1% 3.5% 5.8% 6.0% 5.7% 4.4% 4.2% 1.8% -2.9% 5.7% 3.9% 4.5% 3.9% 4.2% 4.5% 4.4%

2,035 2,078 2,151 2,276 2,412 2,551 2,663 2,776 2,824 2,743 2,898 3,012 3,147 3,271 3,410 3,563 3,720

4.2% 2.1% 3.5% 5.8% 6.0% 5.7% 4.4% 4.2% 1.8% -2.9% 5.7% 3.9% 4.5% 3.9% 4.2% 4.5% 4.4%

3.6% 3.3% 2.4% 2.2% 2.1% 1.8% 1.5% 1.4% 1.4% 1.5% 1.1% 1.0% 0.9% 1.2% 1.4% 1.5% 1.6%

1.6% 1.6% 0.6% 1.8% 2.8% 4.5% 4.6% 2.2% 5.5% -0.8% 3.9% 3.3% 3.1% 3.0% 2.8% 3.1% 3.3%

Copyright 2010 CSM Worldwide

3Q 2010

Thailand Economic Analysis

Economic Analysis
GDP, Real
The roaring start to 2010 will quiet down quickly. Real GDP surged to a 15-year high in 1Q 2010, reaching 12.0%. Although all sectors grew strongly during the quarter relative to a year ago, their contribution to growth was far more varied than what headline growth figures suggest. The area of largest divergence was, without a doubt, net trade. Both exports and imports grew handsomely, up 16.2% y-o-y and 31.4% y-o-y, respectively, but given the relatively stronger rebound in imports, net trade actually detracted 2.4 percentage points from first-quarter growth. At the other extreme, inventories provided the biggest boost to growth, a massive 8.8%. Put differently, nearly three quarters of the first-quarter growth was driven purely by the inventory cycle. GDP, Real
8.0 6.0 4.0 2.0 0.0 -2.0 -4.0 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Thailand Industrial Countries

Exchange Rate
Improving risk aversion among global investors helps emerging market currencies. After the onset of the global credit crisis last fall, many Asian currencies, including the Thai baht, experienced severe depreciation episodes. These were triggered by a sharp reversal of capital flows away from emerging markets, as investors sought the security of a safe haven currency. With confidence returning along with signs of economic recovery, emerging market currencies have begun to retrace their earlier losses. As long as the growth momentum is maintained, the baht could continue to ride the rising tide of confidence and continue to appreciate slightly against the dollar. Nevertheless, sentiment will play a major role in near-term currency movements. This was apparent in May, when many emerging market currencies depreciated considerably as risk aversion increased amid concerns about Eurozone sovereign debt. Exchange Rate
39.0 38.0 37.0 36.0 Baht/US$ 35.0 34.0 33.0 32.0 31.0 30.0 29.0 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Baht/US$ (l.) (l ) Baht/Euro (r.) (r ) 60.0 50.0 40.0 Baht/Euro Baht/Euro Baht/Euro Baht/Euro Baht/Euro 30.0 20.0 10.0 0.0

Labor Market
Demographics drive a low unemployment forecast. Given severe constraints to indigenous labor force growth, we think low unemployment will remain a feature of the Thai economy in the future. Indeed, demographic forces such as the low population growth rate will result in actual declines in labor force by the latter part of our forecast horizon (2020 and beyond). Although we expect Thailand to become more open to imported labor because of these constraints, the unemployment rate is expected to remain very low throughout the forecast period.

Y/Y % Change

Labor Market
1.8 1.6 1.4 Percentage e 1.2 1.0 0.8 0.6 0.4 0.2 0.0 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Unemployment Rate (l.) Employment (r.) 0.0 2.0 Y/Y % Change 2.5

1.5

1.0

0.5

3Q 2010

Copyright 2010 CSM Worldwide

11

Regional Overview

Thailand Economic Analysis

Economic Analysis cont.
Foreign Trade
Improving exports will maintain trade and current account surpluses over the next few years. Although domestic demand will revive gradually in 20102011 and, with it, import growth, export demand is also expected to accelerate over the next couple of years. Therefore, we expect that Thailand will manage to retain its external surpluses over the medium term. Nonetheless, this outlook is not without risks, given that consumer demand in many of the developed countries appears to have been substantially weakened by years of debt-fueled overconsumption. This would probably make the export recovery slower than in typical post-recession periods. Foreign Trade
20.0 15.0 10.0 Y/Y % Change 5.0 0.0 -5.0 -10.0 -15.0 -20.0 -25.0 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Imports Exports

