The World Economy - 3/5/2010
Content
PP 7767/09/2010(025354) MARKET DATELINE
Global
Economic Highlights
3 May 2010
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1 US Real GDP Growth Moderated In The 1Q But The Recovery Is Becoming More Sustainable 2 Greece Obtained US$146bn Rescue Package From The EU and IMF 3 Euroland’s Inflation Picked Up And Unemployment Rate Held Stable At A high Level 4 Japan’s Manufacturing Activities, Industrial Production And Unemployment Increased, While Deflation Remained Stable 5 China Increased Banks’ Reserve Ratio And Manufacturing Activities Picked up In April 6 Thailand’s Economic Activities Improved In March
Tracking The World Economy...
Today’s Highlight
US Real GDP Growth Moderated In The 1Q But The Recovery Is Becoming More Sustainable The US real GDP growth moderated to an annualised rate of 3.2% in the 1Q, from +5.6% in the 4Q of last year. This was the third straight quarter of growth, albeit at a more moderate pace, suggesting that the US economic recovery is more entrenched. Although growth was weaker than the previous quarter, the composition of growth is a lot more encouraging, as it was driven by a pick-up in consumer spending rather than inventory rebuilding. Consumer spending rebounded to increase by 3.6% in the 1Q, after slowing down to +1.6% in the 4Q. This indicates that a recovery in the economy, which started from the government stimulus and inventory rebuilding, has now spread to consumer spending, making the recovery more sustainable going forward. The pick-up in consumer spending, however, was offset partially by a slowdown in gross private investment, which eased to 14.8% in the 1Q, from +46.1% in the 4Q. This was attributed to a slower growth in business spending on equipment & software (+13.4% in the 1Q versus +19.0% in the 4Q) and a decline in residential investment (-10.9% in the 1Q versus +3.8% in the 4Q). A slowdown in inventory rebuilding during the quarter worsened the situation. At the same time, exports slowed down at a faster pace than that of imports, resulted in net exports subtracting 0.6 percentage point from GDP growth in the 1Q, compared with a contribution of 0.3 percentage point in the 4Q. Similarly, government spending contracted by a larger magnitude of 1.8% in the 1Q, compared with -1.3% in the 4Q. Meanwhile, personal consumption expenditure (PCE) price index moderated to 1.5% yoy in the 1Q, from +2.5% in the 4Q and +1.6% in the 3Q, pointing to easing price pressure. Similarly, the core PCE price index slowed down to 0.6% in the 1Q, from +1.8% in the 4Q and a high of +2.0% in the 2Q of last year.
Peck Boon Soon
Please read important disclosures at the end of this report.
(603) 9280 2163 [email protected]
Page 1 of 3
A comprehensive range of market research reports by award-winning economists and analysts are exclusively available for download from www.rhbinvest.com
3 May 2010
The Euroland Economy Greece Obtained US$146bn Rescue Package From The EU and IMF ◆ The Euroland countries and the International Monetary Fund (IMF) have agreed to provide a rescue package amounting to €110bn (US$146bn) for Greece to prevent a default and the problem from spreading. The Euroland countries will contribute €80bn at a rate of around 5% and the IMF will make up the rest. The first payment will be made before Greece’s next bond redemption on 19 May. The financial lifeline is meant for three years and Greece has agreed to budget measures worth 13% of GDP and to cut the budget deficit to below the European Union’s limit of 3% of GDP by the end of 2014, a year later than originally planned. The move will result in a contraction of 4.0% in Greece economy in 2010 and -2.6% in 2011, before returning to growth in 2012. The package will also set up a financial stabilisation fund to help banks with potential bad loans stemming from the austerity measures.
