Economics@ANZ ANZ International Economics Monthly...Economics@ANZ ANZ International Economics...

Inside:

Main article...............................1

Financial Markets Update............7

FX and Policy Rate Forecasts.......9

Macro Economic Forecasts ........10

LT FC Govt. Bond Ratings .........11

Country Updates .....................12

Authors:

Amy Auster Head of International Economics +61 3 9273 5417 [email protected]

Katie Dean Senior Economist, International +61 3 9273 5466 [email protected]

Jasmine Robinson Senior Economist, International +61 3 9273 6289 [email protected]

Dr. Alex Joiner Economist, International +61 3 9273 6123 [email protected]

Paul Braddick Head of Financial System Analysis +61 3 9273 5987 [email protected]

Mark Rodrigues Senior Economist, Australia +61 3 9273 6286 [email protected]

Sean Comber Economist, New Zealand +64 4 802 2286 [email protected]

February 2007

ANZ International Economics Monthly

Philippines : momentum strong into the May elections

Economics@ANZ

In January, Economics@ANZ conducted a research trip to the Philippines to meet with local government officials, economic experts and independent observers. General themes were as follows:

• The Philippines is shaking off its tag as the ‘underperformer’ of Asia. The economy is performing well and macroeconomic prospects are solid. After years of no progress, important economic reforms have been achieved and momentum for further reform remains strong.

• The congressional elections, due in May 2007, dominate the local business environment and remain critical to the economic outlook.

• The government has made good progress in fiscal consolidation but further reform is crucial to ensure fiscal sustainability and continued ratings upgrades. The privatisation and deregulation program is also making good progress.

• The credibility of the Bangko Sentral Philippines (BSP) in fighting inflation is well-entrenched. High capital inflows and liquidity growth, in part stemming from overseas workers remittances, remain of concern to the BSP. Authorities are committed to continued financial market liberalization. Recent reforms of the USD/PHP trading regulations are important steps.

• A rotation in the sources of economic growth, from consumption to investment, is crucial for the Philippines medium-term prospects. A lift in investment will push up the Philippines potential growth rate from 5-6% to 6-7% range. Reform of the agricultural sector and lowering the costs of doing business will be crucial to promoting investment growth.

Philippines: macroeconomic and currency forecasts

2006e 2007f 2008f 2009f

Real GDP growth (% ch) 5.4 6.0 5.0 4.5

Inflation (%, yr avg) 6.3 4.0 5.0 4.0

Fiscal Bal (% GDP) -4.9 -6.0 -4.0 -4.0

Current acc. (% GDP) 5.0 4.0 5.0 4.5

FX reserves (US$ bn) 22.3 23.0 24.0 24.5

BSP rate (% pa, end-period) 7.50 7.00 7.50 7.25

Currency Forecasts (end-period) Mar 07 Jun 07 Dec 07 Dec-08

USD/PHP 48.50 48.00 47.00 52.00

AUD/PHP 37.35 36.50 34.30 35.40

EUR/PHP 64.00 62.40 60.60 62.90

100JPY/PHP 40.40 41.00 42.70 47.30

CNY/PHP 6.29 6.30 6.30 7.10

SGD/PHP 31.90 31.60 31.30 35.40

Sources: Bloomberg, Datastream, Economics@ANZ

Economics@ANZ ANZ International Economics Monthly – February 2007

Shaking off the underperformer tag

The Philippines economy expanded by a solid 5.4% in real terms in 2006, which is above its average growth rate of the last five years of 4.7%. A strong performance by the consumer sector, which remains the mainstay of the Philippines economy, was the primary driver of growth, with exports also performing well. This helped to offset another year of poor investment performance, with spending in this sector essentially flat in the year. Inflation meanwhile has declined sharply, largely due to lower oil and food prices and the appreciating peso. Headline inflation is now running at a 3.9% yearly pace, the lowest rate in three years.