Regional Overview

Inflation
Inflation will return in 2010 but will remain under control. Thailands six-month-long deflationary episode ended in October 2009, and inflationary pressures are set to accelerate slightly during 2010. Even though domestic demand conditions remain weak, global commodity prices have now retraced a good deal of their earlier losses, boosting import prices. As long as incoming data do not lead market participants to doubt that an economic recovery is going to occur in 2010, it is quite possible that commodity prices will continue to move ahead of market fundamentals for some time. In tandem with unfavorable base comparisons, this is expected to push headline inflation to 3.9% in 2010. Consumer Prices
6.0 5.0 4.0 Y/Y % Change 3.0 2.0 1.0 0.0 00 -1.0 -2.0 2006 2007 2008

2009

2010

2011

2012

2013

2014

2015

2016

Interest Rate
Rates remain on hold for now, but the start of tightening is imminent. The Bank of Thailand (BOT) left its policy interest rate unchanged at 1.25% at the regularly scheduled meeting on 21 April. The rate has now been at this level since April 2009. The rather terse statement accompanying the announcement acknowledged that the global economic recovery, improved confidence of the private sector, and strong economic fundamentals should provide a foundation for firm economic expansion this year. As far as the growth outlook was concerned, this was the most optimistic assessment so far. Nevertheless, the statement stressed that the central bank fears the negative impact on confidence, tourism, and investment stemming from the latest bout of political unrest. This was the reason for the banks decision to delay tightening for now.

Thailand

Industrial Countries

Interest Rate
6.0

5.0

4.0 Percentage

3.0

2.0

1.0

0.0 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Policy Rate

Long-Term Rate

12

Copyright 2010 CSM Worldwide

3Q 2010

South Asia Production Analysis

Short-Term Production Analysis
ASEAN light vehicle production showed a strong rebound in 2Q 2010, up 69% from the same quarter last year to reach 703,000 units. Strong domestic demand boosted by a sharp recovery in consumer confidence and historically favorable loan conditions were the major drivers behind this recovery. Also, the recovery in exports to major markets has helped drive production for countries like Thailand. Thailand had the highest growth of 102% y-o-y in 2Q 2010, boosted by strong exports, which make up 56% of total production. The Philippines and Indonesia followed suit, growing by 62.7% and 61.7%, respectively. Other countries such as Vietnam (+28.5%) and Malaysia (+25.2%) also recorded high positive growth. Thailands light vehicle production reached 750,000 units in 2Q 2010 YTD, 38% higher than the 2Q YTD volume achieved in 2008. Both exports and production in the domestic market sharply recovered. CSM expects the strong recovery in exports to continue, as new volume from the Nissan March and Mazda/ Ford B2e platform B-segment cars is expected to increase exports to neighboring countries such as Japan and Australia. With a number of eco car projects in the pipeline from 2010 to 2012, including the Honda Sub-B Car in 2011, the Suzuki Swift in 2012 and the recently announced Mitsubishi Global Small Car in 2012, along with the model changes of major pickup models, CSM expects Thailands production to expand to reach nearly 1.6 million units in 2010 and nearly 1.68 million units in 2012. Indonesian light vehicle production increased 62.9% to 393,000 units in 2Q 2010 YTD, as the domestic market has fully recovered due to lower interest rates and the strong rupiah, which helps keep vehicle prices stable. Indonesian light vehicle production is expected to experience record-high growth in the next few years with a compound annual growth rate (CAGR) of 21.1% from 2009 to 2012, reaching a record-high volume of 567,000 units in 2010 and 708,000 units in 2012. Production in Malaysia reached 277,000 units in 2Q 2010 YTD, an increase of 24% from last year. Malaysia is expected to continue to grow in 2010 with the launch of new models from Perodua and continued strong sales of the Proton Exora. Going forward, CSM expects Malaysian light vehicle production to maintain stable and consistent growth with a CAGR of 6% from 2009 to 2012. Several model changes from Proton and Perodua are in the pipeline. Light vehicle production in India reached 1.5 million units in the first two quarters of 2010, an increase of 36% compared to the same period last year. Production in June grew by 29.5% compared to the same period last year. Consistently strong growth in domestic sales and exports as well as the low base from last year led to this significant jump in production growth. The second quarter witnessed increasing competition in the small-car segment with the strong entry of the Ford Figo and Chevrolet Beat. These new vehicles are key to the Indian strategies of their respective global parents. The Figo and the Beat have both received enthusiastic responses from customers who are looking for a change from Suzuki and Hyundai vehicles. The recently launched VW Polo and Nissan Micra are also very aggressively trying to gain market share in the small-car segment. Exports are up nearly 30% YTD compared to last year as India continues to cement its place as the global small-car hub. Due to the strong resurgence in domestic demand and increasing small-car exports, production in India is likely to maintain impressive double-digit growth rates in 2010, 2011 and 2012 as new plants come online from global majors and the ULC segment expands in the domestic market. Light vehicle production in Pakistan increased by almost 74% in the first two quarters of 2010 compared to the same period last year. The easing of the global financial crisis and increased availability of vehicle financing led to improved local sales. However, the country still has a great deal of political uncertainty, and future growth will strongly depend upon the restoration of peace and normalcy to the country. Light vehicle production in Australia grew by almost 35% in the first two quarters of 2010 compared to the same period last year. Better domestic sales and the low base from last year contributed to this production growth. Output grew by almost 20% in June compared to the same period last year. Production volume is expected to pick up in 2010, but CSM does not expect output to return to 2007 levels until after 2012.