Euroland’s Inflation Picked Up And Unemployment Rate Held Stable At A high Level ◆ Euroland’s preliminary headline inflation rate inched up to 1.5% yoy in April, from +1.4% in March. This was the sixth straight month of increase and the fastest in 16 months, pointing to an upward price pressure on the back of surging energy costs. The recovery in economic growth, coupled with a pick-up in inflation, has prompted the European Central Bank (ECB) to pull back some emergency measures since late 2009. Nevertheless, the ECB is not likely to raise its key policy rate soon, given the deepening government debt problem in some European countries. Euroland’s unemployment rate held stable at a high level of 10.0% of total labour force in March, the same level as in February and compared with 9.9% in January. This was the highest level since the introduction of the single currency more than a decade ago, indicating that the recovery in job markets continued to be slow despite an improvement in the economy. Unemployment rates in countries like Belgium, Bulgaria, Ireland, Spain, Latvia, Poland and Portugal continued to inch up. These were made worse by an increase in unemployment rate in Italy, which inched up to 8.8% in March, from 8.6% in February. Germany’s unemployment rate, however, eased to 7.3% in March, from 7.4% in February, while France’s unemployment rates held stable at a high level of 10.1% during the month. The high level of unemployment rate suggests that the recovery in consumer spending and the Euroland economy will likely be slow.
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Asian Economies Japan’s Manufacturing Activities, Industrial Production And Unemployment Increased, While Deflation Remained Stable ◆ Japan’s Purchasing Managers Index (PMI) for the manufacturing sector rose to 53.5 in April, after remaining relatively stable at 52.4-52.5 in January-March. This was the 10th straight month the index stayed at above the 50mark, suggesting that manufacturing activities in Japan continued to expand and at a faster pace during the month. As a whole, the expansion in April’s manufacturing activities suggests that growth in the Japanese economy will likely be sustained into the 2Q. Japan’s industrial production inched up 0.3% mom in March, a rebound from -0.6% in February. This suggests that Japan’s industrial activities have rebounded but the pace remained modest. The pick-up in industrial production was due stronger growth in the production of electrical machinery and precision instruments as well as a rebound in the production of non-ferrous metals, electronic parts & devices and transport equipment. These were, however, offset partially by a decline in the production of fabricated metals, general machinery and information electronic during the month. Yoy, industrial production moderated slightly to 30.7% in March, from +31.3% in February. This was the fourth straight month of increase, pointing to an improvement in industrial activities. Japan’s unemployment rate rose to 5.0% of total labour force in March, after remaining stable at 4.9% January-February and compared with a peak of 5.6% in July last year. This suggests that job market is improving, albeit gradually, in tandem with the recovery in the global economic activities. Meanwhile, Japan’s real household spending rebounded to increase by 5.9% mom in March, from -1.6% in February. This was the first increase in three months, suggesting that consumer spending is improving, albeit slowly. Yoy, the real household spending grew by 4.4% in March, a rebound from -0.5% in February.
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Page 2 of 3
3 May 2010
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Japan’s inflation rate held stable at -1.1% yoy in March, the same level as in February but by a smaller magnitude compared with -1.3% in January. This suggests that Japan was still in deflation but it is showing signs of emerging from a deflation given that Tokyo’s CPI fell by a smaller magnitude in April. Similarly, the core inflation, which excludes fresh fruit, fish and vegetables, held steady at 1.2% yoy in March, the same rate of decline as in February and compared with -1.3% in January. As a whole, the Bank of Japan will likely keep its key policy rate unchanged in the near term after it doubled a lending programme for banks to ¥20 trn in March.
China Increased Banks’ Reserve Ratio And Manufacturing Activities Picked up In April ◆ The People’s Bank of China said that it would raise banks’ reserve requirement by 50 basis points effective 10 May. The current level is 16.5% for the biggest banks and 14.5% for smaller ones. This was the third increase this year in a move to absorb liquidity from the system and to complement other measures to cool down inflation and property prices in the country. The move suggests that China still prefers to fine-tune its policy rather than using broader impact instruments like raising interest rates and allowing currency to appreciate. China’s Purchasing Managers Index (PMI) for the manufacturing sector rose to 55.7 in April, from 55.1 in March and 52.0 in February. This suggests that manufacturing activities expanded at a faster pace, on the back of a sustained increase in exports and resilient domestic demand. Stronger growth was reflected in a pick-up in output, new orders, backlogs of work and supplier delivery time. As a result, manufacturers recruited more workers to meet rising production and increased inventory during the month. Similarly, input prices picked up in March and April, pointing to an upward price pressure. New export orders, on the other hand, remained stable in April. As a whole, the readings suggest that economic activities in China will likely sustain its expansion into 2Q 2010, after recording a stronger growth of 10.9% yoy in the 1Q.
