south asia engine and transmission overview 3q 2010 - report

7/31/2019 South Asia Engine and Transmission Overview 3Q 2010 - Report

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3Q 2010 Copyright 2010 CSM Worldwide 1

India Economic Analysis

Economic Snapshot

India Light Vehicle Sales

0.0

1.0

2.0

3.0

4.0

2009

2010

2011

2012

2013

2014

2015

2016

UnitSales(inMillions)

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

GlobalMarketSalesShare

GDP at 1999

Prices in

Rs Billions

%

Change

GDP atChained

2000

Prices in

US$

Billions

%

Change

Share of

World GDP

Population

in Millions

%

Change

Share of

World

Population

GDP per

Capita at

1999 Prices

in Rs

%

Change

GDP per

Capita at

Chained

2000 Prices

in US$

%

Change

Unemploy-

ment Rate

% of Labor

Force

Consumer

Price

2001=100

% Change

2000 19376.4 1.1% 454.8 1.1% 1.47% 1046.24 1.8% 17.08% 18,520 -0.6% 435 -0.6% 12.3% 4.0%

2001 20338.4 5.0% 477.4 5.0% 1.48% 1064.16 1.7% 17.16% 19,112 3.2% 449 3.2% 12.1% 3.7%

2002 21211.3 4.3% 497.9 4.3% 1.52% 1081.90 1.7% 17.22% 19,606 2.6% 460 2.6% 12.4% 4.4%

2003 22743.4 7.2% 533.9 7.2% 1.60% 1099.49 1.6% 17.29% 20,685 5.5% 486 5.5% 11.5% 3.8%

2004 24855.5 9.3% 583.5 9.3% 1.71% 1116.99 1.6% 17.35% 22,252 7.6% 522 7.6% 10.2% 3.8%

2005 27525.7 10.7% 646.1 10.7% 1.82% 1134.40 1.6% 17.41% 24,265 9.0% 570 9.0% 9.9% 4.2%

2006 30187.3 9.7% 708.6 9.7% 1.93% 1151.75 1.5% 17.47% 26,210 8.0% 615 8.0% 9.5% 5.8%

2007 32922.4 9.1% 772.8 9.1% 2.03% 1169.02 1.5% 17.52% 28,162 7.4% 661 7.4% 9.3% 6.4%

2008 34922.4 6.1% 819.8 6.1% 2.07% 1186.19 1.5% 17.62% 29,441 4.5% 691 4.5% 9.5% 8.4%

2009 37239.3 6.6% 874.1 6.6% 2.23% 1203.25 1.4% 17.71% 30,949 5.1% 726 5.1% 9.5% 10.9%

2010 40268.1 8.1% 945.2 8.1% 2.35% 1220.18 1.4% 17.81% 33,002 6.6% 775 6.6% 9.5% 11.4%

2011 43578.5 8.2% 1023.0 8.2% 2.47% 1236.98 1.4% 17.90% 35,230 6.8% 827 6.8% 9.3% 6.7%

2012 47074.8 8.0% 1105.0 8.0% 2.58% 1253.64 1.3% 17.99% 37,550 6.6% 881 6.6% 9.1% 5.8%

2013 50786.8 7.9% 1192.2 7.9% 2.69% 1270.13 1.3% 18.07% 39,985 6.5% 939 6.5% 8.9% 5.0%

2014 54774.6 7.9% 1285.8 7.9% 2.81% 1286.44 1.3% 18.16% 42,578 6.5% 999 6.5% 8.7% 4.7%

2015 59076.1 7.9% 1386.7 7.9% 2.92% 1302.54 1.3% 18.24% 45,355 6.5% 1,065 6.5% 8.5% 4.6%

2016 63682.0 7.8% 1494.9 7.8% 3.05% 1318.41 1.2% 18.32% 48,302 6.5% 1,134 6.5% 8.2% 4.7%

Indias economy will strengthen in the near term in line with the domestic and global recovery. Following

modest economic growth in scal year (FY) 2009-2010, growth will accelerate quickly. Indias fast-

growing service sector, which accounts for more than half of the Indian economy, will remain a key

driver in upcoming quarters, along with the crucial industrial sector. Lower domestic interest rates will

help offset the global credit crunch and support domestic demand. India will likely see a sharp retreat

in private investment that will help push industrial growth lower in adverse credit conditions. Robust

economic expansion will keep India on track to register one of the highest growth rates in the world

again in 2010. Finance Minister Chidambaram indicated that the Indian government was planning to

speed up market overhauls, construction, and infrastructure improvements to sustain economic growth.

Following growth of 7.6% in FY 2009-2010, GDP growth will accelerate at trend rates to 8.1% in FY

2010-2011 and 8.2% in FY 2011-2012.


2/19

2 Copyright 2010 CSM Worldwide 3Q 2010

RegionalOverview


IHS Global Insight expects the rupee to strengthen under a

combination of domestic and external factors through the near term.

We expect a mild appreciation of the Indian rupee, resulting from

higher domestic demand and renewed prospects for higher capitalinows. The rupee has appreciated 2% versus the US dollar since

the beginning of 2010. Previously, in 2009, the rupee appreciated

5% against the US dollar as capital inows began to resume while

the global nancial crisis receded, and investors once again started

favoring emerging-market currencies following their previous global

ight to safety. Given Indias robust domestic demand, monetary

authorities seem willing to tolerate greater currency strength to

curb fears of overheating. Increasing globalization and the expected

rapid growth of IT-related services also have potential implications

for the exchange rate path of the rupee. More far-reaching trade

liberalization could counter some of the upward pressure on the

rupee, however. The central bank is likely to continue to moderate

the upward pressure on the rupee in the medium term because of

the concerns about the competitiveness of exports and maintaininga stimulating macroeconomic environment. The rupee is expected to

reach 44.40 rupees/US dollar by the end of 2010 and 43.53 rupees/

US dollar by the end of 2011.

Exchange Rate

India has one of the most regulated labor markets in the world and

employment regulations are regarded as being one of the greatest

obstacles to an improvement in productivity. The market is heavily

regulated, a legacy of government intervention to protect employees

and direct wage outcomes. Although some work has been carried out

on the labor laws, more is needed, not least because over-regulation

and problems such as industrial action deter potential investors andplace obstacles in the path of those already involved in the Indian

market. As with previous administrations, Prime Minister Manmohan

Singh has committed the United Progressive Alliance (UPA) to

addressing the labor reform issue, but no specic policy prescriptions

have been proposed. The political environment clouds prospects for

wholesale labor reform, especially for the UPA government, given the

inuence of leftist parties in its coalition. The state is both a dominant

employer and an enforcer of protective labor legislation, a situation

incompatible with the needs of an open market economy. The pro-

labor legislation has given undue inuence to the fragmented trade

union movement.

Labor Market

Indias economy has rebounded strongly, highlighting broad upside

risks in its outlook. Indias economy rebounded compellingly with

torrid growth rates in the JanuaryMarch 2010 quarter (fourth quarter

of the scal year) from the previous quarters tempered growth, as

the key manufacturing and service sectors surged and the drought-

hit agricultural sector began to recover. Growth soared in the nalquarter of the year. During the fourth scal quarter of 2009-2010

(ending in March 2010), real GDP expanded 8.6% year-over-year

(y-o-y) on a factor-cost basis, according to the Central Statistical

Organization. Growth in the fourth quarter rose sharply from 5.8% a

year earlier and the 6.5% registered in the OctoberDecember 2009

quarter.

GDP, Real

Exchange Rate

70.0

80.0

48.0

50.0

20.0

30.0

40.0

50.0

60.0

70.0

80.0

40.0

42.0

44.0

46.0

48.0

50.0

Rupees/US$

0.0

10.0

20.0

30.0

40.0

50.0

60.0

70.0

80.0

36.0

38.0

40.0

42.0

44.0

46.0

48.0

50.0

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Rupees/US$

0.0

10.0

20.0

30.0

40.0

50.0

60.0

70.0

80.0

36.0

38.0

40.0

42.0

44.0

46.0

48.0

50.0

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Rupees/US$

Rupees/US$ (l.) Rupees/Euro (r.)

