PP 7767/09/2010(025354)

Economic Highlights
Global
•
MARKET DATELINE

27 April 2010

1 Concerns Over A Delay In Greece’s Aid Package Weighed

2 South Korea’s Real GDP Growth Picked Up In 1Q 2010

3 Singapore’s Industrial Production Picked Up In March

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Today’s Highlight

Concerns Over A Delay In Greece’s Aid Package Weighed Down The Euro, But It May Not Spread To Portugal

Greek government bonds and the euro came under pressure due to uncertainty over how long it might take for Greece
to secure the European Union-led €45bn (US$60bn) aid package. The euro fell to its lowest level since January versus
the pound sterling and the premium investors demand to hold the 10-year Greek bond rose to above six percentage
points, as Germany’s Chancellor Angela Merkel said she won’t release funds for Greece until the nation has a sustainable
plan to cut its deficit. Germany has agreed to contribute about €8.4bn (US$11.2bn) to a €30bn package from the
Euroland. The IMF would provide an estimate of €15bn in additional help. While Greece has satisfied the European
Commission that it has sufficient measures in place to cut its budget deficit by around 4% of GDP in 2010, Germany
wants more details on how it will cut the deficit further in 2011 and 2012 given that Greece’s has been in the past
repeatedly revising its economic data.

Meanwhile, Portugal has come under pressure in financial markets in the past week, prompting concern that it could be
the next country to be weighed down by huge public debt. The yield on Portugal’s 10-year government bonds approached
5.3% on 26 April, up from around 4.6% at the start of last week, as investors demanded a higher risk premium for
holding the country’s debt. Although businesses and consumers in Greece and Portugal have heavy debts that make
them vulnerable to economic shocks, worries that Portugal might need a Greek-style bailout are over blown. Portugal’s
predicament appears less acute. Its overall public debt was close to 76.8% of GDP, while Greece’s was at 115% of GDP
in 2009. Portugal’s budget deficit was at 9.4% of GDP, compared with Greece’s deficit of 13.6% of GDP last year. Also,
Portugal has a better track record than Greece at improving its public finances, even in a weak economic environment.
Under pressure from Germany and France, Portugal brought its deficit to below 3% in 2008, despite persistently weak
economic growth that averaged around 0.8% a year from 2002-2008, making Portugal’s promises to cut its deficit more
credible. Portugal intends to bring down its budget deficit to below 3% of GDP by 2013.

Asian Economies

South Korea’s Real GDP Growth Picked Up In 1Q 2010

◆ South Korea’s economic growth picked up to an annualised rate of 7.5% in 1Q 2010, from +0.7% in the
4Q, as the global economic recovery spurred demand for the country’s electronics products, while domestic
demand improved on the back of the government’s stimulus spending.

◆ Real exports grew by an annualised rate of 10.5% in the 1Q, a rebound from -3.9% in the 4Q, underpinned by
strong demand for the country’s exports. A pick-up in exports helped to improve job market and consumer

Peck Boon Soon

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 27 April 2010

spending. As a result, consumer spending strengthened to 2.4% in the 1Q, from +1.6% in the 4Q. Similarly, public
consumption rebounded to increase strongly by 25.0% in the 1Q, from -9.3% in the 4Q. These were, however,
offset partially by a slowdown in fixed capital formation, which eased to 3.5% in the 1Q, from +6.7% in the 4Q,
mainly on account of a slower increase in investment in facilities. Yoy, South Korea’s real GDP growth strengthened
to 7.8% in the 1Q, the third straight month of picking up and from +6.0% in the 4Q.

◆ Despite the improvement in economic growth and outlook, Bank of Korea has been reluctant to push for a
tightening of monetary policy in the face of a government that has publicly opposed increasing borrowing costs.
The government said that it is too early to implement an exit strategy to policy steps taken during the global
financial crisis. The government even sent a vice finance minister to attend the Bank of Korea’s monthly meeting
since January, breaking a practice of more than 10 years of excluding political representatives. The central bank
has held the benchmark interest rate at a record low of 2% for 14 straight months after slashing it by 3.25
percentage points between October 2008 and February 2009.

Singapore’s Industrial Production Picked Up In March

◆ Singapore’s industrial production picked up strongly by 43.0% yoy in March, after slowing down to
+17.9% in February, as factories resumed their production after the festive break. This was reflected in a pick-
up in the production of electronic products, which surged by 73.8% yoy in March, compared with +55.5% in
February, on account of stronger growth in the production of semiconductors, computer peripherals, data storage
products, information & communication and consumer electronic products. These were aided by a stronger
increase in the production of biomedical products, which rebounded to increase by 65.1% yoy in March, from
+12.6% in February, on account of a pick-up in the production of pharmaceutical and medical technology products.
Mom, industrial production fell by 1.5% in March, after moderating to 5.2% in February and from +11.0%
in January. As a whole, a m-o-m decline in March’s industrial production will unlikely derail Singapore’s economic
recovery, after recording a preliminary annualised rate of +32.1% in the 1Q.

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