South Asia Short-Term Production 2008-2012

4,500 4,000 3,500 3,000 Thousand ds 2,500 2 500 2,000 1,500 1,000 500 0 India a Indonesia a Australia a Philippines s Uzbekistan n Thailand d Pakistan n Kazakhstan n Malaysia a Vietnam m 2008 2009 2010 2011 2012

3Q 2010

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Regional Overview

South Asia Production Analysis

Long-Term Production Analysis
The landscape of Thailands automotive industry is transforming rapidly as the country attempts to diversify its base by introducing eco cars, small fuel-efficient cars, and as a result reducing its heavy dependence on one product champion, the mid-size pickup. The launch of eco cars, a total of six projects from OEMs, will help to accelerate small-car production growth; more than 50% of these small cars will be exported. Thailand is expected to produce nearly 2.15 million units by 2016, as the industry will be positively affected by strong exports of eco cars and other subcompact cars; pickup exports will remain solid. The transfer of smaller passenger car production from Japan and other markets to Thailand will affect the countrys production in the long term. The production transfer from Japan to more cost-competitive Thailand is accelerating. Nissan was the first Japanese OEM to re-export the Nissan March to Japan, soon to be followed by Mitsubishi with the Global Small. All major OEMs have started to eye Thailand as a production base not only for mid-size pickups, but for smaller passenger cars, as Thailand provides tax incentives and a competitive supplier base. Despite the recent policy shift toward smaller cars, CSM expects pickup production to continue to expand, as there will be strong demand coming mainly from emerging markets like the Middle East and South Asia and solid demand in the domestic market. Indonesia will emerge as the second-biggest market in Southeast Asia after Thailand in the long term, as Indonesias economy is expected to see stronger growth compared to the last four to five years. Indonesia will strengthen its role as the regional hub for utility vehicles in the region as major OEMs like Daihatsu and Nissan are planning to increase their production capacity, hoping to take advantage of the huge opportunity in a market with more than 230 million people. CSM expects Indonesias light vehicle production to reach 920,000 units by 2016, securing second place behind Thailand in terms of total volume. Indonesia may add more production volume if the low-cost eco car under consideration by the Indonesian government proves to be successful in attracting investments to new segments, including low-cost cars. The details of the low-cost eco car policy, similar to the Thai eco car policy, are expected to be announced by the government very soon. India is likely to remain a small-car market in the long run. The launch of new and comparatively advanced hatchbacks along with the tax cut for small cars will likely persuade customers to choose hatchbacks over equivalent sedans. Beyond 2012, the leaders in the industry (Maruti Suzuki, Tata and Hyundai) will be under strong competitive pressure from the global majors, especially in the volume segments. Toyota, Honda, Volkswagen and Renault/Nissan will all launch new products that will be contemporary yet affordable for a large portion of the Indian consumer base. With the global majors making substantial investments in India, India is likely to emerge as a global center for small-car design, development and production. The emergence of a new segment of ultralow-cost cars would further add to this cause. Production in India is expected to reach 4.6 million units in 2013 and nearly 5.5 million units by 2016. With a growing economy and very low car penetration, Pakistan is an attractive market for automakers, but the growing domestic strife has taken a heavy toll on the industry. Due to the countrys political atmosphere, potential capacity additions from automakers might be diverted to other neighboring markets. Imports are expected to increase as automakers are likely to ship more cars to Pakistan from other South Asian countries like Thailand rather than risk investing in the uncertain conditions prevalent in the country. Annual production is expected to reach 280,000 units by 2016, provided that the political situation remains under control. Beyond 2012, production is expected to show consistent growth in Australia. By 2016, annual production volume is expected to reach 420,000 units. There will be such a late improvement because manufacturers current product line-ups are not in sync with consumer demand. OEMs are realigning their product mixes, but it will take a couple of years for this to actually happen.