Macroeconomic stability has become fairly well entrenched. The Bangko Sentral Philippines (BSP) is ahead of many central banks in Asia as a committed and credible inflation targeter and, as we will discuss later in this piece, continues to pursue reforms to liberalise the foreign exchange market and deepen capital markets. The government is making strides in fiscal policy and has set a goal of achieving a balanced budget by 2008. The government is also making good inroads in repaying debt, although at 183% of GDP, this debt burden remains high.

Financial markets certainly approve of these developments. Government bond yields have fallen to record lows in recent months and the Philippines currency and stock market have both been amongst the top performers in South East Asia in the last year. That said, the very high government debt burden together with continued low rates of investment suggest that, despite rumours to the contrary, a ratings upgrade for the Philippines is unlikely in 2007.

Financial markets like the good news

90

95

100

105

110

115

120

Jan-06 Apr-06 Jul-06 Oct-06 Jan-07

Index, 3 Jan 05 = 100, USD per unit of local currency PHP

THB

MYR

IDR

Exchange rates

Sources: Bloomberg, Datastream, Economics@ANZ

Share markets, indexed

70

120

170

220

270

320

Oct-05

Jan-06

Apr-06

Jul-06 Oct-06

Feb-07

Index, 1 Jan 05 = 100

Php

Sing

Indonesia

Thailand

Mly

Promising outlook for 2007

The Philippines economy owes its recent upswing to the buoyant global economy and its vastly improved fiscal position. As well as directly boosting exports of goods, strong global economic growth provides a crucial boost to the Philippines major export, its labour. Local household incomes and spending benefit from the global boom through the repatriation of overseas workers remittances (OFW).

With demand for workers in traditional ‘destination’ regions, such as the Middle East, North America and even Australia strong, remittances from Filipinos working overseas soared to a record US$12.8bn in 2006. As a result, gross national income is rising at a faster pace than gross domestic product. In a strong global economy, the Philippines receive a similar boost to national wealth from its overseas workers as would a commodity exporting nation from booming resource prices. To think of it another way, while Australia has coal, the Philippines has labour.

Overseas remittances boost national income

Economic growth Overseas workers remittances to the Philippines

4

5

6

7

8

9

10

11

12

13

14

01 02 03 04 05 06

US$bn (12mma)

Source: Bloomberg, Datastream, Economics@ANZ

0

1

2

3

4

5

6

7

8

9

00 01 02 03 04 05 06

% yearly change

GNP

GDP

When looking at the improvement in the Philippines economy the significance of recent government reforms cannot be overstated. After an extended period of policy drift, a number of important milestones have been achieved in the past few years. A major adjustment of the consolidated public sector deficit was achieved in 2005, largely through tight controls on government spending and a marked turnaround in the finances of the National Power Corporation. In addition, the increase in the VAT rate in February 2006 has resulted in a permanent broadening of the government’s revenue base. The implementation of these reforms mark a crucial turning point in ensuring the Philippines’ longer-term fiscal sustainability These measures met an extended period of resistance and their implementation also sends a strong positive signal that the government can implement tough policy measures to serve the greater good.

The outlook for the Philippines economy in 2007 is promising. With global growth expected to remain above trend, albeit at a slower pace than 2006, the external environment should continue to support both exports and remittances. Consumer spending should also benefit from recent improvements in the labour market, which has seen the unemployment rate drop to 7.3%, the lowest level in over 15 years. There are also tentative signs that business spending is picking up, as evidenced by recent sustained demand for office space in Manila.

The Philippines economy will also almost certainly receive a boost from fiscal policy as government spending increases ahead of the congressional election in May. This will likely be a fairly significant


increase in spending, as government expenditure in 2006 was held to 2005 levels after political tensions prevented the passing of the 2006 budget.

Together, these factors should see economic growth accelerate to around 6.0% in 2007. If achieved, this will be the strongest performance in three years. Solid macroeconomic prospects and continued strong overseas remittances should in turn support a continued appreciation in the peso to 47.0 against the US dollar by the end-2007 from USD/PHP48.7 currently.

