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PP 7767/09/2010(025354)

Economic Highlights
Global

MARKET DATELINE

21 May 2010

1 Japan’s Economy Grew At A Faster Pace In The 1Q

2 US Leading Index Points To A More Moderate Economic


Growth In 2H 2010, While Manufacturing Activities In
Philadelphia Region Inched Up In May

3 Taiwan’s Real GDP Strengthened To 13.3% Yoy In The


1Q

4 Singapore Revised Its Real GDP Groth To An Annualised


Rate Of 38.6% In The 1Q

Tracking The World Economy...

Today’s Highlight

Japan’s Economy Grew At A Faster Pace In The 1Q

Japan’s real GDP grew at a faster annualised rate of 4.9% in the 1Q, compared with +4.2% in the 4Q of last year. This
was on account of a stronger growth in exports, which surged by 30.5% in the 1Q, after a gain of 25.2% in the 4Q.
A turnaround in residential investment, which grew by 1.1% in the 1Q, the first increase in five quarters and compared
with -10.3% in the 4Q, also helped. Indeed, a sustained pick-up in exports has encouraged businesses to invest and
increase labour force, which in turn translated into a firmer consumer spending. Nevertheless, business spending eased
to 4.2% in the 1Q, from +5.1% in the 4Q. Similarly, consumer spending slowed down to 1.3%, from +2.7% during the
same period.

As a whole, the 1Q’s GDP number suggests that Japan continued to rely on exports to drive its economy and it will likely
stay on a recovery track as long as demand from emerging economies remains strong. Indeed, net exports contributed
about 58% of the economic growth in the 1Q. However, the moderation in consumer and business spending raises
concerns about persistent deflation risk that may delay their spending, resulting in a drag to economic growth going
forward.

As a result, the Japanese government indicated that it will maintain pressure on the Bank of Japan (BOJ) to take more
action, as it is burdened by a huge public debt. The BOJ will probably keep the benchmark interest rate at 0.1% in the
next policy meeting, after increased its lending to banks to help the economy. Meanwhile, the International Monetary
Fund urged Japan to pursue a credible fiscal programme starting as early as in 2011, including increasing the 5% sales
tax, as global scrutiny of public finances increases. Ratings companies have signaled that they are awaiting the
government’s budget proposals to assess Japan’s credit standing. The Japanese government is scheduled to release a
long-term fiscal plan in June. Policymakers are reported to be considering targeting a budget surplus by 2020 or a
reduction of the budget deficit to 3% of GDP from the current 9.4%.

Peck Boon Soon


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

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21 May 2010

The US Economy

US Leading Index Points To A More Moderate Economic Growth In 2H 2010

◆ The US Conference Board’s index of leading indicators, which provides early signal on the direction of the
economy over the next three to six months, fell by 0.1% mom in April, compared with +1.3% in March. This was
the first decline in a year, indicating that the US economy will likely expand at a more moderate pace
in 2H 2010. The decline was dragged down by decreases in consumer goods orders, the pace of deliveries,
building permits and consumer expectations and a slowdown in average workweek and stock prices. These were,
however, mitigated by a pick-up in orders of non-defence capital goods and a smaller decline in money supply.
As a result, the leading index’s six-month annual rate of change moderated to 10.0% in April, from +10.2% in
March and a high of +11.6% in December last year. As a whole, the readings suggest that the US economy will
likely grow at a more moderate pace in the 2H of the year. Meanwhile, consensus expects US real GDP to expand
at a more moderate annualised rate of around 3.0% in 2H 2010, compared with +3.25% in the 1H of the year.
For the full-year, real GDP is projected to grow by 3.2% in 2010 before easing to +3.1% in 2011 and compared
with -2.4% in 2009.

Manufacturing Activities In Philadelphia Region Inched Up In May

◆ The Philadelphia Business Outlook Survey’s diffusion index of current general activity rose to 21.4
in May, from 20.2 in April. 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 fourth consecutive month of picking up and the strongest in five months,
suggesting that factory activities expanded at a faster pace during the month. This was on account of a pick-up
in shipments and employment. These were, however, offset partially by a slowdown in new orders and average
workweek as well as declines in unfilled orders, delivery time and inventory. Input costs moderated but selling
prices improved slightly. Over the next six months, the future general activity index, however, moderated
to 37.0 in May, from 44.2 in April and 52.0 in March. This was the second straight month of easing, suggesting
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, unfilled orders and average workweek as well as
declines in delivery time and inventory. These were, however, mitigated by a pick-up in new orders. As a result,
firms indicated that they may increase recruitment in the months ahead but may slow down their spending.
Meanwhile, firms expect both input costs and selling prices to ease in the near term.

Asian Economies

Taiwan’s Real GDP Strengthened To 13.3% Yoy In The 1Q

◆ Taiwan’s economy grew at a faster pace of 13.3% yoy in the 1Q, compared with +9.1% in the 4Q of last
year. This was the fastest pace in more than 30 years due partly to surging exports of computer chips and display
panels and partly to a low base effect when the economy contracted by 9.1% in the 1Q of last year. Stronger
growth was reflected in the manufacturing sector, which surged by 41.0% yoy in the 1Q, after a gain of +25.4%
in the 4Q. This was aided by a pick-up in the services sector, which grew at a faster pace of 6.09% yoy in the
1Q, compared with +4.9% in the 4Q.

Singapore Revised Its Real GDP Groth To An Annualised Rate Of 38.6% In The 1Q

◆ Singapore’s real GDP grew at an annualised rate of 38.6% in the 1Q, faster than the initial estimate of
32.1% and compared with -1.0% in the 4Q. This was attributed to a faster-than-expected growth in the manufacturing
sector, which grew by 32.9% in the 1Q, compared with +30.0% estimated previously and +2.2% in the 4Q.
Similarly, the services and construction sectors expanded at a faster-than-expected pace of 10.9% and 13.7%
respectively in the 1Q, compared with the corresponding rates of +8.4% and +11.3% estimated previously and
+3.7% and +11.5% in the 4Q. In response to stronger economic growth in the 1Q, Singapore has raised its growth
forecast twice this year and the central bank said last month that it will allow the currency to strengthen gradually
in a move to withdraw its monetary stimulus.

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21 May 2010

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