Regional Overview

2.5

South Asia Long-Term Production by OEM 2013-2016

2013 1.5 Millions s

2014

2015

2016

0.5

0 Ho onda Volkswa agen neral Gen Mot tors F Ford T Tata Renault/Nis ssan Mahindra & dra Mahind Mitsub bishi Toy yota Suzuki Hyun ndai Other

14

Copyright 2010 CSM Worldwide

3Q 2010

Global Light Vehicle Sales Demand

Global Topline Volume

17.5

18.9 19.5

2010

2013

2016

2010

2013

2016

13.8

18.5 14.3

21.3

2010

2013

2016

6.2

6.2

6.2

2.2

2.7

3.1

4.5

5.6

6.5

2010

2013

2016

2010

2013

2016

5.8

7.6

9.1

2010

2013

2016

2010

2013

2016

Volume in Millions

Global Topline Volume Analysis

In the first half of 2010, global light vehicle sales were up by 17.6% at 33.2 million units. Except for Central/Eastern Europe and Western Europe, which are essentially flat (up 2.8%), all major markets are showing significant growth and are underlining the global recovery trend that was forecast for this year. Interestingly, Chinas year-over-year growth rates slowed substantially in the second quarter from the first quarter of 2010. Growth in the second quarter only registered a 26% uptick a distant memory from the 69% growth in the first quarter. For the full year of 2010, CSM forecasts global growth of about 8.7%, resulting in 64.4 million units. This shift in full-year prospects emanates from revised assumption sets in Europe, China and pockets of Southeast Asia. Besides China, the NAFTA new car market is forecast to become one of the global sales growth drivers in 2010. We expect to see a 9.5% increase. This is mainly due to pent-up replacement demand, the stabilization of the unemployment rate and sustainable gains in consumer confidence when the unemployment rate recedes, personal finances improve and property values grow. China will continue its extraordinary growth trend from last year. The government incentive scheme has been extended throughout 2010 but has been modified, driving lower adoption later this year. The current CSM forecast for China resides at 14 million units, an increase of 24% from the previous year.

On the other hand, West Europe is forecast to decline in 2010. Germany in particular, which last year had the strongest sales since 1992, will pay the price for the significant pull-ahead due to the incentive schemes. Italy recently decided not to extend their incentive. CSM forecasts a total decrease of 5.5% for West Europe. This is a change from our 1Q 2010 setting of a 9% decrease. The beginning of a significant global revival will start in 2011. Global sales of new light vehicles are forecast to reach about 68.8 million units, a 6.8% increase over 2010. This will finally bring the global industry above 2007 demand levels. However, this growth will primarily come from the emerging markets. The mature markets will take until 2014 or longer to recover from the global crisis. Until the end of the forecast horizon in 2016, the global light vehicle sales market is expected to grow at a compound annual growth rate of 5.5% to reach 88.9 million units. This is a 1.5-millionunit increase over the first-quarter forecast. South Asia and Greater China are the main contributors to this long-term change.