Price pressures are expected to remain well contained, with the BSP forecasting annual headline inflation to remain within its target of 4.0-5.0% in 2007. While headline inflation eased to 3.9% in the year to January, there appears to be more upside than downside risks to the inflation outlook in the coming period. These upside risks include a recent rebound in oil prices, a surge in M3 growth to 22% YOY, largely from OFW, and the likely fiscal boost to the economy from pre-election government spending. In this environment, we expect the BSP will keep interest rates unchanged until at least after the May election. We expect the BSP will have more scope to cut interest rates in the second half of the year, particularly if the Fed cuts US rates, and are pencilling in two 25 bps cuts before the end of 2007.

High liquidity a risk to the inflation outlook

0

5

10

15

20

25

05 06 07

% yearly change

M3 growth Inflation

0

1

2

3

4

5

6

7

8

9

10

04 05 06 07

% yearly change

Core

Headline

Source: Bloomberg, Datastream, Economics@ANZ

While not affecting our outlook for monetary policy, it should also be noted that the BSP is currently reviewing its inflation target and may move to a point estimate, most likely of around 4%. The BSP is also considering shifting its inflation target from the headline to the core measure, with sharp moves in food and oil prices often making readings of the headline inflation results difficult.

Another reason to be upbeat about the outlook is that the Philippines economy is the best placed it has been in a long time to weather any economic shocks, either internal or external. While government debt levels remain high, the Philippines vulnerability to unexpected turns in investor sentiment have improved considerably in recent years, with foreign reserve levels and the current account surplus rising considerably. Meanwhile on the domestic side, inflation is easing due to fiscal

restraint and this gives the BSP scope to cut interest rates if local demand starts to ail. Moreover, the Philippines is a little less vulnerable to any rebound in oil prices as overseas remittances, a large portion of which come from the Middle East, provide a natural hedge to Philippines’ incomes.

External vulnerabilities have fallen

-250

-200

-150

-100

-50

0

99 00 01 02 03 04 05 06

PHP bn (12mma)

Budget balance International reserves

0

5

10

15

20

25

99 00 01 02 03 04 05 06 07

US$ bn

Source: Bloomberg, Economics@ANZ

Nevertheless, there are risks to this generally positive outlook. A sharper than expected slowdown in the global economy would clearly damage the economy with the Philippines particularly vulnerable to any unexpected deterioration in its major export destination, the United States. With the agricultural sector accounting for around 20% of economic activity, and a much larger share of employment, unfavourable weather patterns are a constant risk to the growth outlook. The risks to the inflation outlook meanwhile look skewed to the upside. Along with any unexpected upticks in oil or food prices, a sharper-than-expected increase in wages is the major price uncertainty going forward.

Political risk remains

The upcoming mid-term legislative poll in May also clouds the short-term outlook. President Gloria Macapagal Arroyo has had a tumultuous year which has included a coup attempt, impeachment bids, allegations of vote-rigging and an inability to pass the 2006 government budget. There has also been increasing public discontent over the President’s recent performance following her failed attempt in late-2006 to introduce constitutional reform. This proposal, to move from the current presidential to a parliamentary system, was regarded by some as a veiled attempt to by-pass the current constitutional limits and extend Presidential power and tenure. In the event, debate around constitutional reform has distracted Parliament away from other pressing issues.

Another important issue, perhaps related to the ‘capture’ of politicians by interest groups, is the rising rate of income equality in the Philippines. Public discontent is growing over the perception that the current expansion is benefiting the elite at the expense of the poor. The traditional importance of ‘people power’ in the Philippines democracy suggests this is an issue that governments must


confront with some urgency. For international investors, it will be crucial that the government tackles these issues without abandoning its commitment to economic reform and liberalisation.

The ramifications of the upcoming poll therefore remain uncertain. The political elite is strongly divided and there is a lack of cohesion among the major parties. While most expect President Macapagal Arroyo to retain power, a significant loss of government seats would re-open the possibility of impeachment proceedings. Moreover, if poll proceedings appear tainted, mass public demonstrations are likely. Either way, disruptions to certainty and possibly actual economic activity look likely.

