PP 7767/09/2010(025354)

Economic Highlights
Global
•MARKET DATELINE

12 July 2010

1 OECD Composite Leading Indicator Points To A Slowdown

In Economic Activities In 2H 2010

2 EU Ministers Under Pressure To Provide More Details On

Stress Test

3 China’s Exports And Money Supply Moderated In June

Tracking The World Economy...

Today’s Highlight

OECD Composite Leading Indicator Points To A Slowdown In Economic Activities In 2H 2010

OECD composite leading indicator’s 12-month rate of change moderated to 8.3% in May, from +9.5% in April and a high
of 10.2% in March. This was the second consecutive month of easing, indicating that the expansion of the OECD
countries’ economies will likely slow down in the months ahead, in tandem with a slowdown in global manufacturing and
services activities for the second straight month in June. The slowdown was broad-based, from the US to UK, Euroland,
Japan and major economies in Asia. As a result, the US and Canada’s sub-indices eased to 10.3% and 7.1% respectively
in May, from the corresponding rates of +11.5% and +8.8% in April. Similarly, the sub-indices for the Euroland and UK
weakened to 6.7% and 4.8% respectively in May, the third consecutive month of slowing down and from the corresponding
rates of +8.2% and +6.3% in April. The slowdown in these countries’ indices was particularly sharp, as they were hit
by a deepening sovereign debt problem in recent months. In the same vein, Japan’s index softened to 7.9% in May,
after remaining stable at +8.7% in the previous two months, suggesting that the Japanese economy will likely head south
as well. The sub-indices for China and India also eased to 18.2% and 11.1% respectively in May, from the corresponding
rates of +19.8% and +12.4% in April, suggesting that economic activities in these countries are likely to expand at a
slower pace in the months head. Similarly, the sub-indices for Brazil and South Africa moderated during the month. Mom,
the OECD composite leading indicator remained unchanged for the second consecutive month in May, after slowing down
to +0.2% in March and from a high of +0.5% in August last year. 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.

The Euroland Economy

EU Ministers Under Pressure To Provide More Details On Stress Test

◆ European Union (EU) finance ministers are under pressure to disclose more details about the stress tests being
conducted on banks to see whether they could withstand losses if the region’s debt crisis worsens. Regulators are
examining the strength of 91 banks to determine if they can survive potential losses on sovereign-bond holdings.
The banks being tested account for 65% of Europe’s banking industry. Regulators are counting on the tests to
reassure investors about the strength of financial institutions from Deutsche Bank AG of Germany to France’s BNP
Paribas SA, ING Bank of the Netherlands and Spain’s Bayerische Landesbank, as the debt crisis hit the bonds of
Greece, Spain and Portugal. Some investors are concerned that the tests aren’t rigorous enough and would not

Peck Boon Soon

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

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 12 July 2010

assume large enough potential losses. Nevertheless, the regulators have yet to spell out how they will deal with
a bank that fails the tests and whether any additional capital will be provided by national governments or the EU.
Banks globally could lose as much as US$900bn in a worst-case scenario where Greece, Ireland, Italy, Portugal
and Spain all have to restructure their debts, according to some estimates.

Asian Economies

China’s Exports And Money Supply Moderated In June

◆ China’s exports grew at a more moderate pace of 43.9% yoy in June, compared with +48.5% in May. This
suggests that China’s exports are easing but remained resilient amidst a deepening sovereign debt crisis in Europe.
The moderation was reflected in slower increases in exports to European Union and the US, the two largest export
markets for China, which moderated to 43.2% and 43.8% yoy respectively in June, from the corresponding rates
of +49.7% and +44.3% in May. Similarly, exports to Hong Kong, South Korea, Taiwan, Asean and Russia
weakened during the month. These were, however, mitigated by a pick-up in exports to India, South Africa and
Brazil, while exports to Japan held stable during the month. In the same vein, China’s imports slowed down
to 34.1% yoy in June, from +48.3% in May and a high of +66.0% in March. This was the third straight month
of easing, pointing to a slowdown in domestic demand. As a result, China recorded a slightly larger trade surplus
of US$20.0bn in June, compared with a surplus of US$19.5bn in May and US$1.7bn in April. As a whole, a
moderation in export suggests that the Chinese economy will likely grow at a more moderate pace in the 2H of
the year.

◆ Separately, China’s money supply, M2, slowed down to 18.5% yoy in June, from +21.0% in April and a
peak of +29.7% yoy in November. This was the seventh straight month of easing, indicating that the underlying
economic activities in China is moderating. As a result, loan growth softened to 18.2% yoy in June, from
+21.5% in May and a high of +33.8% in November. Similarly, new lending moderated slightly to RMB603.4bn in
June, from RM639.4bn in May and RMB774bn in April. Consequently, new loans extended by banks fell by 37.3%
to an average about RMB769.6bn a month in 1H 2010, from an average of RMB1,227.7bn a month in the
corresponding period of 2009. The slowdown in money supply and loan growth was in line with the tightening
measures introduced by the authorities to control the rapid expansion in new credit.

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