3Q 2010

Copyright 2010 CSM Worldwide

15

Regional Overview

20.6

22.7

Global Light Vehicle Sales Demand

Global Light Vehicle Sales by Region/Market
Global Region Europe Market 2009 2010 2011 2012 2013 2014 2015 2016

Regional Overview

Central Europe East Europe West Europe Europe Total Greater China China Taiwan Greater China Total Japan/Korea Japan South Korea Japan/Korea Total Middle East/Africa Africa Middle East Middle East/Africa Total North America NAFTA North America Total South America Andean Mercosul South America Total South Asia ASEAN Indian Subcontinent Oceania South Asia Total Total Global Volume Total Change %

785,505 2,456,879 14,910,155

737,607 2,710,911 14,086,081

828,007 2,942,196 14,355,600

905,592 3,166,613 15,216,702

1,002,118 3,623,499 15,993,591 20,619,208

1,095,177 4,095,041 16,505,450

1,144,061 4,550,250 16,562,940

1,178,111 4,912,757 16,599,733 22,690,601

18,152,539 17,534,599 18,125,803 19,288,907

21,695,668 22,257,251

11,309,361 271,858

14,002,512 306,550

15,124,113 305,248

16,654,099 307,757

18,215,534 327,131 18,542,665

19,215,494 334,354

19,981,541 331,872

20,961,600 327,286 21,288,886

11,581,219 14,309,062 15,429,361 16,961,856

19,549,848 20,313,413

4,458,768 1,411,126 5,869,894

4,882,275 1,363,834 6,246,109

4,727,800 1,368,672 6,096,472

4,683,310 1,388,463 6,071,773

4,780,434 1,429,184 6,209,618

4,786,652 1,450,130 6,236,782

4,744,871 1,481,578 6,226,449

4,680,042 1,499,705 6,179,747

474,527 1,668,432 2,142,959

495,682 1,740,798 2,236,480

578,544 1,806,690 2,385,234

690,099 1,892,977 2,583,076

788,344 1,953,451 2,741,795

868,473 2,001,071 2,869,544

906,534 2,076,005 2,982,539

945,187 2,140,456 3,085,643

12,608,330

13,831,848

15,606,998

17,689,790

18,903,001 18,903,001

19,527,785

19,995,654

20,059,446 20,059,446

12,608,330 13,831,848 15,606,998 17,689,790

19,527,785 19,995,654

613,784 3,532,585 4,146,369

723,717 3,746,749 4,470,466

808,488 3,919,434 4,727,922

883,703 4,263,206 5,146,909

959,685 4,657,018 5,616,703

1,024,323 4,767,602 5,791,925

1,077,956 5,004,910 6,082,866

1,131,437 5,366,176 6,497,613

1,685,353 2,191,845 900,292 4,777,490

2,122,711 2,714,522 976,104 5,813,337

2,273,169 3,113,633 1,044,431 6,431,233

2,452,301 3,513,081 1,107,097 7,072,479

2,590,890 3,861,071 1,151,381 7,603,342 80,236,332 7.2%

2,746,111 4,158,166 1,185,923 8,090,200

2,912,138 4,441,556 1,245,219 8,598,913

3,098,963 4,701,677 1,282,575 9,083,215 88,885,151 2.8%

59,278,800 64,441,901 68,803,023 74,814,790 -4.3% 8.7% 6.8% 8.7%

83,761,752 86,457,085 4.4% 3.2%

16

Copyright 2010 CSM Worldwide

3Q 2010

Global Light Vehicle Sales Demand

Global Light Vehicle Regional Sales Sourcing by Production Region
Coming out of the crisis, it becomes more important than ever to monitor OEM logistics both short-haul and deep sea sourcing. Their significance in the transformation of the automotive industry has increased constantly and will continue to dictate the production interrelationship over the next decade. Not only do logistics companies and suppliers have to watch developments and trends, competitors also have to monitor these actions for any potential advantages. The global production footprint will determine these comparative advantages going forward. From the supply side, the shift in key players in the future will increase the need for the adjustment of logistic strategies. The industry faces fastrising, emerging automotive economies with significant shifts in regards to market powers and consumer demand occurring throughout the forecast horizon. Therefore, going forward, new logistics criteria need to be considered when understanding the competitive landscape. Several factors determine production sourcing for vehicles sold in a region, such as currency shifts; the competitiveness of domestic capacity; the formation of high-volume scale within a growing region; and the reduction/ escalation of tariff and non-tariff barriers (NTBs) shielding a country or region from global market forces. Therefore, regions such as Europe will see only minor growth of sourcing from outside the region instead there will be substantial shifts within Europe. These include the shift of sourcing to lower-cost Central/Eastern Europe from Western Europe in the case of several Band C-segment offerings. The presence of tariffs (and the prospects of changes to these FTAs and trade actions) will continue to protect several markets from increased penetration from outside production sources. These include China (averaging 2-4% light vehicle import penetration through 2016), Japan/Korea (which has slowly risen to 5% and may rise further to over 6% by 2016) and Europe (averaging 12-14% import penetration from 2010 onwards). The economics of overcoming existing tariffs will continue to serve as a barrier to increased import penetration in these regions. Only a major political or economic shift could affect this situation. Several locations will face greater global sourcing integration in the future. The rise of northern Africa as a market and source (Morocco and Egypt) will drive increased integration. Similarly, the growth of the Brazilian market, the presence of several trade agreements and the strength of the Brazilian real will drive further increases in import share in South America (approaching 20% by 2016). Conversely, the growth of markets such as India and the ASEAN countries (especially Thailand) will be fed from within in the future as scale increases and capacity increases are added to the region. Copyright 2010 CSM Worldwide 17