Elections have traditionally proved a hurdle for the Philippines economy and the upcoming poll will provide an important litmus test. Substantial improvements in the economy’s ‘fundamentals’ suggest the Philippines should weather this year’s elections in good shape. Importantly for longer-term prospects, there also appears to be some consensus amongst most political candidates to support the independence of the BSP, as well as the reform mandate around fiscal responsibility. However, multiple instances of government change outside of the electoral process have set a concerning precedence. As such, uncertainty over all of these issues remains.

Government faces longer-term challenges

Even if the election process proves smooth, larger and longer-term issues do remain at stake. Despite talks of fiscal prudence, the upcoming poll will be accompanied by a rise in public spending. Unfortunately, history suggests that these funds will be directed towards the projects that offer the best short-term political gains, rather than projects that will provide long-term benefits, such as investment in much-needed infrastructure. A decision-making process for public spending and regulation that is transparent and free, or at least less affected, by interest-groups is a challenge that the Philippines government must address in order to ensure the longer-term sustainability of the economic recovery.

The longer-term issue of fiscal sustainability also remains crucial. While the government is making good progress in containing expenditure growth, sustaining a strong fiscal position is also dependent on raising the revenue effort. While tax revenues have increased a little, from 14% of GDP in 2005 to an estimated 16% in 2006 following the successful increase in the value-added tax rate, more efforts are required. Tax incentives, which are currently extremely widespread and easy to access, must be rationalised. Tax collection methods also need to be made more efficient and the pursuit of tax evaders needs to be re-energised. If successful, such reforms should in turn allow the government to reduce the current high personal income and company tax rates, which at present not only

prompt widespread evasion but also act as a considerable disincentive on investment and growth.

Financial market reform continuing

While a multitude of policy challenges persist, one area where reform is making good progress is in financial markets. As with most of emerging Asia, strong local prospects and high levels of global liquidity are driving high levels of capital inflows into the Philippines. Regulations, imposed after the 1997 Asian crisis to limit capital outflows, have constrained the ability of the local financial market to deal effectively with current strong inflows, putting pressure on the peso to appreciate. While some neighbours, such as Thailand, have chosen to deal with this tension by imposing capital controls, the Philippines is demonstrating a commitment to instead step up financial market liberalisation.

Having recently completed a technical assistance program with the IMF on capital market development, the BSP has taken the first steps in liberalising the foreign exchange market and announced new rules on USD/PHP trading. These new regulations, which will take effect on April 2, increase the amount of US dollars that Philippine banks are allowed to hold overnight, so-called US dollar overbought positions, to 20% of unimpaired capital, or US$50mn, whichever is lower.

This liberalisation has occurred in conjunction with the introduction of a cap, to the same magnitudes, on the amount of US dollars that local banks can sell against the peso, so-called oversold positions. Previously, Philippine banks were allowed to buy or hold US dollars equivalent to 2.5% of unimpaired capital, with no limits on the amount of US dollars that could be sold against the peso.

The aim of these reforms is to provide banks with more flexibility to increase their foreign exchange holdings. The restoration of the oversold limit meanwhile aims to discourage banks’ having an excessive exposure to foreign exchange risks. It is intended that these reforms will help alleviate the current build-up of US dollar sales in the local market, a factor contributing to peso appreciation.

Further liberalization of the foreign exchange market is expected soon. For example, there is speculation that the BSP will relax current restrictions on the selling of foreign exchange to undocumented buyers. This would help revive the local foreign exchange market, which is essentially dormant under the current restrictions. In an attempt to stimulate increased participation in local financial markets, the BSP is also keen to encourage the development of more derivatives products in both foreign exchange and interest rate markets and may lift the moratorium in granting derivatives licenses to banks.

There is also a commitment to continue the development of the local market as a source of funding for government debt. Progress is being made in this area with the government’s issuance


program benchmark set at around 70% local currency debt and 30% foreign currency debt. These efforts should all act to deepen and increase liquidity in domestic capital markets. As well as increasing efficiency, this will allow increased access to funding amongst the Philippines small and medium-sized businesses, an important impetus to economic growth. Moreover, it should also provide opportunities for greater levels of foreign participation in 2007.