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Thailand’s Economic Activities Improved In March
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Thailand’s manufacturing production strengthened to 32.6% yoy in March, from 30.5% in February, due partly to the low base effect. This was the seventh consecutive month of picking up, suggesting that Thailand’s manufacturing activities continued to improve. The pick-up was underpinned by higher production of iron & steel, vehicle & equipment, electronic products and electrical appliances and rubber & rubber products. This was in line with a stronger growth in exports, which surged by 41.0% yoy in March, compared with +23.5% in February. This was the fifth successive month of picking up, on the back of a recovery in global demand for the country’s exports. A pick-up in exports boosted business confidence. As a result, private business investment indicator strengthened to 18.2% yoy in March, from +12.1% in February, suggesting businesses are coming back to invest. Private consumption indicator, however, moderated to 7.4% yoy, from +9.7% during the period, as confidence was somewhat affected by a political crisis in the country. As a whole, the major economic indicators suggest that Thailand’s economy is likely to strengthen in the 1Q, after returning to a positive growth of 5.8% yoy in the 4Q.
IMPORTANT DISCLOSURES This report has been prepared by RHB Research Institute Sdn Bhd (RHBRI) and is for private circulation only to clients of RHBRI and RHB Investment Bank Berhad (previously known as RHB Sakura Merchant Bankers Berhad). It is for distribution only under such circumstances as may be permitted by applicable law. The opinions and information contained herein are based on generally available data believed to be reliable and are subject to change without notice, and may differ or be contrary to opinions expressed by other business units within the RHB Group as a result of using different assumptions and criteria. This report is not to be construed as an offer, invitation or solicitation to buy or sell the securities covered herein. RHBRI does not warrant the accuracy of anything stated herein in any manner whatsoever and no reliance upon such statement by anyone shall give rise to any claim whatsoever against RHBRI. RHBRI and/or its associated persons may from time to time have an interest in the securities mentioned by this report. This report does not provide individually tailored investment advice. It has been prepared without regard to the individual financial circumstances and objectives of persons who receive it. The securities discussed in this report may not be suitable for all investors. RHBRI recommends that investors independently evaluate particular investments and strategies, and encourages investors to seek the advice of a financial adviser. The appropriateness of a particular investment or strategy will depend on an investor’s individual circumstances and objectives. Neither RHBRI, RHB Group nor any of its affiliates, employees or agents accepts any liability for any loss or damage arising out of the use of all or any part of this report. RHBRI and the Connected Persons (the “RHB Group”) are engaged in securities trading, securities brokerage, banking and financing activities as well as providing investment banking and financial advisory services. In the ordinary course of its trading, brokerage, banking and financing activities, any member of the RHB Group may at any time hold positions, and may trade or otherwise effect transactions, for its own account or the accounts of customers, in debt or equity securities or loans of any company that may be involved in this transaction. “Connected Persons” means any holding company of RHBRI, the subsidiaries and subsidiary undertaking of such a holding company and the respective directors, officers, employees and agents of each of them. Investors should assume that the “Connected Persons” are seeking or will seek investment banking or other services from the companies in which the securities have been discussed/covered by RHBRI in this report or in RHBRI’s previous reports. This report has been prepared by the research personnel of RHBRI. Facts and views presented in this report have not been reviewed by, and may not reflect information known to, professionals in other business areas of the “Connected Persons,” including investment banking personnel. The research analysts, economists or research associates principally responsible for the preparation of this research report have received compensation based upon various factors, including quality of research, investor client feedback, stock picking, competitive factors and firm revenues.