Production Region
Year
2003

EU
90.0% 87.4% 85.2% 1.6% 1.8% 1.2% 3.2% 3.1% 4.1% 11.3% 15.9% 26.5% 6.0% 6.8% 7.4% 1.7% 2.0% 2.7% 5.4% 2.7% 3.0%

GC
0.0% 0.2% 0.1% 95.5% 95.7% 97.3% 0.0% 0.0% 0.7% 0.0% 1.8% 0.8% 0.0% 0.0% 0.0% 0.0% 1.2% 1.6% 0.7% 0.8% 0.4%

JK
7.8% 7.6% 9.7% 2.7% 1.7% 1.1% 95.7% 95.7% 93.6% 3.8% 9.8%

MEA
0.3% 0.3% 0.5% 0.0% 0.0% 0.0% 0.3% 0.1% 0.1% 76.7% 66.7%

NA
1.1% 1.8% 1.6% 0.2% 0.8% 0.4% 0.6% 0.4% 0.4% 1.1% 2.3% 1.2% 78.7% 72.3% 74.8% 1.0% 3.1% 3.8% 1.1% 0.4% 0.6%

SA
0.0% 0.3% 0.1% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.9% 1.0% 1.7% 1.3% 1.0% 1.0% 88.8% 81.8% 80.7% 1.1% 0.2% 0.0%

SEA
0.7% 2.4% 2.8% 0.0% 0.0% 0.0% 0.2% 0.6% 1.1% 5.5% 2.1% 5.2% 0.1% 0.3% 0.3% 0.3% 1.1% 1.5% 83.5% 89.4% 91.3%

Europe (EU)

2010 2016 2003

Greater 2010 China (GC)

2016 2003

Japan/ Korea (JK)

2010 2016

Sales Region

Middle East/ Africa (MEA) North America (NA) South America (SA)

2003 2010 2016 2003 2010 2016 2003 2010 2016 2003

14.9% 49.9% 13.8% 19.3% 16.4% 4.8% 8.5% 7.8% 7.4% 6.1% 4.0% 0.1% 0.4% 0.1% 0.0% 0.0% 0.0% 0.9% 0.3% 0.7%

South Asia 2010 (SEA)

2016

3Q 2010

Regional Overview

Regional Light Vehicle Sales Demand

Regional Overview
South Asia Sales by Country
Market Country 2009 2010 2011 2012 2013 2014 2015 2016 CAGR