Investment now the key

Progress with these reforms will be crucial in allowing the Philippines economy to tackle its next major challenge – improving investment. While investment has traditionally been less important in the Philippines’ consumer-driven economy, the contrast between these sectors has become increasingly marked in recent times. While investment has steadily increased through the decades in Asia’s high-growing economies – India, China and Vietnam – the investment share in the Philippines in contrast has been declining. At under 15% of GDP, the investment share is now at its lowest level in more than 30 years. With business lending rates still dormant, despite ample domestic liquidity and relatively low interest rates, authorities are understandably concerned about this ‘creditless recovery’. There is also a growing fear that the increased ‘brain drain’ of skilled workers moving overseas is also contributing to some ‘hollowing out’ of local industry and in particular manufacturing.

Investment in the Philippines lags the region

0

5

10

15

20

25

30

35

40

45

1970s 1980s 1990-98 1999-04

Philippines Indonesia

Vietnam India

China

% of GDP

Gross fixed investment share of GDP

Source: UN Statistical Database

Liberalising financial markets and improving local governance and accountability should go some way to creating a better business climate in the Philippines. However, there are a number of policies in other areas that could yield success in a shorter time frame than these ‘big’ issues.

Strengthening the banking sector for example must remain a priority. Despite ongoing reform, the local banking sector is still fragmented, lacking capital and under-provisioned. While improving profitability, as well as a special purpose vehicle to eliminate bad debts, has allowed non-performing loan ratios to fall, they remain at a high level. Authorities recognise that the payback from repairing banks’ balance sheets should be a boost to lending and

investment spending. As such, continued efforts to promote consolidation, improve banking supervision and strengthen the regulatory environment, especially risk management, remain ongoing.

The government can also make further strides in promoting higher levels of investment in the agricultural sector. There appears to be a consensus that reform efforts over the last 10-15 years have been ineffective. A key factor to be addressed is accelerating the transfer of land ownership away from the rural elite as around 70% of farm workers are still landless. Increasing public (and private) spending on agricultural infrastructure, such as irrigation, meanwhile would both boost productivity and help insulate this sector to the whims of the weather. With investment in agriculture barely tapped, reform of this sector should pay considerable dividends to economic growth.

Non-performing loans improving, but still high

-4

-2

0

2

4

6

8

10

00 01 02 03 04 05 06

% yearly change (3mma)

Total bank loans


NPR ratio

0

2

4

6

8

10

12

14

16

18

20

00 01 02 03 04 05 06

%

Ongoing privatisation and deregulation of state-owned enterprises and assets should also promote greater efficiency and higher rates of investment. It is pleasing to see continued progress in the much-delayed sale of power sector assets with the sale of the National Power Corporation’s transmission assets (Transco) expected to be finalised in 2007. The government has also plans to dispose of a 46% stake in the Philippines Telecommunications Investment Corporation this year.

These are just three of the many policy challenges the government currently faces. A boost to the rate of investment will allow the Philippines to improve on its current potential growth rate, of around 5-6%, and move to a new higher plain, or around 6-7%. With political developments dominating the short-term outlook, this economy’s longer-term prospects hinge on the continuation of a bi-partisan approach to pursuing reform.

Katie Dean Senior Economist - International Email: [email protected] Ph: +61 3 9273 5466

Amy Auster Head of International Economics Email: [email protected] Ph: +61 3 9273 5417


Financial Markets Update

Exchange rates, US$ per local currency unit, indexed

80

85

90

95

100

105

110

115

Jul-06 Sep-06 Nov-06 Jan-07

03 Jan 2005 = 100

Korea

Australia

Japan

China

New Zealand

Taiwan

97.5

102.5

107.5

112.5

117.5

Jul-06 Sep-06 Nov-06 Jan-07

03 Jan 2005 = 100

Indonesia

Singapore

Thailand(onshore rate)

Philippines

Malaysia

Vietnam

Exchange rates

• Asian exchange rates weakened significantly at the end of February as the correction in the Chinese equity market led to a regional sell-off. The worst hit were the Australian and New Zealand dollars which fell by 0.7% and 1.0% respectively overnight, weighed down further by the unwinding of carry trades. We expect currency strength to resume, unless there is a permanent rise in risk aversion arising from a US equity market correction. The yen strengthened from USD/JPY121 to USD/JPY117 on 27 February as risk aversion rose and carry trades were unwound, including by Japanese retail investors. The NZ$ sold off markedly as a result.