A comprehensive range of market research reports by award-winning economists and analysts are exclusively available for download from www.rhbinvest.com
Page 3 of 3
Global
Economic Highlights
3 May 2010
•
1 US Real GDP Growth Moderated In The 1Q But The Recovery Is Becoming More Sustainable 2 Greece Obtained US$146bn Rescue Package From The EU and IMF 3 Euroland’s Inflation Picked Up And Unemployment Rate Held Stable At A high Level 4 Japan’s Manufacturing Activities, Industrial Production And Unemployment Increased, While Deflation Remained Stable 5 China Increased Banks’ Reserve Ratio And Manufacturing Activities Picked up In April 6 Thailand’s Economic Activities Improved In March
Tracking The World Economy...
Today’s Highlight
US Real GDP Growth Moderated In The 1Q But The Recovery Is Becoming More Sustainable The US real GDP growth moderated to an annualised rate of 3.2% in the 1Q, from +5.6% in the 4Q of last year. This was the third straight quarter of growth, albeit at a more moderate pace, suggesting that the US economic recovery is more entrenched. Although growth was weaker than the previous quarter, the composition of growth is a lot more encouraging, as it was driven by a pick-up in consumer spending rather than inventory rebuilding. Consumer spending rebounded to increase by 3.6% in the 1Q, after slowing down to +1.6% in the 4Q. This indicates that a recovery in the economy, which started from the government stimulus and inventory rebuilding, has now spread to consumer spending, making the recovery more sustainable going forward. The pick-up in consumer spending, however, was offset partially by a slowdown in gross private investment, which eased to 14.8% in the 1Q, from +46.1% in the 4Q. This was attributed to a slower growth in business spending on equipment & software (+13.4% in the 1Q versus +19.0% in the 4Q) and a decline in residential investment (-10.9% in the 1Q versus +3.8% in the 4Q). A slowdown in inventory rebuilding during the quarter worsened the situation. At the same time, exports slowed down at a faster pace than that of imports, resulted in net exports subtracting 0.6 percentage point from GDP growth in the 1Q, compared with a contribution of 0.3 percentage point in the 4Q. Similarly, government spending contracted by a larger magnitude of 1.8% in the 1Q, compared with -1.3% in the 4Q. Meanwhile, personal consumption expenditure (PCE) price index moderated to 1.5% yoy in the 1Q, from +2.5% in the 4Q and +1.6% in the 3Q, pointing to easing price pressure. Similarly, the core PCE price index slowed down to 0.6% in the 1Q, from +1.8% in the 4Q and a high of +2.0% in the 2Q of last year.
Peck Boon Soon
Please read important disclosures at the end of this report.
(603) 9280 2163 [email protected]
Page 1 of 3
A comprehensive range of market research reports by award-winning economists and analysts are exclusively available for download from www.rhbinvest.com
3 May 2010
The Euroland Economy Greece Obtained US$146bn Rescue Package From The EU and IMF ◆ The Euroland countries and the International Monetary Fund (IMF) have agreed to provide a rescue package amounting to €110bn (US$146bn) for Greece to prevent a default and the problem from spreading. The Euroland countries will contribute €80bn at a rate of around 5% and the IMF will make up the rest. The first payment will be made before Greece’s next bond redemption on 19 May. The financial lifeline is meant for three years and Greece has agreed to budget measures worth 13% of GDP and to cut the budget deficit to below the European Union’s limit of 3% of GDP by the end of 2014, a year later than originally planned. The move will result in a contraction of 4.0% in Greece economy in 2010 and -2.6% in 2011, before returning to growth in 2012. The package will also set up a financial stabilisation fund to help banks with potential bad loans stemming from the austerity measures.