0.0

10.0

20.0

30.0

40.0

50.0

60.0

70.0

80.0

36.0

38.0

40.0

42.0

44.0

46.0

48.0

50.0

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Rupees/US$


0.0

10.0

20.0

30.0

40.0

50.0

60.0

70.0

80.0

36.0

38.0

40.0

42.0

44.0

46.0

48.0

50.0

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Rupees/US$


GDP, Real

2.0

4.0

6.0

8.0

10.0

12.0

Y/Y%C

hange

-4.0

-2.0

0.0

2.0

4.0

6.0

8.0

10.0

12.0

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 20

Y/Y%C

hange

India Industrial Countries

Labor Market

2.0

2.5

3.0

8.0

10.0

12.0

0.5

1.0

1.5

2.0

2.5

3.0

2.0

4.0

6.0

8.0

10.0

12.0

Percenta

ge

0.0

0.5

1.0

1.5

2.0

2.5

3.0

0.0

2.0

4.0

6.0

8.0

10.0

12.0

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Percenta

ge

Unemployment Rate ( l. ) Employment ( r. )

0.0

0.5

1.0

1.5

2.0

2.5

3.0

0.0

2.0

4.0

6.0

8.0

10.0

12.0

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Percenta

ge


0.0

0.5

1.0

1.5

2.0

2.5

3.0

0.0

2.0

4.0

6.0

8.0

10.0

12.0

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Percenta

ge


0.0

0.5

1.0

1.5

2.0

2.5

3.0

0.0

2.0

4.0

6.0

8.0

10.0

12.0

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Percenta

ge


Economic Analysis


3/19



The overall trends in the ination picture are expected to ease

gradually from current elevated levels over the longer term. Interest

rates are likely to rise steadily in 2010 and 2011, given the resumption

of robust domestic economic activity in India, the easing of the globalrecession, and continuing price pressures. The cycle of accommodative

monetary policy in 2008 and 2009 is well past. The central banks

focus will shift to containing inationary pressures from aggressively

supporting growth. Starting in early 2010, policy interest rates are

expected to rise rapidly. In general, the central banks monetary

policy has been successful in maintaining price stability in recent

years, despite periodically spiraling oil and food prices. Consumer

price index (CPI) ination is expected to average 11.3% in 2010 and

6.7% in 2011, given higher oil and global food prices and the current

robust stage of Indias domestic growth cycle. Until recently, the

central Reserve Bank of India (RBI) had maintained price stability by

falling in line with plunging global interest rates. Continued interest

rate hikes are likely in the near term, and sustained tightening is

expected through the end of 2011. Substantial overall monetaryeasing over the medium term, in any case, is very unlikely in the

current adverse scal environment. In the medium term, repeated

scal disappointments, coupled with rapid economic growth, are

expected to generate CPI ination averaging 6.0%.

Infation

Indias external accounts were hit hard by the severe global recession.

IT and related exports, which usually have helped shore up Indias

balance of payments, are facing challenges in an environment of

collapsing external demand. The outlook for the external sector is

much gloomier, however. Annual growth of merchandise exports will

recover and expand around 26% in 2010 and 14% in 2011. Priorto 2009, Indias robust growth of merchandise exports was largely

due to high growth in world trade and Indias increasing exposure

to the global economy. Indias exports are also well diversied,

comprising textiles and garments, automobile parts, and chemicals

and pharmaceuticals. Nevertheless, the sharp and protracted global

recession will hit Indias export sector hard.

Foreign Trade

With the 20082009 easing cycle, the RBIs demand-supportive

policy has led to generally lower real interest rates in India, especially

relative to historical levels. Nevertheless, real interest rates in India

remain relatively high, compared with the global average, and

remain a deterrent factor for businesses. Any interest rate reductions

are extremely unlikely in the near and medium term. Substantialeasing, in any case, is unlikely in the current scal environment.

Overshooting expenditures, combined with the absence of tough

scal measures in the budget, constrain hopes of further signicant

RBI cuts. Monetary policy in India is primarily constrained by the

severe limitations imposed on it by scal policy. A sustained pickup in

ination would also impede rate cuts. In the medium term, banking

sector deregulation could assist a reduction in real interest rates, but

this is not seen as a short-term priority.

Interest Rate

Consumer Prices

4.0

6.0

8.0

10.0

12.0

Y/Y%C

hange

0.0

2.0

4.0

6.0

8.0

10.0

12.0

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Y/Y%C

hange

I ndia Indus trial Count ries

Foreign Trade

5.0

10.0

15.0

20.0

25.0

30.0

Y/Y%C

hang

e

-10.0

-5.0

0.0

5.0

10.0

15.0

20.0

25.0

30.0

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Y/Y%C

hang

e

Imports Exports

Interest Rate

7.0

8.0

9.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

9.0

Percentage

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

9.0

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Percentage

-

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

9.0

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Percentage

Policy Rate Long-Term Rate

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

9.0

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Percentage


0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

9.0

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Percentage


Economic Analysis cont.


4/19


RegionalOverview

Indonesia Economic Analysis

Economic Snapshot

Indonesia Light Vehicle Sales

0.0

0.5

1.0

2009

2010

2011

2012

2013

2014

2015

2016

UnitSales(inMillio

ns)

0.0%

0.5%

1.0%

1.5%

2.0%

Glob

alMarketSalesShare

Indonesias growth will accelerate modestly in 2010. Following a 4.5% expansion in 2009, Indonesias

economic growth will accelerate slightly to 5.7% in 2010. The improvement will not be as pronounced

as elsewhere in Asia, but that is partly due to lesser pent-up demand since there was no recession to

speak of in Indonesias case. Growth will be broad-based, with both domestic and external demand

making good contributions. Investment spending is set to accelerate in the context of a broader global

recovery and ongoing improvements in Indonesias own business environment. Private consumption

will continue to expand, although higher ination will cap momentum. Net exports will make a positive

contribution as well.

GDP at 2000

Prices in

Rp Billions

%

Change

GDP at2000 Prices

and

Exchange

Rates in

US$

Billions

%

Change

Share of

World

GDP

Population

in Millions

%

Change

Share of

World

Population

GDP per

Capita at

2000 Prices

in Rp

%

Change

GDP perCapita at

2000 Prices

and

Exchange

Rates in

US$

%

Change

Unemploy-

ment Rate

% of

Labor

Force

Consumer

Price

1996=100

% Change

2000 1459.6 10.2% 175.0 10.2% 0.57% 211.69 1.4% 3.46% 6,895 8.7% 827 8.7% 6.1% 3.7%

2001 1526.0 4.6% 183.0 4.6% 0.57% 214.57 1.4% 3.46% 7,112 3.1% 853 3.1% 8.1% 11.5%

2002 1559.7 2.2% 187.0 2.2% 0.57% 217.47 1.4% 3.46% 7,172 0.8% 860 0.8% 9.1% 11.9%

2003 1644.3 5.4% 197.1 5.4% 0.59% 220.35 1.3% 3.47% 7,462 4.0% 895 4.0% 9.5% 6.6%

2004 1724.4 4.9% 206.7 4.9% 0.60% 223.22 1.3% 3.47% 7,725 3.5% 926 3.5% 9.9% 6.2%

2005 1823.5 5.7% 218.6 5.7% 0.62% 226.06 1.3% 3.47% 8,066 4.4% 967 4.4% 11.2% 10.5%

2006 1923.8 5.5% 230.6 5.5% 0.63% 228.86 1.2% 3.47% 8,406 4.2% 1,008 4.2% 10.3% 13.1%

2007 2044.5 6.3% 245.1 6.3% 0.64% 231.63 1.2% 3.47% 8,827 5.0% 1,058 5.0% 9.1% 6.3%2008 2168.5 6.1% 260.0 6.1% 0.66% 234.34 1.2% 3.48% 9,254 4.8% 1,109 4.8% 8.4% 10.1%

2009 2267.1 4.5% 271.8 4.5% 0.69% 237.00 1.1% 3.49% 9,566 3.4% 1,147 3.4% 7.9% 4.6%

2010 2397.4 5.7% 287.4 5.7% 0.71% 239.60 1.1% 3.50% 10,006 4.6% 1,200 4.6% 8.1% 4.8%

2011 2531.1 5.6% 303.5 5.6% 0.73% 242.13 1.1% 3.50% 10,454 4.5% 1,253 4.5% 7.6% 5.8%

2012 2679.5 5.9% 321.2 5.9% 0.75% 244.60 1.0% 3.51% 10,954 4.8% 1,313 4.8% 7.2% 5.3%

2013 2835.7 5.8% 340.0 5.8% 0.77% 246.99 1.0% 3.51% 11,481 4.8% 1,376 4.8% 6.8% 5.3%

2014 2997.5 5.7% 359.4 5.7% 0.78% 249.31 0.9% 3.52% 12,023 4.7% 1,441 4.7% 6.6% 4.6%

2015 3166.7 5.6% 379.7 5.6% 0.80% 251.57 0.9% 3.52% 12,588 4.7% 1,509 4.7% 6.4% 4.7%

2016 3343.7 5.6% 400.9 5.6% 0.82% 253.74 0.9% 3.53% 13,178 4.7% 1,580 4.7% 6.2% 4.7%


5/19



Carry trade offers near-term support, but it also raises the risk of

subsequent correction. Improving external balances, such as the

widening current account surplus, should offer fundamental support

in the coming quarters. Nevertheless, experience shows that

fundamental factors tend to be overwhelmed by technical and cyclical

forces in determining the outlook for the rupiah. Since interest rates

in both the United States and Europe are likely to remain close to

zero well into 2010, there is reason to believe that the carry tradewill continue to lend support to Indonesias rupiah in the near term,

possibly through mid-2010. We expect Indonesias central bank to

initiate a gradual monetary tightening cycle sometime in late spring/

early summer, so the interest rate differential will become more

favorable for the rupiah. In addition, growth is also expected to

outperform. Nevertheless, there is a signicant risk that the carry

trade will unwind sooner if condence in the recovery begins to falter

and investors begin to once again seek the security of the dollar.

Clear evidence of this came in May, when heightened risk aversion

among global investors amid Eurozone debt worries caused most

Asian currencies, including Indonesias rupiah, to depreciate against

the US dollar.

Exchange Rate

High unemployment is here to stay. High domestic unemployment

will likely remain one of Indonesias most signicant economic and

political challenges in years to come. Although population and labor

force growth per se are not particularly rapid compared with their

growth in other countries in the region (such as India, for instance),

job creation will be similarly weakreecting moderate economic

growth and relatively more rigid labor laws. Indeed, many foreign

and domestic investors have pointed out that increasing worker

protectionism and labor market regulations, such as extremely

generous termination packages, have signicantly raised labor

costs over the past several years and have stymied new hiring.

