PP 7767/09/2010(025354) MARKET DATELINE

Global

Economic Highlights
2 April 2010

1 US Real GDP Will Continue To Expand In 1Q 2010, After Manufacturing Activities Picked Up In March 2 Euroland’s Manufacturing Activities Picked Up In March 3 Japan’s Manufacturing Activities Eased Marginally In March 4 China’s Manufacturing Activities Rebounded In March 5 India’s Manufacturing Activities Moderated In March 6 Indonesia Inflation And Exports Moderated, But Economic Growth Remains Intact

Tracking The World Economy...
Today’s Highlight US Real GDP Will Continue To Expand In 1Q, After Manufacturing Activities Picked Up In March The US Purchasing Managers Index (PMI) of the Institute for Supply and Management (ISM) for the manufacturing sector rose to 59.6 in March, the highest in more than five years and from 56.5 in February. Readings above 50 indicate the sector is expanding while readings below 50 denote contraction. This suggests that manufacturing activities expanded at a faster pace during the month, on account of a pick-up in production, new orders, supplier deliveries. These were aided by higher new export orders, indicating that US manufacturing sector also benefited from a recovery in economies abroad. Indeed, manufacturers have become more confidence and started to build inventories for the first time in March, following 46 months of contraction. As a result, manufacturers increased their recruitment during the month, albeit at a more moderate pace, in anticipation of a pick-up in demand given an improvement in economic outlook. Input costs, however, picked up in March, pointing to an upward price pressure. A PMI in excess of 42, over a period of time, generally indicates an expansion of the overall economy, according to the ISM. Therefore, the PMI indicates growth for the 11th consecutive month in the overall economy, as well as expansion in the manufacturing sector for the eighth consecutive month. As a whole, the readings suggest that the US economy will likely continue to expand in 1Q 2010, after recording a strong growth in the 4Q. Indeed, based on the past relationship between the PMI and the overall economy, the ISM indicates that the average PMI for 1Q 2010 corresponds to a real GDP growth of 5.4%. The Euroland Economy Euroland’s Manufacturing Activities Picked Up In March ◆ Euroland’s Purchasing Manager Index (PMI) for manufacturing sector rose to 56.6 in March, better than the preliminary number of 56.3 reported earlier and 54.2 in February. This was the sixth straight month of increase

Peck Boon Soon
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2 April 2010

and the highest in more than three years, suggesting that manufacturing activities continued to expand and at a faster pace during the month. Stronger growth in manufacturing activities was underpinned by higher production and new orders. This will likely help the Euroland to sustain its economic growth in 1Q 2010, after slowing down to +0.1% qoq in the 4Q. Asian Economies Japan’s Manufacturing Activities Eased Marginally In March ◆ Japan’s Purchasing Managers Index (PMI) for the manufacturing sector eased marginally to 52.4 in March, from 52.5 in February. The index was still above the 50 threshold suggesting that manufacturing activities are still expanding, but growth momentum is moderating. Output was slower, while new orders increased modestly and retrenchment eased during the month. Export orders, however, climbed to 55.7 in March, the highest in almost six years, indicating that the Japanese economy continued to rely on exports to drive growth. As a whole, manufacturing activities moderated slightly in 1Q 2010, suggesting that the Japanese economy will continue to grow during the quarter, albeit at a more moderate pace.

China’s Manufacturing Activities Rebounded In March ◆ China’s Purchasing Managers Index (PMI) for the manufacturing sector rebounded to 55.1 in March, from 52.0 in February and compared with 55.8 in January. This suggests that manufacturing activities expanded at a faster pace, as factories resumed their production after the Chinese New Year celebration break. The pickup was on account of higher output, new orders, backlogs of work and supplier delivery time. These were aided by an increase in new export orders and inventories rebuilding during the month. As a result, manufacturers recruited more workers to meet rising production. Input prices, however, picked up in March, pointing to an upward price pressure. As a whole, the readings suggest that economic activities in China will likely sustain its expansion into 1Q 2010, after accelerating to 10.7% yoy in the 4Q, on the back of a recovery in exports and the implementation of the economic stimulus packages by the government.

India’s Manufacturing Activities Moderated In March ◆ India’s Purchasing Managers Index (PMI) for the manufacturing sector eased to 57.8 in March, from 58.5 in February. The moderation was reflected in weaker expansion in both output and new orders. Despite the moderation, the index level was the second highest in one and a half years, suggesting that manufacturing activities in India are still expanding at a reasonably fast pace during the month. This implies that India’s economy will likely sustain its growth in 1Q 2010, after slowing down to 6.0% yoy in the 4Q. Stronger economic growth, coupled with an acceleration in inflation rate, 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. Similarly, the Reserve Bank of India, in an unscheduled move, raised its key policy rate by 25 basis points to 5.0% on 19 March. Indeed, the Reserve Bank of India also left the door open for a further increase in its April policy review.

Indonesia Inflation And Exports Moderated, But Economic Growth Remains Intact ◆ Indonesia’s inflation rate moderated to 3.4% in March, from +3.8% in February. This was the slowest increase in three months, providing Bank Indonesia with more room to keep its key policy rate stable in the near term. Bank Indonesia indicated that it may keep its benchmark interest rate unchanged this year, as inflationary pressure remains benign. “If the inflation rate hovers at around 5-6%, there is no urgency for the central bank to raise the interest rate”, according to the Deputy Governor. The moderation was reflected in slower increases in prices of food & processed food and clothing as well as the costs of housing, healthcare and transport. Separately, Indonesia’s exports, which account for about 29% of GDP, moderated to 57.1% yoy in February, after surging by 59.3% in January. This was attributed to a slowdown in the exports of oil & gas, which eased to 109.1% yoy in February, from +147.6% in January. A pick-up in the exports of non-oil & gas products, however, mitigated the slowdown. Imports, on the other hand, picked up to 59.9% yoy in February from +43.8% in January. This was the third consecutive month of increase, pointing to a pick-up in domestic demand. Stronger exports growth in January-February, together with a resilient industrial activities, suggests that Indonesia’s economy will likely sustain its growth in 1Q 2010, after strengthening to +5.4% yoy in the 4Q of last year.

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