Euroland’s Inflation Picked Up And Unemployment Rate Held Stable At A high Level ◆ Euroland’s preliminary headline inflation rate inched up to 1.5% yoy in April, from +1.4% in March. This was the sixth straight month of increase and the fastest in 16 months, pointing to an upward price pressure on the back of surging energy costs. The recovery in economic growth, coupled with a pick-up in inflation, has prompted the European Central Bank (ECB) to pull back some emergency measures since late 2009. Nevertheless, the ECB is not likely to raise its key policy rate soon, given the deepening government debt problem in some European countries. Euroland’s unemployment rate held stable at a high level of 10.0% of total labour force in March, the same level as in February and compared with 9.9% in January. This was the highest level since the introduction of the single currency more than a decade ago, indicating that the recovery in job markets continued to be slow despite an improvement in the economy. Unemployment rates in countries like Belgium, Bulgaria, Ireland, Spain, Latvia, Poland and Portugal continued to inch up. These were made worse by an increase in unemployment rate in Italy, which inched up to 8.8% in March, from 8.6% in February. Germany’s unemployment rate, however, eased to 7.3% in March, from 7.4% in February, while France’s unemployment rates held stable at a high level of 10.1% during the month. The high level of unemployment rate suggests that the recovery in consumer spending and the Euroland economy will likely be slow.
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Asian Economies Japan’s Manufacturing Activities, Industrial Production And Unemployment Increased, While Deflation Remained Stable ◆ Japan’s Purchasing Managers Index (PMI) for the manufacturing sector rose to 53.5 in April, after remaining relatively stable at 52.4-52.5 in January-March. This was the 10th straight month the index stayed at above the 50mark, suggesting that manufacturing activities in Japan continued to expand and at a faster pace during the month. As a whole, the expansion in April’s manufacturing activities suggests that growth in the Japanese economy will likely be sustained into the 2Q. Japan’s industrial production inched up 0.3% mom in March, a rebound from -0.6% in February. This suggests that Japan’s industrial activities have rebounded but the pace remained modest. The pick-up in industrial production was due stronger growth in the production of electrical machinery and precision instruments as well as a rebound in the production of non-ferrous metals, electronic parts & devices and transport equipment. These were, however, offset partially by a decline in the production of fabricated metals, general machinery and information electronic during the month. Yoy, industrial production moderated slightly to 30.7% in March, from +31.3% in February. This was the fourth straight month of increase, pointing to an improvement in industrial activities. Japan’s unemployment rate rose to 5.0% of total labour force in March, after remaining stable at 4.9% January-February and compared with a peak of 5.6% in July last year. This suggests that job market is improving, albeit gradually, in tandem with the recovery in the global economic activities. Meanwhile, Japan’s real household spending rebounded to increase by 5.9% mom in March, from -1.6% in February. This was the first increase in three months, suggesting that consumer spending is improving, albeit slowly. Yoy, the real household spending grew by 4.4% in March, a rebound from -0.5% in February.
◆
◆
A comprehensive range of market research reports by award-winning economists and analysts are exclusively available for download from www.rhbinvest.com
Page 2 of 3
3 May 2010
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Japan’s inflation rate held stable at -1.1% yoy in March, the same level as in February but by a smaller magnitude compared with -1.3% in January. This suggests that Japan was still in deflation but it is showing signs of emerging from a deflation given that Tokyo’s CPI fell by a smaller magnitude in April. Similarly, the core inflation, which excludes fresh fruit, fish and vegetables, held steady at 1.2% yoy in March, the same rate of decline as in February and compared with -1.3% in January. As a whole, the Bank of Japan will likely keep its key policy rate unchanged in the near term after it doubled a lending programme for banks to ¥20 trn in March.
China Increased Banks’ Reserve Ratio And Manufacturing Activities Picked up In April ◆ The People’s Bank of China said that it would raise banks’ reserve requirement by 50 basis points effective 10 May. The current level is 16.5% for the biggest banks and 14.5% for smaller ones. This was the third increase this year in a move to absorb liquidity from the system and to complement other measures to cool down inflation and property prices in the country. The move suggests that China still prefers to fine-tune its policy rather than using broader impact instruments like raising interest rates and allowing currency to appreciate. China’s Purchasing Managers Index (PMI) for the manufacturing sector rose to 55.7 in April, from 55.1 in March and 52.0 in February. This suggests that manufacturing activities expanded at a faster pace, on the back of a sustained increase in exports and resilient domestic demand. Stronger growth was reflected in a pick-up in output, new orders, backlogs of work and supplier delivery time. As a result, manufacturers recruited more workers to meet rising production and increased inventory during the month. Similarly, input prices picked up in March and April, pointing to an upward price pressure. New export orders, on the other hand, remained stable in April. As a whole, the readings suggest that economic activities in China will likely sustain its expansion into 2Q 2010, after recording a stronger growth of 10.9% yoy in the 1Q.
