PP 7767/09/2010(025354)

Economic Highlights
Global
•MARKET DATELINE

11 May 2010

1 Euroland Unveiled An Emergency Stabilisation Package

Of US$962bn And The ECB Agreed To Purchase Bonds

2 OECD Composite Leading Indicator Points To A Slowdown

In Pace Of Expansion In 2H 2010

3 China’s Exports Bounced Back In April

4 Indonesian Economy Strengthened To 5.7% Yoy In 1Q

2010

Tracking The World Economy...

Today’s Highlight

Euroland Unveiled An Emergency Stabilisation Package Of US$962bn And The ECB Agreed To Purchase
Bonds

The Euroland policymakers unveiled an unprecedented emergency stabilisation loan package worth almost $1 trn and a
programme of bond purchases aimed at stopping Greece’s debt crisis from spreading that has shattered confidence in
the euro. Under the package, countries in the Euroland agreed to offer financial assistance worth as much as €750bn
(US$962bn) or about 8% of GDP to countries under attack from speculators. Of which, the Euroland governments would
provide €440bn in loans or guarantees, the European Union will provide €60bn loans and the International Monetary Fund
(IMF) as much as €250bn.

On top of it, the European Central Bank (ECB) said it will buy government and private bonds particularly in certain
markets that faced with severe tensions. In a step that skirts EU rules barring direct central bank lending to governments,
the ECB said it will conduct interventions in these markets to ensure depth and liquidity as well as a smooth transmission
of monetary policy and the effective conduct of monetary policy. The purchases, however, will be sterilised to ensure
that it would not fuel inflationary pressure. At the same time, the ECB also reactivated unlimited fixed-rate offerings
of three-month loans, a key tool in the ECB’s efforts to fight the credit crisis. It will also reactivate dollar swaps with
the US Federal Reserve.

The concern over the ECB’s move is that the purchasing of government debt opens the ECB to the accusation it’s coming
to the rescue of countries facing fiscal problems and may need a bailout of its own if the assets turn bad, raising questions
about its independence. Also, an unchecked increase in the amount of money in circulation could also fan inflation, the
containment of which is the ECB’s main aim.

The loan package may help to prevent contagion, but countries with fiscal problems like Greece, Portugal and Spain would
still have to go through austerity drive. This implies that a recovery of the Euroland economy will likely be gradual and
its policy normalisation will lag behind the US. As a result, the euro could still weaken over the near term.

Meanwhile, the IMF said that its contribution of up to €250bn is a theoretical number based on full deployment of the
European loan package. The IMF indicated that it has not made a blanket commitment to contribute but will provide the
support if needed, on a country-by-country basis. Also, the contribution from each country would still need their
parliaments’ approvals, something that could delay a rapid payout of funds.

Peck Boon Soon

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

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 11 May 2010

OECD Composite Leading Indicator Points To A Slowdown In Pace Of Expansion In 2H 2010

◆ OECD composite leading indicator’s 12-month rate of change strengthened to 10.2% in March, from +10.0%
in February and +9.1% in January. This was the seventh consecutive month of increase but the gain is
losing momentum, indicating that OECD countries’ economies will continue to expand, albeit at a slower pace.
Stronger growth was reflected in a pick-up in the US and Japan’s sub-indices, which strengthened to 11.5% and 8.8%
respectively in March, from the corresponding rates of +10.9% and 7.6% in February. These were aided by stronger
growth in Indonesia and South Africa’s sub-indices. These were, however, offset partially by a slowdown in the
Euroland and UK’s sub-indices, which eased to 9.4% and 7.6% respectively in March, from the corresponding rates
of +9.6% and 7.8% in February. Similarly, the sub-indices for China, India and Brazil weakened during the month,
suggesting that economic activities are likely to expand at a slower pace in the months head. Mom, the OECD
composite leading indicator has been trending lower, moderating to 0.6% in March, after remaining stable at
0.7% in the previous two months and off the peak of +1.3% recorded in August last year. In most OECD countries
signs of slowing growth are tentative, but stronger signals have appeared in France and Italy, and some evidence
of a potential halt in expansion is emerging in China and Brazil. As a whole, the readings of the OECD composite
leading indicator suggest that the global economy will likely expand at a more moderate pace in 2H
2010, in line with our expectation.

Asian Economies

China’s Exports Bounced Back In April

◆ China’s exports rebounded to increase by 30.5% yoy in April, after slowing down to +24.3% yoy in March
but off a peak of +45.7% in February. This was the fifth straight month of picking up and growth remained strong,
on the back of a sustained increase in global demand for the country’s exports. This was underpinned by a pick-
up in exports to European Union and the US, the two largest export markets for China, which strengthened to 28.5%
and 19.1% yoy respectively in April, from the corresponding rates of +24.6% and +17.5% in March. Stronger
growth in exports to Hong Kong, Japan, South Korea, Taiwan, India, Asean, Russia, Brazil and South Africa also
helped. China’s imports, however, moderated to 49.7% yoy in April, from +66.0% in March. As a result,
China recorded a trade surplus of US$1.7bn in April, after recording the first deficit of US$7.2bn in six years in
March. Still, China has been able to reduce its trade surplus substantially, which may ease pressure on China to
appreciate its currency. China has been under the US’s pressure to strengthen its currency.

Indonesian Economy Strengthened To 5.7% Yoy In 1Q 2010

◆ Indonesia’s economy strengthened to 5.7% yoy in the 1Q, from +5.4% in the 4Q. This was the fastest pace
of growth in more than a year, as record-low interest rates boosted investment and exports picked up in tandem
with a recovery in global demand, while consumer spending held up relatively well. Investment picked up to 7.9%
yoy in the 1Q, from +4.2% in the 4Q. Similarly, exports surged by 19.6% yoy, compared with +3.7% during the
period. Household spending held up at 3.9% yoy in the 1Q, marginally lower than +4.0% in the 4Q. This was
underpinned by rising confidence, on the back of improving economic activities and more stable political climate.
As a result, car sales rose 74% in the 1Q, according to the Association of Indonesian Automotive Industry. These
were, however, offset partially by a decline in government spending, which fell by 8.8% yoy in the 1Q, compared
with +17.0% in the 4Q. This suggests that the government might have cut back its spending after rising strongly
by more than a year. Meanwhile, Bank Indonesia has left its benchmark interest rate at 6.5% since August and
it urged lenders to expand credit to drive economic growth in the country.

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 11 May 2010
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