PP 7767/09/2010(025354)

Economic Highlights
Global
•
MARKET DATELINE

15 April 2010

1 Singapore Unexpectedly Revalued Its Currency As Growth

Strengthened In The 1Q

2 The US Fed’s Beige Book Indicated Overall Economic

Activities Improved Somewhat In March to Early April;
Headline Inflation Inched Up And Retail Sales Picked Up
In March

3 Euroland’s Industrial Production Moderated In February

4 China’s Property Prices Picked Up In March

Tracking The World Economy...

Today’s Highlight

Singapore Unexpectedly Revalued Its Currency As Growth Strengthened In The 1Q

The Monetary Authority of Singapore (MAS) unexpectedly revalued the country’s currency when it said that it would seek
a “modest and gradual appreciation” in the local dollar and shift to a stronger range for currency fluctuations, the first
such combined move in its 39-year history. The move following a strong pick-up in the country’s real GDP growth in
1Q 2010, suggesting that Singapore, which uses the exchange rate rather than interest rates to conduct monetary policy,
has begun to normalise its monetary conditions in line with an improvement in economic outlook. As a result, Singapore
dollar rose to the strongest level since August 2008.

Separately, Singapore’s preliminary real GDP estimate rose at an annualised rate of 32.1% in 1Q 2010, a rebound from
-2.8% in the 4Q of last year. This was on account of a surge in manufacturing production, which rose by an annualised
rate of 139.0% in the 1Q, after falling by 29.0% in the 4Q. The sharp improvement in performance was attributed to
the robust expansion of electronics production, underpinned by a strong recovery in global semiconductor chip sales and
a stronger-than-expected surge in biomedical manufacturing output. This was aided by a rebound in services activities
to 11.0% in the 1Q, from +6.6% in the 4Q. These were, however, offset partially by weakening construction activities,
which stagnated in the 1Q, after growing by 16.4% in the 4Q.

Yoy, real GDP growth strengthened to 13.1% in the 1Q, from +4.0% in the 4Q, due partly to a lower base effect. This
was the third consecutive quarter of growth, suggesting that the recovery of Singapore’s economy is more entrenched.
As a result, the trade ministry raised its forecast for the country’s economy to 7-9% in 2010, from a previous projection
of 4.5-6.5%. In the same vein, the government also revised its inflation forecast to 2.5-3.5% in 2010, from an earlier
projection of 2-3%.

The US Economy

The US Fed’s Beige Book Indicated Overall Economic Activities Improved Somewhat In March to Early April

◆ The Federal Reserve’s Beige Book indicated that overall economic activities increased somewhat since
the last report in March and early April, supported by a pick-up in consumer spending. This was evidenced by

Peck Boon Soon

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 15 April 2010

increases in retail sales and vehicle sales, as favourable pricing and credit terms helped lure buyers into
showrooms. Similarly, tourism spending was up during the period under review. Services activities were mixed
but it showed some signs of economic recovery. Manufacturing activities and new orders increased, in line with
a pick-up in the ISM’s manufacturing index. Housing markets improved during the period, albeit from low levels.
Commercial real estate market activities, however, remained very weak in most districts. Activities in the banking
and finance sector were mixed, as loan volumes and credit quality decreased. Meanwhile, credit standards
remained generally unchanged, while credit quality was mixed as well. While labour markets generally remained
weak, some hiring activity was evident, particularly for temporary staff. Wage pressures were characterised as
minimal or contained. Similarly, retail prices generally remained at low levels, but some input prices increased.

◆ The Beige Book offers anecdotal evidence that will help central bankers weigh developments in an economy and
the findings will be used as an input for the FOMC meeting on 27-28 April. The findings suggest that the Fed
will be in no hurry to raise its key interest rate from the current 0-0.25%. The Fed, however, is likely
to continue exiting its emergency lending programmes after it had stopped its quantitative easing policy
at end-March. At the same time, the Fed will likely raise its discount rate on emergency loans further, after
increasing it by 25 basis points to 0.75% in February. Also, we believe the Fed will use other measures including
paying higher interest for banks’ reserves, using reverse repos and issuing term deposits to mop up excess
liquidity from the system.

Headline Inflation Inched Up In March

◆ US headline inflation inched up to 0.1% mom in March, after remaining unchanged in February. This was
due to a pick-up in prices of food & beverages and the cost of education as well as smaller declines in prices
of gasoline and apparel. Excluding food and energy prices, the core inflation rate, on the other hand, remained
unchanged in March, after inching up by 0.1% mom in February. Yoy, the headline inflation bounced back to
2.3% in March, after easing to +2.1% in February but off a peak of +2.7% in December. The core inflation
rate, on the other hand, eased to 1.1% yoy in March, from +1.3% in February and a peak of +1.8% in December,
indicating that price pressure outside food and energy is trending lower. Indeed, the minutes of the 16 March
Federal Open Market Committee showed that policymakers were surprised by the rate at which inflation was
slowing and the moderation in price changes was widespread across many categories of spending. This suggests
that the Federal Reserve will likely keep its key policy rate unchanged at between 0-0.25% in the near
term. The Fed, however, will continue to unwind its emergency lending programmes and will likely use other
instruments to soak up liquidity from the system. Meanwhile, the Fed had stopped its quantitative easing policy
by end-March.

Retail Sales Picked Up In March

◆ US retail sales strengthened to 1.6% mom in March, after remaining stable at 0.5% in the previous two
months. This was driven by a pick-up in sales of motor vehicles & parts, clothing, building materials and
healthcare products. These were, however, offset partially by declines in sales of electronic goods and gasoline
as well as a slowdown in sales of food & beverages, furniture and general merchandise. Excluding auto sales,
retail sales moderated to 0.6% mom in March, from +1.0% in February. Yoy, retail sales strengthened to 10.0%
in March, the fifth straight month of increase and from +4.6% in February, suggesting that consumer spending
is recovering. As a whole, a sustained increase in retail sales in 1Q 2010 suggests that a pick-up in consumer
spending will likely contribute positively to the US economic growth during the quarter.

The Euroland Economy

Industrial Production Moderated In February

◆ Euroland’s industrial production moderated to 0.9% mom in February, from +1.6% in January. This was
attributed to declines in the production of durable- and non-durable consumer goods as well as energy output.
These were, however, mitigated by a pick-up the production of capital goods and intermediate inputs during the
month. Yoy, industrial production strengthened to 4.1% in February, from +1.0% in January. This was the second
straight month of picking up, after 20 months of contraction, pointing to an improvement in the region’s industrial
output.

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 15 April 2010

Asian Economies

China’s Property Prices Picked Up In March

◆ Chinese home prices in 70 major cities picked up to 11.7% yoy in March, from +10.7% in February. This
was the ninth consecutive month of picking up and the fastest on record that went back to 2005, suggesting that
price pressure continued to build up. The pick-up in property prices was attributed to a faster increase in prices
of resale residential property, which grew at a faster pace of 9.5% yoy in March, compared with +8.5% in
February. Similarly, prices of new property accelerated to 15.9% yoy in March, from +13.0% in February. To
damp speculation and cool down property prices, the government in January re-imposed a tax on homes sold
within five years of their purchase, after having cut the taxable period to two years in January 2009. China has
also announced in March that developers would have to pay a higher deposit for land purchases and banned banks
from lending to builders found to be hoarding land or holding back home sales in anticipation of higher prices.
Consequently, property sales eased to 57.7% in the first three months of 2010, from 70.2% in the first two months
of the year and 75.5% in 2009.

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