Given the growing political inuence of organized labor (there

are some 180 unions and ve national labor confederations), this

trend will be difcult to alter signicantly in the future. In addition,

with the rise of Vietnam, Cambodia, and others as a new regional

manufacturing center, Indonesia will likely experience continued

loss of manufacturing jobs in the coming years. One offsetting trend

would be a corresponding increase in expatriate Indonesian workers

that would take on lower-skilled jobs elsewhere in the region.

Labor Market

Growth will accelerate modestly in 2010. Following 4.5% growth

in 2009, we forecast expansion of 5.7% in 2010 thanks to higher

investment spending and somewhat stronger private consumption.

Nonetheless, Indonesia will enjoy less pent-up demand than its

regional peers. A gradual withdrawal of monetary and scal stimuli

will also restrain growth, although the impact of these factors will berelatively muted given that Indonesias use of policy stimulus during

2009 was initially rather limited.

GDP, Real

Exchange Rate

14,00

16,00

10,200.0

10,400.0

10,600.0

4,000

6,000

8,000

10,00

12,00

14,00

16,00

9,000.0

9,200.0

9,400.0

9,600.0

9,800.0

10,000.0

10,200.0

10,400.0

10,600.0

Rupiah/US$

0.0

2,000

4,000

6,000

8,000

10,00

12,00

14,00

16,00

8,400.0

8,600.0

8,800.0

9,000.0

9,200.0

9,400.0

9,600.0

9,800.0

10,000.0

10,200.0

10,400.0

10,600.0

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Rupiah/US$

0.0

2,000

4,000

6,000

8,000

10,00

12,00

14,00

16,00

8,400.0

8,600.0

8,800.0

9,000.0

9,200.0

9,400.0

9,600.0

9,800.0

10,000.0

10,200.0

10,400.0

10,600.0

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Rupiah/US$

Rupiah /US$ ( l.) Rup ia h/Eu ro (r.)

0.0

2,000

4,000

6,000

8,000

10,00

12,00

14,00

16,00

8,400.0

8,600.0

8,800.0

9,000.0

9,200.0

9,400.0

9,600.0

9,800.0

10,000.0

10,200.0

10,400.0

10,600.0

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Rupiah/US$


0.0

2,000

4,000

6,000

8,000

10,00

12,00

14,00

16,00

8,400.0

8,600.0

8,800.0

9,000.0

9,200.0

9,400.0

9,600.0

9,800.0

10,000.0

10,200.0

10,400.0

10,600.0

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Rupiah/US$


GDP, Real

0.0

2.0

4.0

6.0

8.0

Y/Y%C

hange

-4.0

-2.0

0.0

2.0

4.0

6.0

8.0

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Y/Y%C

hange

Indonesia Industr ial Countries

Labor Market

3

4

4

5

8.0

10.0

12.0

1

1

2

2

3

3

4

4

5

2.0

4.0

6.0

8.0

10.0

12.0

Per

centage

0

0

1

1

2

2

3

3

4

4

5

0.0

2.0

4.0

6.0

8.0

10.0

12.0

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Per

centage


0

0

1

1

2

2

3

3

4

4

5

0.0

2.0

4.0

6.0

8.0

10.0

12.0

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Per

centage


0

0

1

1

2

2

3

3

4

4

5

0.0

2.0

4.0

6.0

8.0

10.0

12.0

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Per

centage


0

0

1

1

2

2

3

3

4

4

5

0.0

2.0

4.0

6.0

8.0

10.0

12.0

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Per

centage


Economic Analysis


6/19


RegionalOverview


External balances will remain favorable over the medium term. We

expect Indonesia to maintain trade and current account surpluses

over the next ve years. Temporary reversals, however, are possible.

There is even a near-term risk that a reversal in the carry trade

may push the income account into deep decit at some point over

the next few quarters. Another factor that might contribute to lowertrade surpluses over the medium term is our expectation of stronger

foreign direct investment inows, which will be accompanied by higher

investment goods exports. In such a scenario, however, the narrowing

of trade surpluses would not be a problematic development since

higher imports would be not only nanced through these investment

inows but would also contribute to boosting productive capacity and

competitiveness. Recognizing the inherent volatility associated with

global trade and capital ows, we believe that steady improvements

in competitiveness will allow Indonesia to keep its trade balance in

surplus over the medium term.

Foreign Trade

Ination will increase from now on. The 23% annual ination rates

seen between July and October 2009 likely marked the bottom of the

disinationary cycle. With rmer commodity prices, demand conditions

improving, and the favorable base effect turning unfavorable, headline

ination rates will move notably higher during the rst half of 2010.

Nevertheless, the indenite delay of earlier plans to reduce energy

subsidies means there is likely to be lesser upward pressure on prices

than we had previously estimated. Therefore, we have lowered our

2010 ination forecast to 4.8%, slightly above the 4.6% in 2009.

Infation

Monetary tightening has been delayed amid mild ination. Given

still-low headline ination and delays in electricity tariff increases,

we have pushed back the timing of the rst interest rate hike to

August. Comments from Bank Indonesia remain quite dovish for the

time being, although the latest bout of nancial market panic in May

could prove inationary by causing rupiah depreciation. Nonetheless,

Indonesias business cycle has been much milder than elsewhere in

the region, and much less emergency support was injected into the

system by the central bank during the crisis. This also means that

there is less immediacy for removing that emergency component in

the early stages of the recovery.

Interest Rate

Consumer Prices

4.0

6.0

8.0

10.0

12.0

14.0

Y/Y%C

hange

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Y/Y%C

hange

Indones ia Indust rial Count ries

Foreign Trade

-5.0

0.0

5.0

10.0

15.0

Y/Y%C

hange

-20.0

-15.0

-10.0

-5.0

0.0

5.0

10.0

15.0

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Y/Y%C

hange

Imports Exports

Interest Rate

8.0

10.0

12.0

4.0

6.0

8.0

10.0

12.0

Percentage

0.0

2.0

4.0

6.0

8.0

10.0

12.0

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 20

Percentage

-

0.0

2.0

4.0

6.0

8.0

10.0

12.0

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 20

Percentage

Policy Rate Short-Term Rate

0.0

2.0

4.0

6.0

8.0

10.0

12.0

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 20

Percentage


0.0

2.0

4.0

6.0

8.0

10.0

12.0

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 20

Percentage




7/19


Malaysia Economic Analysis

Economic Snapshot

Malaysia Light Vehicle Sales

0.0

0.5

1.0

2009

2010

2011

2012

2013

2014

2015

2016

UnitSales(inMillions)

0.0%

0.5%

1.0%

1.5%

2.0%GlobalMarketSalesShare

Growth will accelerate sharply in 2010. Although the economy contracted 1.7% in 2009, conditions had

been improving steadily from the depth of the recession in the rst quarter of 2009. We see a robust

recovery taking hold in 2010, with real GDP growth of 6.6% boosted by favorable base comparisons,

positive contributions from inventories, and better performance from investment and private consumption.

These forces have already converged to push rst-quarter GDP growth to a stronger-than-expected

10.1%. Nevertheless, the medium-term sustainability of this upward burst in activity remains highly

doubtful given fundamental constraints to nal export demand growth, on which Malaysia so depends.

In effect, we believe that growth will moderate a little in 2011, as Chinese demand and the waning of

scal stimulus weigh on performance.

GDP at

1987 Prices

in

RM Billions

%

Change

GDP at 2000

Prices and

Exchange

Rates in

US$ Billions

%

Change

Share of

World

GDP

Population

in Millions

%

Change

Share of

World

Population

GDP per

Capita at 1987

Prices in RM

%

Change

GDP per

Capita at 2000

Prices and

Exchange

Rates in US$

%

Change

Unemploy-

ment Rate

% of

Labor

Force

Consumer

Price

2005=100

% Change

2000 356.4 8.5% 93.8 8.6% 0.30% 23.27 2.3% 0.38% 15,316 6.1% 4,031 6.1% 3.1% 1.6%

2001 358.2 0.5% 94.3 0.5% 0.29% 23.77 2.1% 0.38% 15,071 -1.6% 3,966 -1.6% 3.6% 1.4%

2002 377.6 5.4% 99.4 5.4% 0.30% 24.26 2.1% 0.39% 15,563 3.3% 4,096 3.3% 3.5% 1.7%

2003 399.4 5.8% 105.1 5.8% 0.32% 24.73 1.9% 0.39% 16,151 3.8% 4,250 3.8% 3.6% 1.2%

2004 426.5 6.8% 112.2 6.8% 0.33% 25.19 1.9% 0.39% 16,932 4.8% 4,456 4.8% 3.6% 1.5%

2005 449.3 5.3% 118.2 5.3% 0.33% 25.65 1.8% 0.39% 17,515 3.4% 4,609 3.4% 3.6% 3.0%

2006 475.2 5.8% 125.1 5.8% 0.34% 26.11 1.8% 0.40% 18,200 3.9% 4,790 3.9% 3.3% 3.6%

2007 504.9 6.3% 132.9 6.3% 0.35% 26.57 1.8% 0.40% 19,003 4.4% 5,001 4.4% 3.2% 2.0%

2008 528.3 4.6% 139.0 4.6% 0.35% 27.03 1.7% 0.40% 19,545 2.9% 5,144 2.9% 3.3% 5.4%

2009 519.2 -1.7% 136.6 -1.7% 0.34% 27.48 1.7% 0.40% 18,894 -3.3% 4,972 -3.3% 3.7% 0.6%

