PP 7767/09/2010(025354)

Economic Highlights
Global
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MARKET DATELINE

23 April 2010

1 Greece’s Deficit Was Worse Than Expected In 2009

2 US Existing Home Sales Rebounded In March

3 Euroland’s Manufacturing And Services Activities Picked

Up In April

4 Japan’s Exports Moderated In March

Tracking The World Economy...

Today’s Highlight

Greece’s Deficit Was Worse Than Expected In 2009

The European Union’s (EU) statistical authority said that Greece’s budget deficit of 13.6% of GDP in 2009 was worse than
previously forecast of 12.7% and it may be revised to as high as 14.1% because of “uncertainties” about Greek economic
data. Greece continues to be dogged by questions about the reliability of its data after repeatedly revising its economic
reporting since entering the Euroland in 2001. At the same time, Moody’s Investors Service cut the country’s rating on
Greece one notch to A3, saying that the EU’s fractious mobilisation of emergency aid for the country means it will be
significantly more difficult for the rating to remain within the A range.

The news sent Greek 10-year bond yield to near 8.7%, on par with some emerging markets and 5.7 percentage points
more than the comparable German securities. Despite the bad news, we believe Greece’s problem will likely be
contained. Indeed, the EU has probably known the fact much earlier and it together with the International Monetary Fund
(IMF) have put forward a rescue package of €45bn (US$61bn) on 9 April to help Greece. Meanwhile, Greece must repay
€8.5bn (US$11.4bn) in borrowings on 19 May. The ballooning budget deficit pushed Greece’s debt to a high of 115.1%
of GDP in 2009, from 99.2% in 2008.

In fact, deficits have surged across Europe after governments were forced to bail out banks and spend on stimulus to
fight the worst recession in 60 years. The Euroland’s budget deficit widened to 6.3% of GDP in 2009, more than double
the EU’s limit of 3% and from -2.0% in 2008, led by Greece and Ireland. Germany, the Euroland’s largest economy,
showed a deficit of 3.3% of GDP in 2009, while Italy’s deficit was 5.3%. The UK had a shortfall of 11.5% and Portugal’s
deficit was 9.4%. In France, the budget gap was 7.5% last year, while in Spain it was 11.2%. As a result, the Euroland’s
government debt swelled to 78.7% of GDP in 2009 from 69.4% in 2008. The EU predicts that the Euroland’s budget deficit
may widen to a record of 6.9% of GDP, while government debt is seen surging to 84% of GDP in 2010.

European governments may have to struggle to narrow their budget gaps after spending billions on stimulus measures.
The IMF on 20 April warned that rising government debt has become the biggest threat to the global economy, replacing
the financial industry stress.

Peck Boon Soon

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

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 23 April 2010

The US Economy

Existing Home Sales Rebounded In March

◆ US existing home sales rebounded to increase by 6.8% mom or at an annual rate of 5.35 million units
in March, from -0.8% in February and -7.2% in January. This was the first increase in four months, as buyers
took advantage of a government tax credit and the weather improved. The government offered homebuyer
incentive worth as much as US$8,000 for contracts closed by the end of June and the incentive is broadened to
include more affluent buyers. Yoy, the existing home sales grew at a stronger pace of 16.1% in March, compared
with +6.8% in February and +11.5% in January. As a whole, the pick-up in home sales suggests that the
government’s tax incentive has yielded positive results and the government is hoping that a recovery in economy
and employment will help sustain housing demand in 2H 2010 when the tax incentive lapses. The pick-up in existing
home sales led to a drop in the supply of new homes for sales to 8.0 months of stocks in March, from 8.5 months
of stocks in February. Meanwhile, the median existing home prices inched up by 0.4% mom in March, a rebound
from -2.1% in February. Yoy, the median prices of existing homes rose by 3.7%, compared with -0.2% during the
same period.

The Euroland Economy

Manufacturing And Services Activities Picked Up In April

◆ Based on the preliminary numbers released by the Markit Economics in London, Euroland’s purchasing manager
index (PMI) for the manufacturing sector rose to 57.5 in April, from 56.6 in March. This was the seventh consecutive
month of growth and the fastest since June 2006, indicating that manufacturing activities in the region continued
to expand and at a faster pace in line with a sustained recovery in global demand. Similarly, the PMI index for
services sector picked up to 55.5 in April, from 54.1 in March and a low of 51.8 in February. This suggests that
the region’s services activities continued to grow and at a more rapid pace. As a result, the composite index
for both manufacturing and service industries rose to 57.3 in April, from 55.9 in March. This was the
strongest increase since August 2007, suggesting that economic activities in the Euroland will likely sustain
its growth in 2Q 2010, after picking up in the 1Q.

Asian Economies

Japan’s Exports Moderated In March

◆ Japan’s exports strengthened to +17.1% mom in March, after a gain of 4.6% in February and compared with -9.4%
in January. Yoy, the exports moderated slightly to 43.5% in March, from +45.4% in February and +40.8%
in January. Despite the moderation, growth remained strong due partly to the lower base effect and partly to a
sustained pick-up in global demand for Japan’s exports. The slowdown was reflected in slower increases in exports
to the US, which eased to 29.5% yoy in March from +50.5% in February but higher than +24.2% in January.
Similarly, exports to Asia moderated slightly to 52.9% yoy in March, from +55.7% in February, in tandem with a
sustained recovery in economic activities in this region. In particular, exports to China held up at 47.7% yoy during
the month, compared with +47.6% in the previous month. These were, however, mitigated by a pick-up in exports
to Europe, which grew by 26.7% yoy in March, compared with +19.7% in February. In the same vein, imports
slowed down to 21.1% yoy in March, from +30.0% in February. This was the third consecutive month of increase,
suggesting that domestic demand is gradually improving in the country. As a whole, a sustained growth in exports
suggests that the Japanese economy will likely continue to expand in 1Q 2010, after rising by an annualised
rate of +3.8% in the 4Q.

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 23 April 2010

IMPORTANT DISCLOSURES
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