Regional Overview

ASEAN Indonesia Malaysia Phillippines Thailand Vietnam ASEAN Total Change % Indian Subcontinent India Pakistan Indian Subcontinent Total Change % Oceania Australia Oceania Total Change % South Asia Total Total Change % 900,292 900,292 -9.3% 4,777,490 1.9% 976,104 976,104 8.4% 5,813,337 21.7% 1,044,431 1,044,431 7.0% 6,431,233 10.6% 1,107,097 1,107,097 6.0% 7,072,479 10.0% 1,151,381 1,151,381 4.0% 7,603,342 7.5% 1,185,923 1,185,923 3.0% 8,090,200 6.4% 1,245,219 1,245,219 5.0% 8,598,913 6.3% 1,282,575 1,282,575 3.0% 9,083,215 5.6% 8% 5% 5% 2,083,939 107,906 2,191,845 17.1% 2,553,187 161,335 2,714,522 23.8% 2,936,165 177,468 3,113,633 14.7% 3,317,867 195,214 3,513,081 12.8% 3,646,336 214,735 3,861,071 9.9% 3,919,811 238,355 4,158,166 7.7% 4,174,599 266,957 4,441,556 6.8% 4,404,202 297,475 4,701,677 5.9% 10% 11% 10% 424,686 517,887 130,100 531,342 81,338 1,685,353 -7.6% 657,731 573,369 152,460 654,803 84,348 2,122,711 26.0% 720,499 615,366 156,032 691,280 89,992 2,273,169 7.1% 780,752 650,711 159,564 763,652 97,622 2,452,301 7.9% 834,323 680,106 167,490 804,039 104,932 2,590,890 5.7% 919,306 698,233 173,398 841,995 113,179 2,746,111 6.0% 1,008,649 719,619 176,589 884,485 122,796 2,912,138 6.0% 1,100,765 754,522 184,911 926,313 132,452 3,098,963 6.4% 9% 5% 3% 6% 8% 7%

South Asia Regional Analysis

Light vehicle sales in India grew by more than 35% in June compared with the same period last year. This tremendous growth was possible due to the Indian economys rapid recovery from the global recession, which led to improved consumer confidence. In the long term, India has huge potential, as its car penetration is still very low at 10 cars per 1,000 people. Various manufacturers are developing low-cost cars to tap into the segment of first-time buyers. Sales are expected to exceed 4.3 million units by 2016, with a large part of this share coming from the mini and compact car segments. Light vehicle sales cooled down in June 2010 in Australia after double-digit growth in the first five months of the year. New vehicle sales grew by 5% in June year-over-year (y-o-y) and reached 105,268 units versus 99,439 units in the same month last year. The continuity in month-over-month growth indicates that consumer confidence is improving. Towards the end of the first half of the year, we saw more sales emerging from the private buyer segment instead of from business buyers. The ASEAN automobile market remained stable in June, as all the individual markets saw strong growth. The region grew by 42.3% y-o-y; Indonesia had the highest growth rate of 70%, followed by Thailand at 52%. The booming economy and favorable financing conditions, along with significant promotional incentives, are the main factors that constantly attract consumers to this market. In the short term, we remain optimistic and expect to continue to see positive factors outweigh negative factors. The overall sales momentum is also expected to continue during 2010 and 2011. The increase in popularity of small passenger cars will undoubtedly force OEMs to strengthen their competitive strategies in the subcompact segment. Although the Thai automotive market is now in its so-called slow season, the market continued to grow for the 10th consecutive month in June 2010, a growth of 57% compared to the same period last year. Favorable business conditions, stable oil prices, the gradual increase of consumer confidence and the introduction of new and revamped passenger car models all contributed to this impressive growth. The Thai market is expected to continue to draw an average of 50,000 sales per month, assuming that the political situation remains stable. In the short term, consumer confidence and spending will be directly linked to the political situation, and if the implementation of the national reconciliation plan fails, the economy and light vehicle sales would plummet. The strong possibility of a new election during early 2011 could undermine the industrys full growth potential yet again as the political tension is brought back into the limelight. In the long term, Thailand is expected to regain its overall economic momentum and witness rapid market expansion in both the passenger and light commercial vehicle segments.

18

Copyright 2010 CSM Worldwide

3Q 2010

Commodities Overview
Commodities Overview

Ongoing trouble in the European region has weakened the outlook for future growth and as a result the euro has fallen, at times reaching its lowest level against the dollar in four years. We expect the dollar to continue to gain against the euro, which will help dampen prices for US dollar-denominated commodities. The market is watching the effects of Chinese policy tightening closely, as effects of a significant slowdown in the Chinese economy, which has led the global recovery thus far, would no doubt reverberate around the world. Chinese demand for commodities has been strong, and losing this essential support would have significant effects. Recent data, however, suggests only a moderate slowdown in the pace of Chinas economy. Manufacturers have felt significant pressure as rising raw material costs over the past year were not matched by a proportional improvement in demand, which made it very difficult for them to pass those cost increases through. Lower commodity prices should begin to relieve the cost pressure facing manufacturers.

