PP 7767/09/2010(025354)

Economic Highlights
Global
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MARKET DATELINE

30 August 2010

1 US Economy Grew At A Slower Pace Than Earlier Estimate

And The Fed Pledged To Take Action If Necessary

2 Euroland’s Money Supply Held Stable In July

3 Japan’s Headline Inflation Rate Fell Deeper But

Unemployment Rate Moderated In July

Tracking The World Economy...

Today’s Highlight

US Economy Grew At A Slower Pace Than Earlier Estimate And The Fed Pledged To Take Action If Necessary

The US real GDP growth moderated to a revised annualised rate of 1.6% in the 2Q, weaker than +2.4% estimated
previously (+3.7% in the 1Q) but stronger than the market expectation of 1.4%. This was due mainly to a sharper-
than-expected increase in trade deficit, as imports accelerated while exports eased during the quarter. As a result, net
exports subtracted 3.4 percentage points from GDP growth in the 2Q, compared with -2.8 percentage points estimated
previously and -0.6 percentage point in the 1Q. A smaller-than-expected build-up in inventory as businesses turned
cautious also contributed to the slower growth. These were, however, mitigated by a stronger-than-expected increase
in consumer spending and fixed-asset investment during the quarter. Consumer spending grew by 2.0% in the 2Q, faster
than +1.6% estimated previously and +1.9% in the 1Q. The upward revision in consumer spending was due to the
revised electricity and natural gas usage data, indicating that the underlying consumer spending might have weakened.
Indeed, a lack of job growth, declines in household wealth following slumps in stocks and housing, and the drive to reduce
debt and boost savings suggest that consumer spending may struggle to strengthen in the months ahead. Similarly, fixed-
asset investment expanded by a faster-than-expected rate of 19.5% in the 2Q, compared with +19.1% estimated
previously and +3.3% in the 1Q. This was attributed to a faster increase in business spending on equipment & software
(+24.9% in the 2Q versus +21.9% estimated).

Meanwhile, personal consumption expenditure (PCE) price index stood at 1.9% yoy in the 2Q, the same rate of increase
as estimated previously but slower than +2.4% recorded in the 1Q. Similarly, the core PCE price index remained
unchanged at 1.1% in the 2Q, the same rate of increase as estimated previously and compared with +1.2% in the 1Q.

Separately, the US Federal Reserve said on 27 August that it was prepared to take dramatic steps to boost the recovery
but only if economic conditions get worse than it now expects. This suggests that the Fed will probably not do anything
for the time being while waiting for more incoming economic data. The Fed has on 10 August put its exit strategy on
hold and decided to purchase Treasury securities to keep the central bank’s portfolio from shrinking as its mortgage bonds
mature.

The Euroland Economy

Euroland’s Money Supply Held Stable In July

◆ Euroland’s seasonally adjusted money supply, M3, held stable at +0.2% yoy in July, the same rate of increase
as in June and compared with -0.1% in May. This was the second consecutive month of positive growth, indicating
that the underlying economic activities in the region are still holding up relatively well. Loan growth,
Peck Boon Soon
(603) 9280 2163
Please read important disclosures at the end of this report.
bspeck@rhb.com.my

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 30 August 2010

on the other hand, picked up to 0.9% yoy in July, from +0.5% in June. This suggests that loan growth has
recovered but the pace remained modest, in line with a slow recovery in the Euroland’s economy.

Asian Economies

Japan’s Headline Inflation Rate Fell Deeper But Unemployment Rate Moderated In July

◆ Japan’s inflation rate fell by a larger magnitude of 0.9% yoy in July, after improving to -0.7% in June.
This was the 17th consecutive month of decline, on account of a sharper drop in core inflation (which excludes fresh
fruit, fish and vegetables) and food prices. The core inflation fell by 1.1% yoy in July, compared with -1.0% in
June and -1.2% in May. This was due to a sharper decline in the costs of entertainment, while the costs of medical
slipped into a contraction during the month. Similarly, the costs of transport & communications slowed down. These
were, however, offset partially by smaller declines in prices of household goods and clothing & footwear, while the
costs of utilities inched up. Similarly, food prices fell by a larger magnitude of 0.5% yoy in July, compared with
-0.1% in June. As a whole, Japan was still mired in deflation and it will likely continue its monetary policy easing
to ensure that economic growth could be sustained in the months ahead. The surge in Japanese yen to a 15-year
high will likely complicate the country’s efforts in fighting the deflation. As a result, the Bank of Japan will conduct
an emergency meeting today to find ways to cool down the yen.

◆ Separately, Japan’s unemployment rate eased to 5.2% of total labour force in July, after rising to a recent
high of 5.3% in June. This was due to the increase in job creation, indicating that businesses are still recruiting,
albeit cautiously in view of a slowdown in the global economy. Meanwhile, Japan’s real household spending fell by
0.4% mom in July, the first decline in three months and compared with +2.9% in June. Yoy, real household
spending inched up to 1.1% in July, from +0.5% in June and compared with -0.7% in May, pointing to an uneven
improvement in household spending.

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