2010 552.9 6.5% 145.5 6.5% 0.37% 27.92 1.6% 0.41% 19,804 4.8% 5,212 4.8% 3.4% 1.7%

2011 583.2 5.5% 153.5 5.5% 0.38% 28.36 1.6% 0.41% 20,565 3.8% 5,412 3.8% 3.1% 2.3%

2012 616.6 5.7% 162.3 5.7% 0.39% 28.79 1.5% 0.41% 21,416 4.1% 5,636 4.1% 3.1% 2.2%

2013 648.6 5.2% 170.7 5.2% 0.40% 29.21 1.5% 0.42% 22,205 3.7% 5,843 3.7% 3.0% 2.8%

2014 681.1 5.0% 179.2 5.0% 0.40% 29.63 1.4% 0.42% 22,987 3.5% 6,049 3.5% 2.9% 2.5%

2015 716.4 5.2% 188.5 5.2% 0.41% 30.05 1.4% 0.42% 23,841 3.7% 6,274 3.7% 2.8% 2.7%

2016 752.5 5.0% 198.0 5.0% 0.42% 30.46 1.4% 0.42% 24,706 3.6% 6,502 3.6% 2.8% 2.8%


8/19


RegionalOverview


Appreciation pressures will return in the longer term. Malaysias

currency, the ringgit, enjoys strong fundamental support from large

current account surpluses, which continued even amid the depth of

the current recession. As such, risks of speculative attacks on the

currency have diminished, given that external debt burdens have

steadily declined since the Asia crisis. Depreciation episodes should

therefore be mild and sporadic, with pressures more likely to intensify

in the opposite direction, leading to currency appreciation. At the

same time, an acute rise in investor risk aversion will undoubtedly

lead to some currency depreciation, such as what happened in May,

amid fears of a sovereign default in the Eurozone.

Exchange Rate

Unemployment will moderate gently in 2010. With labor markets

having already experienced notable improvements since the early

part of 2009, there is limited scope for further declines in the

unemployment rate. This is particularly so given that as the economy

expands anew, the labor force may do so as well, since job seekers

become more optimistic about job prospects. Therefore, we expectonly a very gradual decline in the headline unemployment rate from

3.5% at the end of 2009 to 3.1% by the end of 2010.

Labor Market

Economic growth will accelerate sharply in 2010. Although the economy

contracted on an annual basis in 2009, conditions improved steadily

over the course of the year. The situation will improve markedly in

2010, with growth lifted by a number of factors, including stronger

nal demand domestically and abroad, and, very importantly, the

end of destocking. This latter element is particularly signicant in

Malaysias case because the extent of the inventory cuts experienced

last year was unprecedented. We have further upgraded our 2010

growth forecast to 6.6%, compared with 6.5% in May and 5.6% at

the start of 2010.

GDP, Real

Exchange Rate

5.0

6.0

3.6

3.7

3.8

2.0

3.0

4.0

5.0

6.0

3.2

3.3

3.4

3.5

3.6

3.7

3.8

Ringgit/US$

0.0

1.0

2.0

3.0

4.0

5.0

6.0

2.9

3.0

3.1

3.2

3.3

3.4

3.5

3.6

3.7

3.8

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Ringgit/US$

0.0

1.0

2.0

3.0

4.0

5.0

6.0

2.9

3.0

3.1

3.2

3.3

3.4

3.5

3.6

3.7

3.8

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Ringgit/US$

Ringgit/US$ (l.) Ringgit/Euro (r.)

0.0

1.0

2.0

3.0

4.0

5.0

6.0

2.9

3.0

3.1

3.2

3.3

3.4

3.5

3.6

3.7

3.8

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Ringgit/US$


0.0

1.0

2.0

3.0

4.0

5.0

6.0

2.9

3.0

3.1

3.2

3.3

3.4

3.5

3.6

3.7

3.8

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Ringgit/US$


GDP, Real

0.0

2.0

4.0

6.0

8.0

Y/Y%C

hange

-4.0

-2.0

0.0

2.0

4.0

6.0

8.0

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 20

Y/Y%C

hange

Malaysia Industr ial Countr ies

Labor Market

2.0

2.5

3.0

3.0

3.5

4.0

0.5

1.0

1.5

2.0

2.5

3.0

1.0

1.5

2.0

2.5

3.0

3.5

4.0

Percentage

0.0

0.5

1.0

1.5

2.0

2.5

3.0

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Percentage

Unemployment Rate ( l. ) Employment ( r.)

0.0

0.5

1.0

1.5

2.0

2.5

3.0

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Percentage


0.0

0.5

1.0

1.5

2.0

2.5

3.0

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Percentage


0.0

0.5

1.0

1.5

2.0

2.5

3.0

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Percentage


Economic Analysis


9/19



Exports are growing again. We expect a 22.5% gain in nominal

merchandise exports in 2010 following a 21.1% contraction in 2009.

Although impressive at rst glance, this is actually a fairly muted

recovery by historical standards and reects ongoing uncertainty about

the sustainability of the economic recovery in some of Malaysias key

export markets such as the United States and Europe. Even with theincrease penciled in for this year, exports in 2010 will remain below

the 2008 annual average. The forces of deleveraging, with consumers

in these countries working through their debt burdens and raising

their savings rates, and insufcient compensatory demand from

China and other emerging markets, growth in demand for Malaysias

exports will likely be lackluster, even over the medium term.

Foreign Trade

Ination will remain contained in 2010. Malaysias deationary episode

is now over, and headline ination rates are set to move slightly

higher in the coming months. Base effects will turn increasingly

unfavorable as we get closer to summer, and commodity prices

appear to have stabilized at levels that are considerably above those

in early 2009. Stronger demand conditions will also resurrect concerns

about ination during the course of 2010. Nevertheless, these price

pressures are likely to be well contained, most importantly by very

competitive conditions and the inability of producers to implement

price increases. Therefore, we expect to see the average ination

rate reach 1.71.8% in 2010 in line with recent historical norms.

Infation

The interest rate normalization cycle kicked off in March 2010. The

Bank Negaras decision on 4 March to raise the policy rate by 25

basis points to 2.25% ended a 13-month-long hold stance and

marked the beginning of a gradual move toward monetary policy

normalization. We had anticipated the shift and agreed with the

banks own assessment that this is by no means a departure from a

still-supportive policy stance. Another rate hike followed in May, aswe had predicted, on the day of the rst-quarter GDP release, which

showed that the economy had grown 10.1% y-o-y.

Interest Rate

Consumer Prices

2.0

3.0

4.0

5.0

6.0

Y/Y%C

hange

0.0

1.0

2.0

3.0

4.0

5.0

6.0

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Y/Y%C

hange

Malaysia Industria l Countries

Foreign Trade

0.0

5.0

10.0

15.0

20.0

Y/Y%C

hange

-15.0

-10.0

-5.0

0.0

5.0

10.0

15.0

20.0

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Y/Y%C

hange

Imports Exports

Interest Rate

5.0

6.0

2.0

3.0

4.0

5.0

6.0

Percenta

ge

0.0

1.0

2.0

3.0

4.0

5.0

6.0

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2

Percenta

ge

Polic Rate Lon -Term Rate

0.0

1.0

2.0

3.0

4.0

5.0

6.0

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2

Percenta

ge


0.0

1.0

2.0

3.0

4.0

5.0

6.0

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2

Percenta

ge


0.0

1.0

2.0

3.0

4.0

5.0

6.0

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2

Percenta

ge




10/19


RegionalOverview

Thailand Economic Analysis

Economic Snapshot

Thailand Light Vehicle Sales

0.0

0.5

1.0

2009

2010

2011

2012

2013

2014

2015

2016

UnitSales(inMillio

ns)

0.0%

0.5%

1.0%

1.5%

2.0%Glob

alMarketSalesShare

GDP at 1988

Prices in

Bt Billions

%

Change

GDP at

2000

Prices andExchange

Rates in

US$

Billions

%

Change

Share of

World

GDP

Population

in Millions

%

Change

Share of

World

Population

GDP per

Capita at

1988 Prices in

Bt

%

Change

GDP per

Capita at2000 Prices

and

Exchange

Rates in US$

%

Change

Unemploy-ment Rate

% of

Labor

Force

Consumer

Price

2002=100

% Change

2000 3022.4 5.2% 123.4 5.2% 0.40% 60.67 1.0% 0.99% 49,817 4.2% 2,035 4.2% 3.6% 1.6%

2001 3113.5 3.0% 127.2 3.0% 0.39% 61.19 0.9% 0.99% 50,883 2.1% 2,078 2.1% 3.3% 1.6%

2002 3247.5 4.3% 132.6 4.3% 0.41% 61.67 0.8% 0.98% 52,659 3.5% 2,151 3.5% 2.4% 0.6%

2003 3462.7 6.6% 141.4 6.6% 0.42% 62.13 0.7% 0.98% 55,733 5.8% 2,276 5.8% 2.2% 1.8%

2004 3695.7 6.7% 150.9 6.7% 0.44% 62.57 0.7% 0.97% 59,065 6.0% 2,412 6.0% 2.1% 2.8%

2005 3934.7 6.5% 160.7 6.5% 0.45% 63.00 0.7% 0.97% 62,455 5.7% 2,551 5.7% 1.8% 4.5%

2006 4137.2 5.1% 169.0 5.1% 0.46% 63.44 0.7% 0.96% 65,214 4.4% 2,663 4.4% 1.5% 4.6%

