PP 7767/09/2010(025354)

Economic Highlights
Global
•MARKET DATELINE

2 August 2010

1 US Real GDP Growth Slowed Down More Than Expected

In The 2Q

2 Euroland’s Inflation Picked Up And Unemployment Rate

Held Stable At A high Level

3 Japan’s Industrial Production Slowed Down,

Unemployment Increased And Deflation Eased In June

4 Thailand’s Economic Activities Picked Up In June

Tracking The World Economy...

Today’s Highlight

US Real GDP Growth Slowed Down More Than Expected In The 2Q

The US real GDP growth slowed down more than expected to an annualised rate of 2.4% in the 2Q, compared with
consensus forecast of +2.6% and a revised +3.7% in the 1Q. This was the second consecutive quarter of slowing down,
suggesting that the US economic recovery is slowing down. The slowdown was due to weaker consumer spending, which
eased to 1.6% in the 2Q, from +1.9% in the 1Q, on account of a slowdown in spending on durable- and non-durable
goods. This was made worse by a sharp rise in imports, leading to net exports subtracting 2.8 percentage points from
GDP growth in the 2Q, larger than a subtraction of 0.3 percentage point in the 1Q. These were, however, mitigated by
a pick-up in fixed investment, which strengthened to 19.1% in the 2Q, from +3.3% in the 1Q. Stronger growth was
attributed to higher business spending on equipment & software, which picked up to 21.9% in the 2Q, from +20.4% in
the 1Q. A turnaround in residential investment, which grew by 27.9% in the 2Q, a rebound from -12.3% also helped.
Similarly, government spending rebounded to increase by 4.4% in the 2Q, from -1.6% in the 1Q. These were aided by
a build-up in inventory during the quarter. As a whole, despite the moderation, the US economy will likely remain resilient
even though growth is likely to slow down in the 2H of the year.

Meanwhile, the Fed’s preferred price gauge, the core PCE price index eased slightly to an annual pace of 1.1% in the
2Q, from +1.2% in the 1Q. This suggests that price pressure has eased somewhat but will unlikely fall into deflation.

The Euroland Economy

Euroland’s Inflation Picked Up And Unemployment Rate Held Stable At A high Level

◆ Euroland’s preliminary headline inflation rate rebounded to 1.7% yoy in July, after easing to +1.4% in
June. This was the highest in 20 months, pointing to an upward price pressure on the back of rising energy costs.
Despite the pick-up in inflation, it remains manageable. This, coupled with the sovereign debt problem in the region,
suggests that the European Central Bank (ECB) will likely keep its key policy rate unchanged in the near term.

◆ Euroland’s unemployment rate held stable at a high level of 10.0% of total labour force in June, the
same level as in May. This was the fourth consecutive month the unemployment rate held stable at this level and

Peck Boon Soon

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

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the highest since the introduction of the single currency more than a decade ago, indicating that the job market
might have stabilised somewhat but remained weak. Unemployment rates in countries like Ireland, Spain,
Luxembourg and Netherlands continued to inch up. These were made worse by an increase in unemployment rate
in France, which inched up to 10.0% in June, from 9.9% in the last five consecutive months. These were, however,
mitigated by an improvement in Italy’s unemployment rate, which eased to 8.5% in June, from 8.6% n May.
Germany’s unemployment rate, on the other hand, held stable at 7.0% for two consecutive months in June. The
high level of unemployment rate suggests that the recovery in consumer spending and the Euroland
economy will likely be slow.

Asian Economies

Japan’s Industrial Production Slowed Down, Unemployment Increased And Deflation Eased In June

◆ Japan’s industrial production fell by 1.5% mom in June, compared with +0.1% in May. This was the first
decline in four months and the most in more than a year, suggesting that Japan’s industrial activities have turned
weaker. The decline was due to a sharper drop in the production of iron & steel, non-ferrous metals and transport
equipment, while the production of fabricated metals, information electronic, electronic parts & devices and precision
instruments slipped into a contraction during the month. These were, however, mitigated by a pick-up in the
production of general machinery. Yoy, industrial production moderated to 17.0% in June, from +20.4% in May and
a high of +31.8% in March. This was the third straight month of easing, pointing to a slowdown in Japan’s industrial
activities.

◆ Japan’s unemployment rate rose to 5.3% of total labour force in June, from 5.2% in May and a low of 4.9%
in February. This suggests that the job market has weakened back, as factories’ production fell and businesses
started to lay off workers on the back of a slowdown in Japan’s exports. Meanwhile, Japan’s real household
spending inched up to +2.9% mom in June, from +0.7% in May but off a high of +5.9% in March. This
suggests that consumers were still spending but they are likely to cut back as the job market softens. Yoy, the
real household spending grew moderately by 0.5% in June, after falling by 0.7% in April and May.

◆ Japan’s inflation rate fell by a smaller magnitude of 0.7% yoy in June, compared with -0.9% in May. This
was the third consecutive month of a smaller decline in the CPI and the smallest drop in 14 months, indicating that
Japan is gradually moving out from deflation. Similarly, the core inflation, which excludes fresh fruit, fish and
vegetables, fell by a smaller magnitude of 1.0% yoy in June, compared with -1.2% in May and -1.5% in April,
pointing to a slowdown in deflation. This was attributed to a pick-up in the costs of utilities and a smaller decline
in the prices of clothing & footwear. As a whole, the Bank of Japan will likely keep its key policy rate unchanged
and continue its efforts in fighting deflation.

Thailand’s Economic Activities Picked Up In June

◆ Thailand’s manufacturing production rebounded to +21.3% yoy in June, from +17.5% in May but off a high of
+33.6% in March, indicating that manufacturing activities are slowing down but will likely remain resilient. The pick-
up was on account of higher production of food and beverages & tobacco, textiles, leather products, rubber & rubber
products, construction materials and petroleum products. These were, however, offset partially by a slowdown the
production of chemical products, iron & steel, vehicle & equipment, electronic products and electrical appliances as
well as a decline in the production of furniture & fixtures. The pick-up in industrial output was in line with a stronger
growth in exports, which strengthened to 47.1% yoy in June, from +42.5% in May. This was the strongest growth
so far this year but will likely ease off, when the exceptionally strong growth in exports normalise in the months
ahead. A pick-up in exports coupled with the end of the political unrest boosted business confidence. As a result,
private business investment indicator grew at a faster pace of 21.2% yoy in June, compared with +20.9% in May,
suggesting businesses were still investing. Similarly, private consumption indicator strengthened to 8.3% yoy in
June, from +7.4% in May and a low of +7.0% in April, indicating that consumer spending has improved. As a whole,
the major economic indicators suggest that Thailand’s economy is likely to continue expanding in the
2Q, albeit at a more moderate pace, after recording a strong double-digit growth of 12.0% yoy in the 1Q.

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