Commodity Price Watch, June 2010 Energy Prices Natural Gas, Henry Hub, $/mBTU Crude Oil, WTI, $/barrel Average Price of Gasoline, cents/gallon Global Insight Estimated Prices, cents/lb Ethylene High Density Polyethylene Propylene Polypropylene Steel Spot Prices, $/short ton Heavy Melt Scrap, $/long ton # 1 Busheling Scrap, $/long ton Hot-rolled Sheet Cold-rolled Sheet Galvanized Sheet Merchant Bar Rebar Special Quality Bar Coiled Plate Discrete Plate Structurals Wire Rod Stainless Sheet, grade 304 LME Prices, $/metric ton Aluminum Copper Nickel Zinc

1Q 2008

2Q 2008

3Q 2008

4Q 2008

1Q 2009

2Q 2009

3Q 2009

4Q 2009

1Q 2010

2Q 2010

3Q 2010

4Q 2010

1Q 2011

2Q 2011

3Q 2011

4Q 2011

Forecast Forecast Change Change 2011 2010

8.43 97.87 316.20

11.23 123.78 380.63

9.22 118.25 390.97

6.38 59.15 239.17

4.56 43.19 193.90

3.70 59.71 236.73

3.14 68.14 263.23

4.22 76.03 266.43

5.15 78.80 277.23

3.85 75.77 297.10

3.30 69.91 290.58

3.54 75.08 284.29

3.86 79.58 283.22

3.69 81.25 324.81

3.48 84.09 312.44

3.95 85.76 301.08

60.5 94.3 61.2 98.0

66.3 95.3 69.7 100.7

68.0 87.7 78.3 90.7

39.2 54.7 36.7 49.7

31.5 49.7 26.3 44.0

31.5 54.0 33.5 51.3

32.3 57.0 47.7 66.7

40.5 61.0 50.2 69.3

52.3 72.3 63.0 82.3

46.0 72.0 65.0 84.3

41.0 60.0 55.0 74.0

44.0 63.0 57.5 76.8

47.0 65.5 59.5 78.8

49.0 66.5 61.0 80.3

51.0 68.0 62.0 81.3

53.0 69.0 63.0 82.3

336 402 661 739 763 742 652 956 782 845 822 686 4,125

494 648 974 1058 1130 921 848 1292 1022 1160 978 924 4,365

428 786 1033 1122 1203 1013 961 1373 1182 1388 1094 1019 4,158

156 235 702 803 881 918 687 977 1032 1215 949 868 3,589

184 229 493 586 658 820 531 822 778 858 823 642 2,452

170 199 397 482 564 695 468 766 526 626 710 487 2,087

240 307 480 570 588 717 510 816 537 616 645 528 2,265

237 308 514 612 621 700 481 751 552 622 645 561 2,514

280 413 594 701 730 715 542 759 583 671 701 632 2,706

341 422 673 785 840 770 606 871 697 797 738 670 2,941

271 339 649 735 778 742 599 865 666 739 727 683 3,164

212 259 597 673 703 661 563 832 636 711 669 665 3,153

216 291 546 630 670 603 550 769 642 704 651 586 3,243

232 281 525 620 665 584 559 751 694 747 677 557 3,486

249 298 563 657 710 611 569 773 740 773 691 576 3,429

258 312 606 694 760 624 575 797 800 823 700 593 3,591

2,742 7,795 28,948 2,429

2,940 8,442 25,675 2,113

2,787 7,678 18,954 1,770

1,821 3,904 10,838 1,185

1,359 3,428 10,466 1,172

1,485 4,662 12,914 1,473

1,812 5,858 17,694 1,761

2,003 6,649 17,546 2,215

2,163 7,232 19,953 2,288

2,167 7,188 23,525 1,922

2,005 6,524 21,220 1,824

2,003 6,404 22,184 1,826

2,068 6,536 24,631 1,896

2,100 6,626 24,846 1,969

2,130 6,764 23,671 2,057

2,169 6,964 24,214 2,160

* Up and down arrow signals if the price forecast is more than 5% higher or lower than the May forecast

3Q 2010

Copyright 2010 CSM Worldwide

19

Regional Overview

The continuation of the Eurozone sovereign debt crisis and the outlook for the pace of future Chinese growth continue to command the focus of investors, as greater uncertainty regarding the sustainability of the recovery sparks fear and increased risk aversion. Acknowledgement of the headwinds facing the recovery has let commodity prices fall more in line with weak fundamentals and will flatten the trend of commodity price growth moving forward.