2007 4341.1 4.9% 177.3 4.9% 0.47% 63.88 0.7% 0.96% 67,958 4.2% 2,776 4.2% 1.4% 2.2%

2008 4448.1 2.5% 181.7 2.5% 0.46% 64.32 0.7% 0.96% 69,155 1.8% 2,824 1.8% 1.4% 5.5%

2009 4346.7 -2.3% 177.5 -2.3% 0.44% 64.73 0.6% 0.95% 67,152 -2.9% 2,743 -2.9% 1.5% -0.8%

2010 4621.3 6.3% 188.7 6.3% 0.48% 65.12 0.6% 0.95% 70,966 5.7% 2,898 5.7% 1.1% 3.9%

2011 4829.1 4.5% 197.2 4.5% 0.49% 65.49 0.6% 0.95% 73,738 3.9% 3,012 3.9% 1.0% 3.3%

2012 5073.5 5.1% 207.2 5.1% 0.50% 65.84 0.5% 0.94% 77,059 4.5% 3,147 4.5% 0.9% 3.1%

2013 5299.3 4.4% 216.4 4.4% 0.51% 66.16 0.5% 0.94% 80,098 3.9% 3,271 3.9% 1.2% 3.0%

2014 5550.0 4.7% 226.7 4.7% 0.51% 66.47 0.5% 0.94% 83,496 4.2% 3,410 4.2% 1.4% 2.8%

2015 5824.7 5.0% 237.9 5.0% 0.52% 66.76 0.4% 0.93% 87,248 4.5% 3,563 4.5% 1.5% 3.1%

2016 6106.3 4.8% 249.4 4.8% 0.53% 67.04 0.4% 0.93% 91,084 4.4% 3,720 4.4% 1.6% 3.3%

Real GDP growth is set to accelerate sharply in 2010. The economic recovery appears broad-based,

with stronger export orders propelling an expansion of industrial output, while consumer spending

seems to be reviving as well. One area of weakness remains private investment spending, the recovery

of which is being delayed by excess capacity and a more cautious attitude on the part of businesses.

The end of destocking will also provide a temporary lift to GDP in coming quarters, boosting annual

growth to 7.1%. What is less certain is the sustainability of this upward burst in activity, particularly

if conditions in the key Organisation for Economic Co-operation and Development economies do not

materially improve by 2011, by which time stimulus support would have largely faded.


11/19



Improving risk aversion among global investors helps emerging

market currencies. After the onset of the global credit crisis last fall,

many Asian currencies, including the Thai baht, experienced severe

depreciation episodes. These were triggered by a sharp reversal of

capital ows away from emerging markets, as investors sought the

security of a safe haven currency. With condence returning along

with signs of economic recovery, emerging market currencies have

begun to retrace their earlier losses. As long as the growth momentum

is maintained, the baht could continue to ride the rising tide of

condence and continue to appreciate slightly against the dollar.

Nevertheless, sentiment will play a major role in near-term currency

movements. This was apparent in May, when many emerging market

currencies depreciated considerably as risk aversion increased amid

concerns about Eurozone sovereign debt.

Exchange Rate

Demographics drive a low unemployment forecast. Given severe

constraints to indigenous labor force growth, we think low

unemployment will remain a feature of the Thai economy in the future.

Indeed, demographic forces such as the low population growth rate

will result in actual declines in labor force by the latter part of our

forecast horizon (2020 and beyond). Although we expect Thailand to

become more open to imported labor because of these constraints,the unemployment rate is expected to remain very low throughout

the forecast period.

Labor Market

The roaring start to 2010 will quiet down quickly. Real GDP surged to

a 15-year high in 1Q 2010, reaching 12.0%. Although all sectors grew

strongly during the quarter relative to a year ago, their contribution

to growth was far more varied than what headline growth gures

suggest. The area of largest divergence was, without a doubt, net

trade. Both exports and imports grew handsomely, up 16.2% y-o-yand 31.4% y-o-y, respectively, but given the relatively stronger

rebound in imports, net trade actually detracted 2.4 percentage points

from rst-quarter growth. At the other extreme, inventories provided

the biggest boost to growth, a massive 8.8%. Put differently, nearly

three quarters of the rst-quarter growth was driven purely by the

inventory cycle.

GDP, Real

Exchange Rate

50.0

60.0

37.0

38.0

39.0

20.0

30.0

40.0

50.0

60.0

32.0

33.0

34.0

35.0

36.0

37.0

38.0

39.0

Baht/US$

0.0

10.0

20.0

30.0

40.0

50.0

60.0

29.0

30.0

31.0

32.0

33.0

34.0

35.0

36.0

37.0

38.0

39.0

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Baht/US$

0.0

10.0

20.0

30.0

40.0

50.0

60.0

29.0

30.0

31.0

32.0

33.0

34.0

35.0

36.0

37.0

38.0

39.0

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Baht/US$

Baht/US$ (l.) Baht/Euro (r.)

0.0

10.0

20.0

30.0

40.0

50.0

60.0

29.0

30.0

31.0

32.0

33.0

34.0

35.0

36.0

37.0

38.0

39.0

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Baht/US$


0.0

10.0

20.0

30.0

40.0

50.0

60.0

29.0

30.0

31.0

32.0

33.0

34.0

35.0

36.0

37.0

38.0

39.0

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Baht/US$


GDP, Real

0.0

2.0

4.0

6.0

8.0

Y/Y%C

hang

e

-4.0

-2.0

0.0

2.0

4.0

6.0

8.0

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Y/Y%C

hang

e

Thailand Industrial Countries

Labor Market

2

2

1.2

1.4

1.6

1.8

0

1

1

2

2

0.4

0.6

0.8

1.0

1.2

1.4

1.6

1.8

Percentage

0

0

1

1

2

2

0.0

0.2

0.4

0.6

0.8

1.0

1.2

1.4

1.6

1.8

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Percentage

Unemployment Rate (l .) Employment ( r. )

0

0

1

1

2

2

0.0

0.2

0.4

0.6

0.8

1.0

1.2

1.4

1.6

1.8

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Percentage


0

0

1

1

2

2

0.0

0.2

0.4

0.6

0.8

1.0

1.2

1.4

1.6

1.8

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Percentage


0

0

1

1

2

2

0.0

0.2

0.4

0.6

0.8

1.0

1.2

1.4

1.6

1.8

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Percentage


Economic Analysis


12/19


RegionalOverview


Improving exports will maintain trade and current account surpluses

over the next few years. Although domestic demand will revive

gradually in 20102011 and, with it, import growth, export demand is

also expected to accelerate over the next couple of years. Therefore,

we expect that Thailand will manage to retain its external surpluses

over the medium term. Nonetheless, this outlook is not without risks,given that consumer demand in many of the developed countries

appears to have been substantially weakened by years of debt-fueled

overconsumption. This would probably make the export recovery

slower than in typical post-recession periods.

Foreign Trade

Ination will return in 2010 but will remain under control. Thailands

six-month-long deationary episode ended in October 2009, and

inationary pressures are set to accelerate slightly during 2010. Even

though domestic demand conditions remain weak, global commodity

prices have now retraced a good deal of their earlier losses, boosting

import prices. As long as incoming data do not lead market participants

to doubt that an economic recovery is going to occur in 2010, it is

quite possible that commodity prices will continue to move ahead

of market fundamentals for some time. In tandem with unfavorable

base comparisons, this is expected to push headline ination to 3.9%

in 2010.

Infation

Rates remain on hold for now, but the start of tightening is imminent.

The Bank of Thailand (BOT) left its policy interest rate unchanged at

1.25% at the regularly scheduled meeting on 21 April. The rate has

now been at this level since April 2009. The rather terse statement

accompanying the announcement acknowledged that the global

economic recovery, improved condence of the private sector, and

strong economic fundamentals should provide a foundation for

rm economic expansion this year. As far as the growth outlook

was concerned, this was the most optimistic assessment so far.

Nevertheless, the statement stressed that the central bank fears thenegative impact on condence, tourism, and investment stemming

from the latest bout of political unrest. This was the reason for the

banks decision to delay tightening for now.

Interest Rate

Consumer Prices

1.0

2.0

3.0

4.0

5.0

6.0

Y/Y%C

hange

-2.0

-1.0

0.0

1.0

2.0

3.0

4.0

5.0

6.0

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2

Y/Y%C

hange

Thailand Industrial Countries

Foreign Trade

-10.0

-5.0

0.0

5.0

10.0

15.0

20.0

Y/Y%C

hange

-25.0

-20.0

-15.0

-10.0

-5.0

0.0

5.0

10.0

15.0

20.0

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 201

Y/Y%C

hange

Imports Exports

Interest Rate

4.0

5.0

6.0

2.0

3.0

4.0

5.0

6.0

Percentage

0.0

1.0

2.0

3.0

4.0

5.0

6.0

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Percentage

-

0.0

1.0

2.0

3.0

4.0

5.0

6.0

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Percentage


0.0

1.0

2.0

3.0

4.0

5.0

6.0

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Percentage


0.0

1.0

2.0

3.0

4.0

5.0

6.0

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Percentage




13/19


South Asia Production Analysis

Short-Term Production Analysis

ASEAN light vehicle production showed a strong rebound in 2Q2010, up 69% from the same quarter last year to reach 703,000units. Strong domestic demand boosted by a sharp recovery inconsumer condence and historically favorable loan conditionswere the major drivers behind this recovery. Also, the recoveryin exports to major markets has helped drive production forcountries like Thailand. Thailand had the highest growth of102% y-o-y in 2Q 2010, boosted by strong exports, whichmake up 56% of total production. The Philippines and Indonesiafollowed suit, growing by 62.7% and 61.7%, respectively. Othercountries such as Vietnam (+28.5%) and Malaysia (+25.2%)also recorded high positive growth.

