PP 7767/09/2011(028730)

Economic Highlights
Global
•MARKET DATELINE

15 October 2010

1 Singapore’s Economy Contracted In The 3Q But Currency

Was Allowed To Strengthen

2 US Exports Slowed Down M-o-m And Trade Deficit

Widened In August

3 China’s Property Prices Slowed Down In September

4 India Signaled To Intervene To Prevent A Sharp Rise In

Currency

Tracking The World Economy...

Today’s Highlight

Singapore’s Economy Contracted In The 3Q But Currency Was Allowed To Strengthen

Singapore’s economy contracted by an annualised rate of 19.8% in the 3Q, after slowing down to +27.3% in the 2Q and
from +45.9% in the 1Q. The drop was an expected correction from the exceptionally growth recorded in 1H 2010. As
a result, the manufacturing production fell by 57.0% in the 3Q, compared with +66.6% in the 2Q and +200.3% in the
1Q. This was largely attributed to a drop in the biomedical manufacturing cluster, as some pharmaceutical companies
switched to producing a different value-mix of active pharmaceutical ingredients and there were also some plant
maintenance shutdowns during the quarter. Similarly, construction contracted by 11.7% in the 3Q, after rising by 29.1%
in the 2Q. This was mainly due to the completion of key commercial and industrial building projects earlier in the year.
In the same vein, the services sector slowed down sharply to 1.6% in the 3Q, from +12.6% in the 2Q. Growth in trade-
related services sectors, such as wholesale trade and transport & storage, also slowed down from the high growth seen
in the 1H.

Yoy, real GDP grew at a slower pace of 10.3% in the 3Q, after reaching the peak of +19.6% in the 2Q, indicating that
the economic growth momentum is easing. For the full-year, the government reiterated its projection for GDP to rise
by 13-15% in 2010, putting Singapore in the running to be the world’s fastest-growing nation in 2010.

Despite the threat of a stronger currency that could hurt exports, Singapore unexpectedly signaled that it will allow faster
currency gains to curb inflation even as the economy slows. The Monetary Authority of Singapore (MAS) said on 14
October that it will steepen and widen the currency’s trading band while continuing to seek a “modest and gradual
appreciation”. The Monetary Authority of Singapore uses the currency rather than a benchmark interest rate as its main
tool to manage inflation.

The decision follows pressure from the US and Europe on emerging-market nations to let their exchange rates appreciate
to help rebalance demand in the global economy. It also comes as China starts allowing faster gains in the renminbi.

Peck Boon Soon

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

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 15 October 2010

The US Economy

Exports Slowed Down M-o-m And Trade Deficit Widened In August

◆ The US exports slowed down to 0.2% mom in August, from +2.0% in July. The slowdown was dragged down
by declines in the exports of capital goods, mainly on account of a drop in the exports of civilian aircraft and a
slowdown in the exports of telecommunication equipment. These were, however, mitigated by a pick-up in the
exports of semiconductors and computers & parts. Similarly, the exports of consumer goods, industrial supplies,
automotives and food & beverages picked up during the month. Yoy, the US exports moderated to 18.0% in August,
from 18.5% in July and +21.2% in May, indicating that the US exports are slowing down. Imports, however,
rebounded to increase by 2.1% mom in August, from -2.1% in July. This was on the back of a pick-up in
the imports of capital goods such as semiconductors, while the imports of computers & parts and telecommunication
equipment fell by a smaller magnitude. Similarly, the imports of industrial supplies, consumer goods, automobiles
and food & beverages picked up during the month, in tandem with a sustained increase in consumer spending. Yoy,
imports strengthened to 24.0% in August, from +20.5% in July but off a high of +29.0% in May. Consequently,
the US trade deficit widened to US$46.3bn in August, from a deficit of US$42.6bn in July but lower than the deficit
of US$49.8bn recorded in June. In the first eight months of 2010, the US trade deficit grew by 42.5% to
US$335.0bn, from a deficit of US$235.0bn in the corresponding period of 2009. This was attributed to a widening
trade deficit with China, Mexico, Japan, Germany and Canada, creating greater trade tensions. Meanwhile, the
deterioration in trade deficit, coupled with the Fed is talking about a new round of quantitative easing, has weighed
down the US dollar.

Asian Economies

China’s Property Prices Slowed Down In September

◆ China’s property prices in 70 cities grew at a slower pace of 9.1% yoy in September, compared with
+9.3% in August and the peak of +12.8% in April. This suggests that the government’s measures to curb property
prices are yielding positive results. China expanded its measures by suspending lending for third-home purchases
and pledging to speed trials of a property tax that may be rolled out nationwide to discourage speculation and limit
the risk of asset bubbles in September.

India Signaled To Intervene To Prevent A Sharp Rise In Currency

◆ The Reserve Bank of India said that it may intervene in the currency markets, as capital inflows have
fueled a rally in the rupee. The local currency gained 5.2% against the US dollar in the past 30 days, as global
investors poured a record US$23bn into local shares and US$10bn in rupee debt to earn better returns and to take
a ride on an economy that is growing at an annual pace exceeding 8%. As a result, the capital account showed
a surplus of US$17.5bn in the 2Q, compared with a record shortfall of US$13.7bn in its current account, as imports
grew faster than exports. India is among the latest to signal it will stem currency gains after central banks from
Brazil to Israel and Thailand intervened in foreign-exchange markets and introduced measures to curb their
currencies from rising. Meanwhile, Japan is criticising South Korea for the latter’s currency intervention, adding fuel
to the currency tension that is rising. The US dollar has fallen 12.8% so far this year against the yen but is
down only 4.8% against the Korean won.

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 15 October 2010

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