PP 7767/09/2010(025354)

Economic Highlights
Global
ïMARKET DATELINE

1 April 2010

1 Higher Inflation Pressure Amid Poor Employment

Suggests That The ECB’s Policy normalisation Will
be Slow

2 US Factory New Orders Slowed Down In February

3 China’s Economic Rebound Strengthens

4 Thailand’s Economic Activities Improved In

February

Tracking The World Economy...

Today’s Highlight

Higher Inflation Pressure Amid Poor Employment Suggests That The ECB’s Policy normalisation Will be Slow

Euroland’s preliminary headline inflation rate grew at a faster pace of 1.5% yoy in March, compared with +0.9% in
February and +1.0% in January. This was the fastest rate of increase in 15 months, pointing to an upward price pressure,
on the back of higher crude oil prices. A pick-up in inflation in the last few months, coupled with a recovery in the
economy, has prompted the European Central Bank (ECB) to begin normalising its emergency lending programmes since
late last year. Indeed, the ECB had stopped offering 12-month loans to banks in December 2009. In March, the ECB
offered its final tender for six-month loans and said that it would tighten the terms of its three-month market operations
on 28 April by returning to the pre-crisis practice of offering the funds at a variable rate. The ECB, however, said that
it would keep offering banks fixed-rate unlimited funds for seven days and one month at its benchmark rate at least until
12 October, signalling that the phasing out of the emergency lending programmes will be at a measured pace. Meanwhile,
the ECB will likely stop its quantitative easing policy as well, which started in July 2009, once it hits its target. Thus far,
the ECB has purchased €44.1bn of bonds or 73% of the target as at end-March 2010.

Job markets, however, remained poor in the Euroland. The region’s unemployment rate inched up to 10.0% of total
labour force in February, after remaining stable at 9.9% for the last three consecutive months. This was the highest level
since the introduction of the single currency more than a decade ago, indicating that the job markets are still worsening
given a gradual recovery in the economy. The pick-up in unemployment rate was due to higher unemployment rates
in countries like Spain, Bulgaria, Czech Republic, Latvia, Poland, Netherlands and Austria, while unemployment rates in
Ireland, Portugal and Slovakia remained at high levels. These were made worse by an increase in unemployment rate
in France, while unemployment rate in Italy remained at a high level. Meanwhile, Germany’s unemployment rate has
yet to show improvement and it remained stable at 7.5% for the last six consecutive months.

The rising unemployment rate suggests that the recovery in consumer spending and the Euroland economy will likely be
slow. As a result, the ECB is likely to hold its key policy rate stable at a record low of 1.0% in the near term.

The US Economy

Factory New Orders Slowed Down In February

◆ Factory new orders slowed down to 0.6% mom in February, from +2.5% in January, suggesting that manufacturing
activities will likely sustain its expansion in the months ahead, albeit at a slower pace. This was reflected in a
slowdown in new orders for primary metals, computers & electronic products and non-defence aircraft (which is often
Peck Boon Soon

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volatile) as well as a decline in new orders for electrical equipment, automobile and defence aircraft. These were,
however, mitigated by a pick-up in new orders for machinery (particularly industrial, photographic and turbines) and
fabricated metals. Excluding transportation, factory new orders inched up to 0.7% mom in February, after a gain of
0.5% in January. Similarly, non-defence capital goods new orders excluding aircraft rebounded to increase
by 2.0% mom in February, from -4.4% in January. This was the third month of increase in four months, suggesting
that businesses are likely to increase spending in the months ahead, albeit cautiously. Yoy, factory new orders
grew at a stronger pace of 11.1% in January, the third straight month of increase and compared with +9.2% in
January. Similarly, non-defence capital goods new orders excluding aircraft strengthened to 7.9% yoy, from +7.0%
during the same period.

Asian Economies

China’s Economic Rebound Strengthens

◆ The People’s Bank of China said that the country’s economic rebound has been “further cemented” and
its loose monetary policy is appropriate for now but it will implement the policy with more flexibility. The remarks
diverted slightly from the previous statement issued on 23 December, when it highlighted the fragility of world recovery
and a lack of self-sustained growth in the Chinese economy. This suggests that China would have to face rising
challenge in securing its economic recovery without exacerbating inflation and creating asset bubbles after the RMB4trn
(US$585bn) stimulus package last year flooded the economy with cash. China’s economy expanded by 10.7% yoy
in the 4Q of last year, the fastest pace since 2007, and inflation climbed to a high of 2.7% yoy in February. The
People’s Bank of China ordered lenders to set aside more cash as reserves to drain excess money from the economy
twice this year, while keeping the benchmark interest rates unchanged. Also, it aims to slow loans to RMB7.5trn, which
is 22% lower than 2009’s record credit of RMB9.59trn.

Thailand’s Economic Activities Improved In February

◆ Thailand’s manufacturing production rebounded to increase by 30.3% yoy in March, from +29.1% in February. This
was the sixth straight month of picking up, suggesting that Thailand’s manufacturing activities continued to recover
and the surge reflected partly a lower base effect. The pick-up in production was underpinned by a surge in the
production of vehicle & equipment, electrical appliances and iron & steel products. These were aided by a pick-up
in the production of leather and petroleum products. These were, however, offset partially by a slowdown in the
production of electronic products and rubber & rubber products as well as declines in the production of chemical
products, footwear and food & beverages. Exports, however, moderated to 23.5% yoy in February, from +31.4% in
January, due partly to festive celebration. Despite the moderation, this was the fourth straight month of picking up,
on the back of a recovery in global demand for the country’s exports. A recovery in exports is boosting business
confidence, leading to a pick-up in private business investment indicator, which strengthened to 11.4% yoy in February,
from +5.9% in January. Similarly, private consumption indicator grew at a faster pace of 9.7% yoy in February,
compared with +4.8% in January. This was the fourth straight month of increase, suggesting that consumer spending
is recovering steadily. As a whole, the major economic indicators suggest that Thailand’s economy is likely
to sustain its expansion into 1Q 2010, after turning around to record a positive growth of 5.8% yoy in the 4Q.

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