Thailands light vehicle production reached 750,000 units in2Q 2010 YTD, 38% higher than the 2Q YTD volume achievedin 2008. Both exports and production in the domestic marketsharply recovered. CSM expects the strong recovery in exportsto continue, as new volume from the Nissan March and Mazda/Ford B2e platform B-segment cars is expected to increaseexports to neighboring countries such as Japan and Australia.With a number of eco car projects in the pipeline from 2010to 2012, including the Honda Sub-B Car in 2011, the SuzukiSwift in 2012 and the recently announced Mitsubishi GlobalSmall Car in 2012, along with the model changes of majorpickup models, CSM expects Thailands production to expandto reach nearly 1.6 million units in 2010 and nearly 1.68 millionunits in 2012.

Indonesian light vehicle production increased 62.9% to393,000 units in 2Q 2010 YTD, as the domestic market has fullyrecovered due to lower interest rates and the strong rupiah,which helps keep vehicle prices stable. Indonesian light vehicleproduction is expected to experience record-high growth in thenext few years with a compound annual growth rate (CAGR)of 21.1% from 2009 to 2012, reaching a record-high volumeof 567,000 units in 2010 and 708,000 units in 2012.

Production in Malaysia reached 277,000 units in 2Q 2010 YTD,an increase of 24% from last year. Malaysia is expected to

continue to grow in 2010 with the launch of new models fromPerodua and continued strong sales of the Proton Exora. Goingforward, CSM expects Malaysian light vehicle production tomaintain stable and consistent growth with a CAGR of 6%from 2009 to 2012. Several model changes from Proton andPerodua are in the pipeline.

Light vehicle production in India reached 1.5 million units inthe rst two quarters of 2010, an increase of 36% comparedto the same period last year. Production in June grew by29.5% compared to the same period last year. Consistentlystrong growth in domestic sales and exports as well as the lowbase from last year led to this signicant jump in productiongrowth.

The second quarter witnessed increasing competition in thesmall-car segment with the strong entry of the Ford Figo andChevrolet Beat. These new vehicles are key to the Indianstrategies of their respective global parents. The Figo andthe Beat have both received enthusiastic responses fromcustomers who are looking for a change from Suzuki andHyundai vehicles. The recently launched VW Polo and NissanMicra are also very aggressively trying to gain market sharein the small-car segment. Exports are up nearly 30% YTDcompared to last year as India continues to cement its placeas the global small-car hub.

Due to the strong resurgence in domestic demand andincreasing small-car exports, production in India is likely tomaintain impressive double-digit growth rates in 2010, 2011and 2012 as new plants come online from global majors andthe ULC segment expands in the domestic market.

Light vehicle production in Pakistan increased by almost74% in the rst two quarters of 2010 compared to the sameperiod last year. The easing of the global nancial crisis andincreased availability of vehicle nancing led to improved localsales. However, the country still has a great deal of politicaluncertainty, and future growth will strongly depend upon therestoration of peace and normalcy to the country.

Light vehicle production in Australia grew by almost 35% in therst two quarters of 2010 compared to the same period lastyear. Better domestic sales and the low base from last yearcontributed to this production growth. Output grew by almost20% in June compared to the same period last year. Production

volume is expected to pick up in 2010, but CSM does not expectoutput to return to 2007 levels until after 2012.

4,500

South Asia Short-Term Production

2008-2012

3,500

4,000

3,000

s 2008 2009 2010 2011 2012

2,000

,

Thousan

1,000

1,500

0

500

n n n

Indi

Thailan

Malaysi

Indonesi

Australi

Uzbekista

Pakista

Vietna

Philippine

Kazakhsta


14/19


RegionalOverview

South Asia Production Analysis

Long-Term Production Analysis

The landscape of Thailands automotive industry is transformingrapidly as the country attempts to diversify its base byintroducing eco cars, small fuel-efcient cars, and as a resultreducing its heavy dependence on one product champion, themid-size pickup. The launch of eco cars, a total of six projectsfrom OEMs, will help to accelerate small-car production growth;more than 50% of these small cars will be exported. Thailandis expected to produce nearly 2.15 million units by 2016, as theindustry will be positively affected by strong exports of eco carsand other subcompact cars; pickup exports will remain solid.

The transfer of smaller passenger car production from Japanand other markets to Thailand will affect the countrysproduction in the long term. The production transfer fromJapan to more cost-competitive Thailand is accelerating. Nissanwas the rst Japanese OEM to re-export the Nissan March toJapan, soon to be followed by Mitsubishi with the Global Small.All major OEMs have started to eye Thailand as a productionbase not only for mid-size pickups, but for smaller passengercars, as Thailand provides tax incentives and a competitivesupplier base. Despite the recent policy shift toward smallercars, CSM expects pickup production to continue to expand,as there will be strong demand coming mainly from emergingmarkets like the Middle East and South Asia and solid demandin the domestic market.

Indonesia will emerge as the second-biggest market inSoutheast Asia after Thailand in the long term, as Indonesiaseconomy is expected to see stronger growth compared to thelast four to ve years. Indonesia will strengthen its role as theregional hub for utility vehicles in the region as major OEMs likeDaihatsu and Nissan are planning to increase their productioncapacity, hoping to take advantage of the huge opportunityin a market with more than 230 million people. CSM expectsIndonesias light vehicle production to reach 920,000 unitsby 2016, securing second place behind Thailand in terms oftotal volume. Indonesia may add more production volume ifthe low-cost eco car under consideration by the Indonesiangovernment proves to be successful in attracting investmentsto new segments, including low-cost cars. The details of the

low-cost eco car policy, similar to the Thai eco car policy, areexpected to be announced by the government very soon.

India is likely to remain a small-car market in the long run. Thelaunch of new and comparatively advanced hatchbacks alongwith the tax cut for small cars will likely persuade customersto choose hatchbacks over equivalent sedans.

Beyond 2012, the leaders in the industry (Maruti Suzuki, Tataand Hyundai) will be under strong competitive pressure fromthe global majors, especially in the volume segments. Toyota,Honda, Volkswagen and Renault/Nissan will all launch newproducts that will be contemporary yet affordable for a largeportion of the Indian consumer base. With the global majorsmaking substantial investments in India, India is likely toemerge as a global center for small-car design, developmentand production. The emergence of a new segment of ultra-low-cost cars would further add to this cause. Production inIndia is expected to reach 4.6 million units in 2013 and nearly5.5 million units by 2016.

With a growing economy and very low car penetration, Pakistanis an attractive market for automakers, but the growingdomestic strife has taken a heavy toll on the industry. Due tothe countrys political atmosphere, potential capacity additionsfrom automakers might be diverted to other neighboringmarkets. Imports are expected to increase as automakersare likely to ship more cars to Pakistan from other SouthAsian countries like Thailand rather than risk investing in theuncertain conditions prevalent in the country. Annual productionis expected to reach 280,000 units by 2016, provided that thepolitical situation remains under control.

Beyond 2012, production is expected to show consistentgrowth in Australia. By 2016, annual production volume isexpected to reach 420,000 units. There will be such a lateimprovement because manufacturers current product line-upsare not in sync with consumer demand. OEMs are realigningtheir product mixes, but it will take a couple of years for this

to actually happen.

2.5

South Asia Long-Term Production by OEM2013-2016

2

1.5

s

2013 2014 2015 2016

1

Million

0.5

0

yota

zuki

eral

ors

Tata

ndai

san

nda

ord

ra&

ra

ishi

gen

ther

To

Su

Gen

Mo

Hyu

Renault/Ni

H

Mahind

Mahin

Mitsu

Volksw

O


15/19


Global Light Vehicle Sales Demand

2010

2013

2016

13.8

18.919.5

2010

2013

2016

4.55.6

6.5

2010

2013

2016

2010

2013

2016

2010

2013

2016

2

010

2

013

2

016

17.5

20.622.7

2010

2013

2016

2.22.7 3.1

5.87.6

9.1

14.3

18.521.3

6 .2 6 .2 6.2

Global Topline Volume

Volume in Millions

Global Topline Volume Analysis

In the rst half of 2010, global light vehiclesales were up by 17.6% at 33.2 million units.Except for Central/Eastern Europe and WesternEurope, which are essentially at (up 2.8%), allmajor markets are showing signicant growthand are underlining the global recovery trendthat was forecast for this year. Interestingly,Chinas year-over-year growth rates slowedsubstantially in the second quarter from the rstquarter of 2010. Growth in the second quarteronly registered a 26% uptick a distant memoryfrom the 69% growth in the rst quarter.

For the full year of 2010, CSM forecasts globalgrowth of about 8.7%, resulting in 64.4 millionunits. This shift in full-year prospects emanatesfrom revised assumption sets in Europe, Chinaand pockets of Southeast Asia.

Besides China, the NAFTA new car marketis forecast to become one of the global salesgrowth drivers in 2010. We expect to see a9.5% increase. This is mainly due to pent-upreplacement demand, the stabilization of theunemployment rate and sustainable gains inconsumer condence when the unemploymentrate recedes, personal nances improve andproperty values grow.