• The Philippines government announced a series of reforms to the FX market that removed restrictions put into place in the wake of the 1997 Asian financial crisis. Since the controls were put into place to stem capital outflows, these controls have recently encouraged peso appreciation. Their removal represents a positive liberalisation of the local FX market and should allow for a slower pace of peso appreciation.

• Thailand’s onshore and offshore markets now trade with a significant wedge.

90

95

100

105

110

115

120

125

130

135

140

Jun-05 Dec-05 Jun-06 Dec-06

Jan 2003=100

NZ

Australia

Korea

Japan

China

Taiwan

Real exchange rates, US$ per local currency unit, indexed

95

105

115

125

Jun-05 Dec-05 Jun-06 Dec-06

Jan 2003=100

Indonesia

Thailand

Philippines

Malaysia

Singapore

Real Exchange rates • Real exchange rates continue to appreciate rapidly in SE

Asia, as nominal currency appreciation has outpaced falling inflation. The Malaysian ringgit continues to appreciate at a faster rate than the Chinese RMB; Singapore’s real exchange rate appreciation has accelerated as inflation is falling away.

• The real exchange rates in Japan and Taiwan continue to gain competitiveness against regional trading partners, as low inflation leads to low interest rates and continue to make these attractive funding currencies for carry trades.

• Until the February sell-off, New Zealand’s real exchange rate was appreciating at a faster rate than that of Australia as the NZ$ was appreciating amid speculation that the RBNZ may again raise policy interest rates in March.

Policy rates

0

1

2

3

4

5

6

7

8

9

10

Jun-06 Sep-06 Dec-06

Korea

Taiwan

%

US

Australia

New Zealand

Japan

China

0

2

4

6

8

10

12

14

Jun-06 Sep-06 Dec-06

Thailand

Malaysia

Philippines

%

Singapore

Indonesia

Policy rates • The Bank of Japan raised its overnight benchmark rate in

February, to 0.5%, following stronger-than-expected Q4 2006 GDP data. The yen rallied temporarily but then weakened again as most observers believe BOJ will remain on hold until after the July elections.

• The Bank of Thailand cut its one-day bond repurchase rate to 4.5% in February. This is the second 25 bps cut this year with authorities keen to boost the economy amidst slowing exports and investment.

• March will see key rate decisions by the RBNZ, where we expect a 25 bps hike.

• Bank Indonesia announced that it will move to adopt an overnight policy rate target, aligning its approach to monetary policy with international best practice. We believe this will improve the ability of BI to smoothly conduct open market operations.


Government Bond Index

1

2

3

4

5

6

7

8

9

Jun-06 Sep-06 Jan-07

Hong Kong

Yield (on traded index)

Australia

New Zealand

China

Japan

India

Korea

1

3

5

7

9

11

13

15


Indonesia

Thailand

Yield (on traded index)

Philippines

Malaysia

Singapore

Source: JPMorgan

Philippines’ index is the 10-year bond yield as there is no GBI index.

Bond markets

• The New Zealand and Australian bond markets remain tight, buoyed by low inflation and strong offshore interest. NZ’s premium to Australian bonds has risen slightly amid expectations that the RBNZ will raise rates in March.

• Bond yields in SE Asia continue to decline amid falling inflation and, in the case of Indonesia and the Philippines, falling levels of government debt. After rising sharply in the aftermath of the 2006 coup, Thailand’s bond yields are again drifting lower.

• Hong Kong’s bond index has gapped up, despite the continued decline of short-term interest rates in the territory. Our Early Warning Index for Hong Kong is also drifting upward due to the consistent depreciation of the real exchange rate.

• India’s government bond yields are also rising steadily on the back of rising inflation expectations.

