PP 7767/09/2010(025354)

Economic Highlights
Global
ïMARKET DATELINE

1 June 2010

1 India’s Economy Grew At A Stronger Pace Of

+8.6% Yoy In The 1Q

2 Euroland’s Inflation And Business Confidence Edged

Up But Consumer Confidence Weakened, While
Money Supply Remained Stable

3 Japan’s Manufacturing Activities Picked Up And

Industrial Production Increased Mom

4 Thailand’s Economic Activities Softened In April

Tracking The World Economy...

Today’s Highlight

India’s Economy Grew At A Stronger Pace Of +8.6% Yoy In The 1Q

India’s real GDP growth rebounded to increase by 8.6% yoy in the 1Q, after slowing down to +6.5% in the 4Q of last
year. Stronger growth was led by the manufacturing sector, which accelerated to 16.3% yoy in the 1Q, from +13.8%
in the 4Q and +9.1% in the 3Q. This was aided by a turnaround in agriculture output, which rose by 0.7% yoy in the
1Q, a rebound from -1.8% in the 4Q. Similarly, mining and construction activities strengthened to 14.0% and 8.7% yoy
respectively in the 1Q, from the corresponding rates of +9.6% and +8.1% in the 4Q. Services activities also picked up,
underpinned by stronger growth in utilities; transport & communications, wholesale & retail trade, hotel & restaurants;
and community & social services. Finance, insurance, business and real estate sub-sector, on the other hand, remained
stable during the quarter. For the full fiscal year ended-March 2010, the economy grew by 7.4%.

Stronger growth in economic activities would add pressure on the Reserve Bank of India to tighten its policy amidst
economic uncertainties arising from Europe’s sovereign-debt crisis. India’s central bank indicated on 19 May that it will
raise rates only cautiously even though inflationary pressure is rising. India’s inflation, as measured by the key wholesale
price, rose to a high of 9.9% yoy in March, the highest in 17 months before easing slightly to 9.6% in April. In a move
to tighten monetary conditions, the Reserve Bank of India raised its key policy rate twice in a month to 5.25% on 20
April. It further indicated that an interest rate move before the next monetary policy meeting scheduled for 27 July
cannot be ruled out.

The Euroland Economy

Euroland’s Inflation And Business Confidence Edged Up But Consumer Confidence Weakened, While Money
Supply Remained Stable

◆ Euroland’s preliminary headline inflation rate inched up to 1.6% yoy in May, from +1.5% in April. Although
inflation is picking up and it was the fastest rate of increase in 17 months, the European Central Bank (ECB) will
unlikely raise its key policy rate soon, given the sovereign debt problems in some European countries. Indeed,
the ECB has agreed to buy government and private bonds, particularly in certain markets that faced with severe
tensions, after the European governments unveiled an unprecedented emergency stabilisation loan package of as large
as €750bn on 10 May.

Peck Boon Soon

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

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 1 June 2010

March. This was the 14th consecutive month of improvement and the smallest decline in nearly two years, suggesting
that business confidence is improving, in line with the improvement in exports. The improvement was on account of
a pick-up in future production and a smaller drop in orders and exports. As a result, businesses would slow down
their labour retrenchment. Consumer confidence, however, weakened somewhat, as reflected in the index, which
fell by a sharper magnitude of -18 in May, compared with -15 in April. This was because consumers expect economic
activities to weaken, which will affect their job prospects and income. As a result, they have become less willing to
increase major purchases going forward, suggesting that consumer spending will remain weak in the near term. As
a whole, the region’s sentiment index eased to 98.4 in May, from 100.6 in April. This was the first weakness after
it reached the highest level in more than two years in April, suggesting that the Euroland economy is beginning
to show signs of weakness even though the economy will continue to expand in the months ahead.

◆ Separately, Euroland’s money supply, M3, stabilised at -0.1% yoy in April, the same rate of decline as in March
and compared with -0.4% in February. This suggests that the underlying economic activities in the Euroland remained
weak, although a slow recovery is still in progress, underpinned mainly by a pick-up in exports.

Asian Economies

Japan’s Manufacturing Activities Picked Up And Industrial Production Increased Mom

◆ Japan’s Purchasing Managers Index (PMI) for the manufacturing sector rose to 54.7 in May, from 53.8 in
April. This was the second straight month of picking up, suggesting that manufacturing activities have gained strength
after going through some consolidation in January-March. As a whole, the expansion in May’s manufacturing activities
suggests that growth in the Japanese economy will likely be sustained into the 2Q.
◆ Japan’s industrial production inched up 1.3% mom in April, after rising by 1.2% in March. This was the second
consecutive month of increase in three months, suggesting that manufacturers in Japan continued to increase their
production to meet an improvement in export demand. The pick-up in industrial production was due to stronger growth
in the production of fabricated metals and general machinery. These were, however, offset partially by a decline in
the production of electronic parts & devices, electrical machinery and non-ferrous metals as well as a sharper drop
in the production of information electronic. Similarly, the production of transport equipment slowed down during the
month. Yoy, industrial production, however, moderated to 25.9% in April, from +31.8% in March. This was the
fifth straight month of increase but the pace has eased somewhat.

Thailand’s Economic Activities Softened In April

◆ Thailand’s manufacturing production slowed down to 21.3% yoy in April, from +33.6% in March. This was the slowest
pace of growth in five months, as a low base effect is gradually wearing off. Slower growth was due to slower
increases in the production of vehicle & equipment, electronic products, electrical appliances, iron & steel and rubber
& rubber products. This was in line with a weaker growth in exports, which eased to 34.6% yoy in April, after reaching
a high of +41.0% in March. Export growth, however, remained strong, on the back of a sustained increase in global
demand for the country’s exports. As a result, private business investment indicator strengthened to 20.3% yoy in
April, from +18.1% in March, suggesting that business spending is picking up. However, they will likely turn cautious
in the months ahead, as political unrest in the country had resulted in business confidence falling to 46 in April, the
lowest level in eight months and from 55.7 in March. Similarly, private consumption indicator moderated to 7.0% yoy,
from +8.7% during the period, indicating that consumer spending has turned softer. As it stands, tourist arrivals slowed
down sharply to 2.3% yoy in April, from +18.0% in March and a high of 45.2% in December last year. As a whole,
the major economic indicators suggest that Thailand’s economy might have reached its peak in the 1Q and
growth will likely moderate in the months ahead.

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 1 June 2010

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