China will continue its extraordinary growthtrend from last year. The government incentivescheme has been extended throughout 2010 buthas been modied, driving lower adoption laterthis year. The current CSM forecast for Chinaresides at 14 million units, an increase of 24%from the previous year.

On the other hand, West Europe is forecast todecline in 2010. Germany in particular, whichlast year had the strongest sales since 1992, willpay the price for the signicant pull-ahead dueto the incentive schemes. Italy recently decidednot to extend their incentive. CSM forecasts atotal decrease of 5.5% for West Europe. Thisis a change from our 1Q 2010 setting of a 9%decrease.

The beginning of a signicant global revival willstart in 2011. Global sales of new light vehiclesare forecast to reach about 68.8 million units, a6.8% increase over 2010. This will nally bringthe global industry above 2007 demand levels.However, this growth will primarily come fromthe emerging markets. The mature markets willtake until 2014 or longer to recover from theglobal crisis.

Until the end of the forecast horizon in 2016, theglobal light vehicle sales market is expected togrow at a compound annual growth rate of 5.5%to reach 88.9 million units. This is a 1.5-million-unit increase over the rst-quarter forecast.South Asia and Greater China are the maincontributors to this long-term change.


16/19


RegionalOverview


Global Light Vehicle Sales by Region/Market

Global

Region Market 2009 2010 2011 2012 2013 2014 2015 2016

Europe

Central Europe 785,505 737,607 828,007 905,592 1,002,118 1,095,177 1,144,061 1,178,111

East Europe 2,456,879 2,710,911 2,942,196 3,166,613 3,623,499 4,095,041 4,550,250 4,912,757

West Europe 14,910,155 14,086,081 14,355,600 15,216,702 15,993,591 16,505,450 16,562,940 16,599,733

Europe Total 18,152,539 17,534,599 18,125,803 19,288,907 20,619,208 21,695,668 22,257,251 22,690,601

Greater China

China 11,309,361 14,002,512 15,124,113 16,654,099 18,215,534 19,215,494 19,981,541 20,961,600

Taiwan 271,858 306,550 305,248 307,757 327,131 334,354 331,872 327,286

Greater China Total 11,581,219 14,309,062 15,429,361 16,961,856 18,542,665 19,549,848 20,313,413 21,288,886

Japan/Korea

Japan 4,458,768 4,882,275 4,727,800 4,683,310 4,780,434 4,786,652 4,744,871 4,680,042

South Korea 1,411,126 1,363,834 1,368,672 1,388,463 1,429,184 1,450,130 1,481,578 1,499,705

Japan/Korea Total 5,869,894 6,246,109 6,096,472 6,071,773 6,209,618 6,236,782 6,226,449 6,179,747

Middle East/Africa

Africa 474,527 495,682 578,544 690,099 788,344 868,473 906,534 945,187

Middle East 1,668,432 1,740,798 1,806,690 1,892,977 1,953,451 2,001,071 2,076,005 2,140,456

Middle East/Africa Total 2,142,959 2,236,480 2,385,234 2,583,076 2,741,795 2,869,544 2,982,539 3,085,643

North America

NAFTA 12,608,330 13,831,848 15,606,998 17,689,790 18,903,001 19,527,785 19,995,654 20,059,446

North America Total 12,608,330 13,831,848 15,606,998 17,689,790 18,903,001 19,527,785 19,995,654 20,059,446

South America

Andean 613,784 723,717 808,488 883,703 959,685 1,024,323 1,077,956 1,131,437

Mercosul 3,532,585 3,746,749 3,919,434 4,263,206 4,657,018 4,767,602 5,004,910 5,366,176

South America Total 4,146,369 4,470,466 4,727,922 5,146,909 5,616,703 5,791,925 6,082,866 6,497,613

South Asia

ASEAN 1,685,353 2,122,711 2,273,169 2,452,301 2,590,890 2,746,111 2,912,138 3,098,963

Indian Subcontinent 2,191,845 2,714,522 3,113,633 3,513,081 3,861,071 4,158,166 4,441,556 4,701,677

Oceania 900,292 976,104 1,044,431 1,107,097 1,151,381 1,185,923 1,245,219 1,282,575

South Asia Total 4,777,490 5,813,337 6,431,233 7,072,479 7,603,342 8,090,200 8,598,913 9,083,215

Total Global Volume 59,278,800 64,441,901 68,803,023 74,814,790 80,236,332 83,761,752 86,457,085 88,885,151

Total Change % -4.3% 8.7% 6.8% 8.7% 7.2% 4.4% 3.2% 2.8%


17/19



Global Light Vehicle Regional Sales Sourcing by Production Region

Year EU GC JK MEA NA SA S

2003 90.0% 0.0% 7.8% 0.3% 1.1% 0.0% 0.

2010 87.4% 0.2% 7.6% 0.3% 1.8% 0.3% 2.

2016 85.2% 0.1% 9.7% 0.5% 1.6% 0.1% 2.

2003 1.6% 95.5% 2.7% 0.0% 0.2% 0.0% 0.

2010 1.8% 95.7% 1.7% 0.0% 0.8% 0.0% 0.

2016 1.2% 97.3% 1.1% 0.0% 0.4% 0.0% 0.

2003 3.2% 0.0% 95.7% 0.3% 0.6% 0.0% 0.

2010 3.1% 0.0% 95.7% 0.1% 0.4% 0.0% 0.

2016 4.1% 0.7% 93.6% 0.1% 0.4% 0.0% 1.

2003 1 1.3% 0 .0 % 3 .8 % 76.7% 1.1% 0.9% 5.

2010 1 5.9% 1 .8 % 9 .8 % 66.7% 2.3% 1.0% 2.

2016 2 6.5% 0 .8 % 14.9% 49.9% 1.2% 1.7% 5.

2003 6.0% 0 .0% 13.8% 0 .1 % 78.7% 1.3% 0.

2010 6.8% 0 .0% 19.3% 0 .4 % 72.3% 1.0% 0.

2016 7.4% 0 .0% 16.4% 0 .1 % 74.8% 1.0% 0.

2003 1.7% 0.0% 4.8% 0.0% 1.0% 88.8% 0.

2010 2.0% 1.2% 8.5% 0.0% 3.1% 81.8% 1.

2016 2.7% 1.6% 7.8% 0.0% 3.8% 80.7% 1.

2003 5.4% 0.7% 7.4% 0.9% 1.1% 1.1% 83

2010 2.7% 0.8% 6.1% 0.3% 0.4% 0.2% 89

2016 3.0% 0.4% 4.0% 0.7% 0.6% 0.0% 91

Production Region

SalesRegion

Europe

(EU)

Greater

China (GC)

Japan/

Korea (JK)

Middle

East/

Africa

(MEA)

NorthAmerica

(NA)

South

America

(SA)

South Asia

(SEA)

Coming out of the crisis, it becomes moreimportant than ever to monitor OEM logistics both short-haul and deep sea sourcing.Their signicance in the transformation of theautomotive industry has increased constantlyand will continue to dictate the productioninterrelationship over the next decade. Not onlydo logistics companies and suppliers have towatch developments and trends, competitorsalso have to monitor these actions for anypotential advantages. The global productionfootprint will determine these comparativeadvantages going forward.

From the supply side, the shift in key players in thefuture will increase the need for the adjustmentof logistic strategies. The industry faces fast-rising, emerging automotive economies withsignicant shifts in regards to market powersand consumer demand occurring throughout theforecast horizon. Therefore, going forward, newlogistics criteria need to be considered whenunderstanding the competitive landscape.

Several factors determine production sourcingfor vehicles sold in a region, such as currencyshifts; the competitiveness of domesticcapacity; the formation of high-volume scalewithin a growing region; and the reduction/escalation of tariff and non-tariff barriers (NTBs)shielding a country or region from global marketforces. Therefore, regions such as Europe willsee only minor growth of sourcing from outsidethe region instead there will be substantialshifts within Europe. These include the shift ofsourcing to lower-cost Central/Eastern Europefrom Western Europe in the case of several B-and C-segment offerings.

The presence of tariffs (and the prospects ofchanges to these FTAs and trade actions)will continue to protect several markets fromincreased penetration from outside productionsources. These include China (averaging 2-4%light vehicle import penetration through 2016),Japan/Korea (which has slowly risen to 5% andmay rise further to over 6% by 2016) and Europe(averaging 12-14% import penetration from2010 onwards). The economics of overcomingexisting tariffs will continue to serve as a barrierto increased import penetration in these regions.Only a major political or economic shift couldaffect this situation.

Several locations will face greater global sourcingintegration in the future. The rise of northernAfrica as a market and source (Morocco andEgypt) will drive increased integration. Similarly,the growth of the Brazilian market, the presenceof several trade agreements and the strengthof the Brazilian real will drive further increasesin import share in South America (approaching20% by 2016). Conversely, the growth ofmarkets such as India and the ASEAN countries(especially Thailand) will be fed from withinin the future as scale increases and capacityincreases are added to the region.


