PP 7767/09/2010(025354)

Economic Highlights
Global
•
MARKET DATELINE

6 July 2010

1 China’s Economy Showing Signs of Weakness

2 Euroland’s Services Activities Moderated, While Retail

Sales Picked Up But Remained Weak

3 Bank Indonesia Kept Its Benchmark Rate Unchanged At

6.50%

Tracking The World Economy...

Today’s Highlight

China’s Economy Showing Signs of Weakness

China’s auto sales and services industries slowed down in June, adding to signs that the economy will likely soften in
the months ahead. The country’s auto sales weakened to 10.9% yoy in June, from +25.0% in May and +33.2% in April.
This was the third consecutive month of easing, indicating that consumer spending has turned weaker in the country.
Similarly, the PMI index for the services industry compiled by HSBC Holdings Plc and Markit Economics fell to 55.6 in
June, from 56.4. This was the third consecutive month of slowing down and the lowest level in 15 months, suggesting
that trade activities and consumer spending have turned slower. In the same vein, China’s manufacturing index fell more
than economists forecast to the lowest level in 16 months, excluding a Lunar New Year-affected February 2010.

China has undertaken a series of measures including using tools such as increased down-payment requirements for house
purchases to reduce the risk of property-price bubbles and restrain the increase in consumer prices. As a result, property
market transactions have slowed in recent months, which might have affected consumer spending somewhat. In addition,
China has raised banks’ reserve requirements, scrapping the renminbi’s peg to the US dollar and setting a reduced target
in 2010 for new lending after a record increase in credit in 2009. Also, a deepening sovereign debt problem in Europe
might have affected the country’s exports as well. As a whole, the Chinese economy will likely expand at a more
moderate pace in 2H 2010, after recording a growth of 11.9% yoy in the 1Q, the fastest pace in almost three years.

The Euroland Economy

Services Activities Moderated, While Retail Sales Picked Up But Remained Weak

◆ Euroland’s Purchasing Manager Index (PMI) for the services sector eased to 55.5 in June, from 56.2 in
May. This was the first month of easing, after picking up for three consecutive months, suggesting that services
activities continued to expand, albeit at a slower pace during the month. The slowdown was in tandem with a
moderation in trade activities, while retail sales remained weak. This, together with a slowdown in manufacturing
activities, resulted in the region’s composite index falling to 56.0 in June, from 56.4 in May and after reaching
a more than two-year high of 57.3 in April. As a whole, this suggests that the Euroland economy will likely
ease in the months ahead, after recovering to +0.2% qoq in the 1Q, from +0.1% in the 4Q of last year.

Peck Boon Soon

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

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 6 July 2010

◆ Euroland’s retail sales rebounded to increase by 0.2% mom in May, from -0.9% in April. This was the
second month of increase in three months, suggesting that consumer spending has improved marginally, but
remained weak, as unemployment stays high in the region. As it stands, the unemployment rate in the Euroland
held stable for the third consecutive month and at 10.0% of labour force in June, the highest on record. The pick-
up in retail sales was due to increases in sales of food, drink & tobacco, which rose by 0.2% mom in May, a
rebound from -0.6% in April. Similarly, sales of non-food products rebounded to increase by 0.4% mom in May,
from -0.8% in April. Yoy, retail sales grew moderately by 0.3% in May, a rebound from -0.5% in April, indicating
that consumer spending remained weak in the region.

Asian Economies

Bank Indonesia Kept Its Benchmark Rate Unchanged At 6.50%

◆ Bank Indonesia left its overnight key policy rate unchanged for an 11th month and at 6.50% on 5 July,
as policymakers judged they have time to strengthen economic growth before responding to faster inflation. The
central bank has refrained from joining India, Taiwan and Malaysia 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, Indonesia’s inflation rate grew at a faster pace of 5.1% yoy in June, the highest in 13 months and
compared with +4.2% in May. Meanwhile, Bank Indonesia has urged lenders to expand lending to help the
economy, as exports slowed down to 36.0% yoy in May, from +42.4% in April.

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