PP 7767/09/2010(025354)

Economic Highlights
Global
•MARKET DATELINE

4 June 2010

1 Slower Services And Manufacturing Activities Point To

Easing Global Economic Growth In 2H 2010

2 US Services Activities Remained Stable In May, But

Signs Of Weakness Emerging

3 Euroland’s Services Activities Picked Up But May Be

Peaking, While Retail Sales Fell Mom In April

4 Bank Indonesia Kept Its Benchmark Rate Unchanged At

6.50%

Tracking The World Economy...

Today’s Highlight

Slower Services And Manufacturing Activities Point To Easing Global Economic Growth In 2H 2010

Global services activities in Asian countries such as Japan, China and India softened in May, while it remained stable in
the US, indicating that the expansion of the sector may moderate in the months ahead along with softening trade activities
and consumer spending. As a result, the global Purchasing Manager Index (PMI) for services, based on a survey
conducted by JP Morgan and Markit Economics in London, moderated to 56.3 in May, the first easing in four months and
from 56.8 in April. The weakness was reflected in a slowdown in new business activities during the month, the slowest
in three months. This was, however, offset partially by a pick-up in backlogs of work and businesses started to recruit
workers for the first time in more than two years in May, albeit cautiously. The gaining confidence in recruiting suggests
that a recovery in the services sector will likely be more sustainable and will be resilient going forward. Meanwhile, input
costs eased during the month, pointing to a moderation in price pressures.

In the same vein, global manufacturing activities from China to the US and Euroland showed signs of weakness in May.
As a result, the global composite index for both the manufacturing and services sectors weakened to 57.0 in May from
57.7 in April, the first weakness in six months and after reaching the highest level in about three years in April. The
softening in the global manufacturing and services activities, coupled with a dissipating fiscal stimulus, the introduction
of austerity measures in Europe and policy tightening in Asia, suggests that global economic activities will likely expand
at a more moderate pace in the 2H of the year, after recording an improvement in the 1H.

As it stands, the housing market in many Chinese cities seems to have nearly ground to a halt. On average, the number
of residential property transactions in the four weeks after the curbs to restrict speculation purchases were unveiled in
April is down 40% compared with the four weeks before the measures, according to real-estate consultancy Soufun.com.
Similarly, domestic steel prices are down 7.4% since the April’s measures. In the US, consumers turned cautious and
their spending stagnated in April, the first in seven months, while consumer confidence in the Euroland fell to the lowest
level in seven months.

Peck Boon Soon

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

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 4 June 2010

The US Economy

Services Activities Remained Stable In May

◆ The US Purchasing Managers Index (PMI) of the Institute for Supply and Management (ISM) for non-
manufacturing activity remained unchanged at 55.4 in May, the same reading as in April and March. The
non-manufacturing index comprised mainly services. A reading above 50 indicates expansion of activity and
prices in the non-manufacturing sector, while a reading below 50 signals contraction. This was the third straight
month the index held stable at the same level, suggesting that services activities remained relatively unchanged
during the month, as consumers might have turned cautious in spending. However, there were signs of
weakness, as both new orders and new export orders moderated during the month, indicating that activities will
likely ease in the months ahead. A pick-up in business activities, backlog of orders and inventory, however,
mitigated the moderation. A sustained expansion in services activities, however, prompted the providers to start
recruiting workers in May, the first in 28 months, indicating that the recovery in the services sector is
becoming more sustainable. Input costs eased in May, after picking up for three consecutive months, pointing
to easing price pressure. As a whole, the reading suggests that services activities might have peak but will likely
remain resilient in the months ahead.

Factory New Orders Moderated In April

◆ Factory new orders moderated to 1.2% mom in April, from +1.7% in March. This was due to a slowdown
in new orders for fabricated metals, computers & electronic products and automobile as well as declines in new
orders for primary metals, machinery, electrical equipment and furniture. These were, however, mitigated by a
pick-up in non-defence aircraft (which is often volatile). Excluding transportation, factory new orders contracted
by 0.5% mom in April, the first decline so far this year and compared with +3.8% in March. Similarly, non-
defence capital goods new orders excluding aircraft fell by 2.6% mom in April, compared with +6.7%
in March. This was the first decline in three months, suggesting that business spending may turn cautious
in the months ahead. Yoy, factory new orders grew at a stronger pace of 19.3% in April, the fifth straight month
of increase and compared with +17.7% in March. Similarly, non-defence capital goods new orders excluding
aircraft strengthened to 23.1% yoy in April, from +19.0% in March and a low of +1.9% in December last year.

The Euroland Economy

Services Activities Picked Up But May Be Peaking, While Retail Sales Fell Mom In April

◆ Euroland’s Purchasing Manager Index (PMI) for the services sector rose to 56.2 in May, from 55.6 in April
and 54.1 in March. This was the third straight month of picking up, suggesting that services activities continued
to expand and at a faster pace during the month, in tandem with an improvement in trade activities. However,
there are warning signs that services activities may be peaking, as inflows of new business and confidence
for the year ahead both slipping to the lowest in three months. A pick-up in services activities, however, was offset
partially by a slowdown in manufacturing activities during the month. As a result, the region’s composite index
fell to 56.4 in May, after reaching a more than two-year high of 57.3 in April, suggesting that the Euroland
economy will likely ease back in the months ahead, after recovering to +0.2% qoq in the 1Q, from a
stagnant growth in the 4Q of last year.

◆ Euroland’s retail sales fell by 1.2% mom in April, after picking up by 0.5% in March and compared with
-0.1% in February. This suggests that consumers have cut their spending, as unemployment rate worsened
in the region. The unemployment rate in the Euroland inched up to 10.1% of labour force in April, from 10.0%
in March. The decline was due to declines in sales of food, drink & tobacco, which fell by 1.1% mom in April,
compared with +0.1% in March. Similarly, sales of non-food products contracted by 1.1% mom in April, after
a gain of +0.5% in March. Yoy, retail sales slipped back into a contraction of 1.5% in April, after strengthening
to 1.3% in March and from +0.1% in February, indicating that consumer spending has turned weaker.

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 4 June 2010

Asian Economies

Bank Indonesia Kept Its Benchmark Rate Unchanged At 6.50%

◆ Bank Indonesia kept its benchmark overnight rate unchanged at 6.50% and indicated its intention to hold
rates steady for some time. The central bank has refrained from joining Malaysia, India and Australia in raising
interest rates, as it was of the view that the interest rate level is still consistent with inflation target of between
4% and 6% for 2010 and 2011. As it stands, inflation rate accelerated to 4.2% in May, the fastest in 12 months
and from 3.9% in April and a low of 2.4% in November last year. Meanwhile, Bank Indonesia has left its key
policy rate unchanged at 6.5% since August 2009 to support the economy.

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