18/19


RegionalOverview

Regional Light Vehicle Sales Demand

South Asia

Sales by Country

Market Country 2009 2010 2011 2012 2013 2014 2015 2016 CAGR

ASEAN

Indonesia 424,686 657,731 720,499 780,752 834,323 919,306 1,008,649 1,100,765 9%

Malaysia 517,887 573,369 615,366 650,711 680,106 698,233 719,619 754,522 5%

Phillippines 130,100 152,460 156,032 159,564 167,490 173,398 176,589 184,911 3%

Thailand 531,342 654,803 691,280 763,652 804,039 841,995 884,485 926,313 6%

Vietnam 81,338 84,348 89,992 97,622 104,932 113,179 122,796 132,452 8%

ASEAN Total 1,685,353 2,122,711 2,273,169 2,452,301 2,590,890 2,746,111 2,912,138 3,098,963 7%

Change % -7.6% 26.0% 7.1% 7.9% 5.7% 6.0% 6.0% 6.4%

Indian Subcontinent

India 2,083,939 2,553,187 2,936,165 3,317,867 3,646,336 3,919,811 4,174,599 4,404,202 10%

Pakistan 107,906 161,335 177,468 195,214 214,735 238,355 266,957 297,475 11%

Indian Subcontinent Total 2,191,845 2,714,522 3,113,633 3,513,081 3,861,071 4,158,166 4,441,556 4,701,677 10%

Change % 17.1% 23.8% 14.7% 12.8% 9.9% 7.7% 6.8% 5.9%

Oceania

Australia 900,292 976,104 1,044,431 1,107,097 1,151,381 1,185,923 1,245,219 1,282,575 5%

Oceania Total 900,292 976,104 1,044,431 1,107,097 1,151,381 1,185,923 1,245,219 1,282,575 5%

Change % -9.3% 8.4% 7.0% 6.0% 4.0% 3.0% 5.0% 3.0%

South Asia Total 4,777,490 5,813,337 6,431,233 7,072,479 7,603,342 8,090,200 8,598,913 9,083,215 8%

Total Change % 1.9% 21.7% 10.6% 10.0% 7.5% 6.4% 6.3% 5.6%

Regional Overview

South Asia Regional Analysis

Light vehicle sales in India grew by more than35% in June compared with the same period lastyear. This tremendous growth was possible dueto the Indian economys rapid recovery fromthe global recession, which led to improvedconsumer condence. In the long term, India

has huge potential, as its car penetration is stillvery low at 10 cars per 1,000 people. Variousmanufacturers are developing low-cost cars totap into the segment of rst-time buyers. Salesare expected to exceed 4.3 million units by 2016,with a large part of this share coming from themini and compact car segments.

Light vehicle sales cooled down in June 2010in Australia after double-digit growth in therst ve months of the year. New vehicle salesgrew by 5% in June year-over-year (y-o-y) andreached 105,268 units versus 99,439 unitsin the same month last year. The continuityin month-over-month growth indicates thatconsumer condence is improving. Towards the

end of the rst half of the year, we saw moresales emerging from the private buyer segmentinstead of from business buyers.

The ASEAN automobile market remained stablein June, as all the individual markets saw stronggrowth. The region grew by 42.3% y-o-y;Indonesia had the highest growth rate of 70%,followed by Thailand at 52%. The boomingeconomy and favorable nancing conditions,along with signicant promotional incentives,are the main factors that constantly attractconsumers to this market.

In the short term, we remain optimistic andexpect to continue to see positive factorsoutweigh negative factors. The overall salesmomentum is also expected to continue during2010 and 2011. The increase in popularity ofsmall passenger cars will undoubtedly force

OEMs to strengthen their competitive strategiesin the subcompact segment.

Although the Thai automotive market is nowin its so-called slow season, the marketcontinued to grow for the 10th consecutivemonth in June 2010, a growth of 57% comparedto the same period last year. Favorable businessconditions, stable oil prices, the gradual increaseof consumer condence and the introduction ofnew and revamped passenger car models allcontributed to this impressive growth.

The Thai market is expected to continue todraw an average of 50,000 sales per month,assuming that the political situation remainsstable. In the short term, consumer condenceand spending will be directly linked to thepolitical situation, and if the implementationof the national reconciliation plan fails, theeconomy and light vehicle sales would plummet.The strong possibility of a new election duringearly 2011 could undermine the industrysfull growth potential yet again as the politicaltension is brought back into the limelight. Inthe long term, Thailand is expected to regain itsoverall economic momentum and witness rapidmarket expansion in both the passenger andlight commercial vehicle segments.


19/19

Commodities Overview

Commodity Price Watch, June 2010 1Q 2008 2Q 2008 3Q 2008 4Q 2008 1Q 2009 2Q 2009 3Q 2009 4Q 2009 1Q 2010 2Q 2010 3Q 2010 4Q 2010 1Q 2011 2Q 2011 3Q 2011 4Q 2011

Forecast

Change

2010

Fore

Cha

201

Energy Prices

Natural Gas, Henry Hub, $/mBTU 8.43 11.23 9.22 6.38 4.56 3.70 3.14 4.22 5.15 3.85 3.30 3.54 3.86 3.69 3.48 3.95

Crude Oil, WTI, $/barrel 97.87 123.78 118.25 59.15 43.19 59.71 68.14 76.03 78.80 75.77 69.91 75.08 79.58 81.25 84.09 85.76

Average Price of Gasol ine, cents/gallon 316.20 380.63 390.97 239.17 193.90 236.73 263.23 266.43 277.23 297.10 290.58 284.29 283.22 324.81 312.44 301.08

Global Insight Estimated Prices, cents/lb

Ethylene 60.5 66.3 68.0 39.2 31.5 31.5 32.3 40.5 52.3 46.0 41.0 44.0 47.0 49.0 51.0 53.0

High Density Polyethylene 94.3 95.3 87.7 54.7 49.7 54.0 57.0 61.0 72.3 72.0 60.0 63.0 65.5 66.5 68.0 69.0

Propylene 61.2 69.7 78.3 36.7 26.3 33.5 47.7 50.2 63.0 65.0 55.0 57.5 59.5 61.0 62.0 63.0

Polypropylene 98.0 100.7 90.7 49.7 44.0 51.3 66.7 69.3 82.3 84.3 74.0 76.8 78.8 80.3 81.3 82.3

Steel Spot Prices, $/short ton

Heavy Melt Scrap, $/long ton 336 494 428 156 184 170 240 237 280 341 271 212 216 232 249 258

# 1 Busheling Scrap, $/long ton 402 648 786 235 229 199 307 308 413 422 339 259 291 281 298 312

Hot-rolled Sheet 661 974 1033 702 493 397 480 514 594 673 649 597 546 525 563 606

Cold-rolled Sheet 739 1058 1122 803 586 482 570 612 701 785 735 673 630 620 657 694

Galvanized Sheet 763 1130 1203 881 658 564 588 621 730 840 778 703 670 665 710 760

Merchant Bar 742 921 1013 918 820 695 717 700 715 770 742 661 603 584 611 624

Rebar 652 848 961 687 531 468 510 481 542 606 599 563 550 559 569 575

Special Quality Bar 956 1292 1373 977 822 766 816 751 759 871 865 832 769 751 773 797

Coiled Plate 782 1022 1182 1032 778 526 537 552 583 697 666 636 642 694 740 800

Discrete Plate 845 1160 1388 1215 858 626 616 622 671 797 739 711 704 747 773 823

Structurals 822 978 1094 949 823 710 645 645 701 738 727 669 651 677 691 700

Wire Rod 686 924 1019 868 642 487 528 561 632 670 683 665 586 557 576 593

Stainless Sheet, grade 304 4,125 4,365 4,158 3,589 2,452 2,087 2,265 2,514 2,706 2,941 3,164 3,153 3,243 3,486 3,429 3,591

LME Prices, $/metric ton

Aluminum 2,742 2,940 2,787 1,821 1,359 1,485 1,812 2,003 2,163 2,167 2,005 2,003 2,068 2,100 2,130 2,169

Copper 7,795 8,442 7,678 3,904 3,428 4,662 5,858 6,649 7,232 7,188 6,524 6,404 6,536 6,626 6,764 6,964

Nickel 28,948 25,675 18,954 10,838 10,466 12,914 17,694 17,546 19,953 23,525 21,220 22,184 24,631 24,846 23,671 24,214

Zinc 2,429 2,113 1,770 1,185 1,172 1,473 1,761 2,215 2,288 1,922 1,824 1,826 1,896 1,969 2,057 2,160

* Up and down arrow signals if the price forecast is more than 5% higher or lower than the Mayforecast

The continuation of the Eurozone sovereign debt crisis and the outlook for the pace of future Chinese growthcontinue to command the focus of investors, as greater uncertainty regarding the sustainability of the recoverysparks fear and increased risk aversion. Acknowledgement of the headwinds facing the recovery has letcommodity prices fall more in line with weak fundamentals and will atten the trend of commodity price growthmoving forward.

Ongoing trouble in the European region has weakened the outlook for future growth and as a result the eurohas fallen, at times reaching its lowest level against the dollar in four years. We expect the dollar to continueto gain against the euro, which will help dampen prices for US dollar-denominated commodities.

The market is watching the effects of Chinese policy tightening closely, as effects of a signicant slowdown inthe Chinese economy, which has led the global recovery thus far, would no doubt reverberate around the world.Chinese demand for commodities has been strong, and losing this essential support would have signicanteffects. Recent data, however, suggests only a moderate slowdown in the pace of Chinas economy.

Manufacturers have felt signicant pressure as rising raw material costs over the past year were not matchedby a proportional improvement in demand, which made it very difcult for them to pass those cost increasesthrough. Lower commodity prices should begin to relieve the cost pressure facing manufacturers.

Commodities Overview

south asia engine and transmission overview 3q 2010 - report

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