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Thailand’s Economic Activities Improved In March
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Thailand’s manufacturing production strengthened to 32.6% yoy in March, from 30.5% in February, due partly to the low base effect. This was the seventh consecutive month of picking up, suggesting that Thailand’s manufacturing activities continued to improve. The pick-up was underpinned by higher production of iron & steel, vehicle & equipment, electronic products and electrical appliances and rubber & rubber products. This was in line with a stronger growth in exports, which surged by 41.0% yoy in March, compared with +23.5% in February. This was the fifth successive month of picking up, on the back of a recovery in global demand for the country’s exports. A pick-up in exports boosted business confidence. As a result, private business investment indicator strengthened to 18.2% yoy in March, from +12.1% in February, suggesting businesses are coming back to invest. Private consumption indicator, however, moderated to 7.4% yoy, from +9.7% during the period, as confidence was somewhat affected by a political crisis in the country. As a whole, the major economic indicators suggest that Thailand’s economy is likely to strengthen in the 1Q, after returning to a positive growth of 5.8% yoy in the 4Q.
IMPORTANT DISCLOSURES This report has been prepared by RHB Research Institute Sdn Bhd (RHBRI) and is for private circulation only to clients of RHBRI and RHB Investment Bank Berhad (previously known as RHB Sakura Merchant Bankers Berhad). It is for distribution only under such circumstances as may be permitted by applicable law. The opinions and information contained herein are based on generally available data believed to be reliable and are subject to change without notice, and may differ or be contrary to opinions expressed by other business units within the RHB Group as a result of using different assumptions and criteria. This report is not to be construed as an offer, invitation or solicitation to buy or sell the securities covered herein. RHBRI does not warrant the accuracy of anything stated herein in any manner whatsoever and no reliance upon such statement by anyone shall give rise to any claim whatsoever against RHBRI. RHBRI and/or its associated persons may from time to time have an interest in the securities mentioned by this report. This report does not provide individually tailored investment advice. It has been prepared without regard to the individual financial circumstances and objectives of persons who receive it. The securities discussed in this report may not be suitable for all investors. RHBRI recommends that investors independently evaluate particular investments and strategies, and encourages investors to seek the advice of a financial adviser. The appropriateness of a particular investment or strategy will depend on an investor’s individual circumstances and objectives. Neither RHBRI, RHB Group nor any of its affiliates, employees or agents accepts any liability for any loss or damage arising out of the use of all or any part of this report. RHBRI and the Connected Persons (the “RHB Group”) are engaged in securities trading, securities brokerage, banking and financing activities as well as providing investment banking and financial advisory services. In the ordinary course of its trading, brokerage, banking and financing activities, any member of the RHB Group may at any time hold positions, and may trade or otherwise effect transactions, for its own account or the accounts of customers, in debt or equity securities or loans of any company that may be involved in this transaction. “Connected Persons” means any holding company of RHBRI, the subsidiaries and subsidiary undertaking of such a holding company and the respective directors, officers, employees and agents of each of them. Investors should assume that the “Connected Persons” are seeking or will seek investment banking or other services from the companies in which the securities have been discussed/covered by RHBRI in this report or in RHBRI’s previous reports. This report has been prepared by the research personnel of RHBRI. Facts and views presented in this report have not been reviewed by, and may not reflect information known to, professionals in other business areas of the “Connected Persons,” including investment banking personnel. The research analysts, economists or research associates principally responsible for the preparation of this research report have received compensation based upon various factors, including quality of research, investor client feedback, stock picking, competitive factors and firm revenues.
A comprehensive range of market research reports by award-winning economists and analysts are exclusively available for download from www.rhbinvest.com
Page 3 of 3
