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PP 7767/09/2010(025354)

Economic Highlights

5 August 2010

1 Global Services Slowing Down, Pointing To A More

Moderate Economic Growth In The 2H

2 US Services Activities Bounced Back In July

3 Euroland’s Services Activities Inched Up, But Retail Sales


4 Bank Indonesia Kept Its Benchmark Rate Unchanged At


Tracking The World Economy...

Today’s Highlight

Global Services Slowing Down, Pointing To A More Moderate Economic Growth In The 2H

The global Purchasing Manager Index (PMI) for services sector, based on a survey conducted by JP Morgan and Markit
Economics in London, fell to 54.3 in July, from 54.9 in June and a high of 56.8 in April. This was the third straight month
of easing and the lowest level in five months, indicating that global services activities have weakened, on the back of
a slowdown in trade activities and consumer spending. The weakness was reflected in a slowdown in backlogs of work
during the month. This was, however, mitigated by a pick-up in new business activities, suggesting that the underlying
economic activities, though easing, are likely to remain resilient in the months ahead. As a result, businesses recruited
more workers in July, after a brief slowdown in June. This was the third straight month the sector recorded an increase
in employment, after services providers starting to recruit workers for the first time in more than two years in May,
suggesting that they are becoming more confidence. Input costs, on the other hand, continued to ease during the month,
pointing to easing price pressures.

In terms of countries, the slowdown was reflected in a reduction in activities in Japan and Australia. At the same time,
the recovery in the UK services sector lost momentum, with activities rising at the slowest pace in over a year. These
were, however, mitigated by an improvement in activities in the US, China and India. Euroland’s activities also inched
up, mainly driven by a pick-up in activities in France and Germany. Italy saw activities declined slightly for the first time
in eight months, while activities in Spain remained muted.

The moderation in global manufacturing and services activities resulted in the global composite index falling to 54.6 in
July, from 55.4 in June and a high of 57.7 in April. This was the third consecutive month of slowing down and the slowest
pace in five months, suggesting that global economic recovery from the worst recession since World War II is losing
momentum. Indeed, we expect the global economy to expand at a more moderate pace in the 2H of the year, on the
back of dissipating fiscal stimulus, the introduction of austerity measures in Europe and policy tightening in Asia.

Peck Boon Soon

(603) 9280 2163
Please read important disclosures at the end of this report.

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5 August 2010

The US Economy

Services Activities Bounced Back In July

◆ The US Purchasing Managers Index (PMI) of the Institute for Supply and Management (ISM) for non-
manufacturing activity rose to 54.3 in July, after easing to 53.8 in June but off a high of 55.4 recorded in
March-May. The non-manufacturing index comprised mainly services. A reading above 50 indicates expansion of
activity and prices in the non-manufacturing sector, while a reading below 50 signals contraction. This suggests
that services activities are moderating but remaining resilient, on the back of a sustained increase in
consumer spending. The pick-up was on account of higher new orders and an expansion in new exports orders
during the month after slipping into a contraction in the previous month. As a result, services providers returned
to employ workers in July, the second month of recruiting after their first recruitment in 28 months in May. These
were, however, offset partially by slower increases in business activities, backlog of orders, supplier deliveries and
inventory. Meanwhile, input costs eased for the third straight month in July, pointing to easing price pressure. As
a whole, the reading together with a moderation in manufacturing activities suggests that the US economy will
likely continue to expand in the 2H, albeit at a more moderate pace, after slowing down to an annualised
rate of 2.4% in the 2Q.

The Euroland Economy

Services Activities Inched Up, But Retail Sales Stagnated

◆ Euroland’s Purchasing Manager Index (PMI) for the services sector inched up marginally to 55.8 in July,
from 55.5 in June but off a high of 56.2 in May. This suggests that services activities in the region are moderating
but remaining resilient, as exports are still holding up amidst a slowdown in global demand. This, together with
a slight pick-up in manufacturing activities, pushed up the region’s composite index to 56.7 in July, from
56.0 in June but off a more than two-year high of 57.3 in April. As a whole, this suggests that the Euroland
economy will likely moderate in the months ahead, but remains resilient.

◆ Euroland’s retail sales stagnated in June, after rising by 0.4% mom in May and compared with -1.0% in April.
The stagnation was due to a decline in sales of food, drink & tobacco, which fell by 0.7% mom in June, compared
with +0.8% in May. Similarly, sales of non-food products moderated to 0.3% mom in June, from +0.4% in May.
This points to a weakening in retail sales, suggesting that consumer spending has turned weaker, as
unemployment rate stayed high in the region. As it stands, the unemployment rate in the Euroland held stable
for the fourth consecutive month and at 10.0% of labour force in June, the highest on record. Yoy, retail sales
grew at a more moderate pace of 0.4% in June, compared with +0.6% in May and a high of +1.7% in March,
indicating that consumer spending is losing momentum.

Asian Economies

Bank Indonesia Kept Its Benchmark Rate Unchanged At 6.50%

◆ Bank Indonesia left its overnight key policy rate unchanged at 6.50% for the 12th time on 4 August,
as an unexpected jump in July inflation was mainly caused by bad weather that disrupted the supply of food items.
Indonesia’s inflation rate grew at a faster pace of 6.2% yoy in July, the highest in 15 months and was slightly above
Bank Indonesia’s target of 4-6%. Although the central bank has refrained from joining India, Taiwan and Malaysia
in raising interest rates, it has pledged special attention to rising inflationary pressures. This suggests that Bank
Indonesia would like to wait for more incoming data before deciding its next move. However, the central bank
indicated that it may soon introduce policies to increase banks’ reserve requirement in a move to tighten liquidity

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