50

100

150

200

250

300

350

400


Gold

Copper

Oil (Tapis)

Jan 2004=100

Commodity Prices

0

50

100

150

200

250

300

350


Sugar

Jan 2004=100

Palm Oil

Coffee

Source: Datastream

Commodities

• After drifting downward in December and January, commodity prices resumed their upward trend in February as a spate of unseasonably warm weather in the Northern Hemisphere ended. Oil prices again rose above US$60/bbl for WTI, leading prices for most primary energies higher.

• Gold prices also moved strongly upward, again reaching the vicinity of US$600/oz. Gold prices are increasingly correlated with rising oil prices; a weaker US$ is also supporting gold.

• Wool prices have started to rise rapidly, hitting A$9.11/kg. Increased demand for natural fibres is thought to be primarily responsible for the trend, as global supply has not been substantially affected by Australia’s drought.

• Base metal prices have continued to rally, with copper reaching US$6,194/t and nickel up 36% year to date.

Share price indices

100

120

140

160

180

200

220

Jun-06 Aug-06 Oct-06 Dec-06 Feb-07

1 Jan 2004 = 100

Japan

Korea

Taiwan

China

Hong Kong

75

100

125

150

175

200

225

250

275


1 Jan 2004 = 100

Singapore

Malaysia

Indonesia

Philippines

Thailand

India

Source: Datastream

Equity markets

• Equity markets were the big movers in February after the Shanghai stock exchange dropped nearly 10% on 27 February, leading to a global equity market sell-off. The Shanghai surprise was caused by rumours that the government would look to stem gains as the market has doubled in value since September 2006.

• Concerns about rapidly rising equity markets is prevalent throughout Asia. Rumours also surfaced in other local markets that cooling measures may be considered.

• According to reports, the Chinese government may seek to discourage Chinese companies from listing offshore in Hong Kong, in order to improve retail distribution within China. If so, the Hang Seng may be negatively affected.


Foreign Exchange and Policy Rate Forecasts Feb 07 Mar 07 Jun 07 Sep 07 Dec 07 Mar 08 Jun 08

China

USD/CNY, eop 7.74 7.71 7.62 7.53 7.45 7.43 7.40

AUD/CNY, eop 5.92 5.94 5.79 5.65 5.44 5.35 5.25

One year base lending rate 6.12 6.12 6.12 6.12 5.85 5.85 5.85

Hong Kong USD/HKD, eop 7.80 7.80 7.79 7.78 7.74 7.74 7.75

AUD/HKD, eop 5.97 6.01 5.92 5.84 5.65 5.57 5.50

HKMA discount rate 6.75 6.75 6.50 6.00 5.75 5.75 5.75

India

USD/INR, eop 44.0 43.9 43.5 43.0 42.8 42.4 42.1

AUD/INR, eop 33.7 33.8 33.1 32.3 31.2 30.6 29.9

Repo rate 7.50 7.50 7.75 7.75 7.75 7.75 7.75

Indonesia

USD/IDR, eop 9,028 8,950 8,750 8,500 8,300 8,350 8,400

AUD/IDR, eop 6,905 6,892 6,650 6,375 6,059 6,012 5,964

BI rate 9.25 9.00 8.75 8.50 8.00 8.00 8.00

Korea

USD/KRW, eop 939 930 925 920 910 907 911

AUD/KRW, eop 718 716 703 690 664 653 647

Overnight call rate 4.50 4.50 4.50 4.50 4.50 4.25 4.25

Malaysia

USD/MYR, eop 3.49 3.48 3.45 3.43 3.40 3.39 3.38

AUD/MYR, eop 2.67 2.68 2.62 2.57 2.48 2.44 2.40

Overnight policy rate 3.50 3.50 3.25 3.25 3.25 3.00 3.00

Philippines

USD/PHP, eop 48.7 48.5 48.0 47.5 47.0 48.3 49.5

AUD/PHP, eop 37.2 37.3 36.5 35.6 34.3 34.7 35.1

Overnight Reverse Repo rate 7.50 7.50 7.25 7.00 7.00 7.00 7.00

Singapore

USD/SGD, eop 1.53 1.52 1.52 1.51 1.50 1.49 1.49

AUD/SGD, eop 1.17 1.17 1.16 1.13 1.10 1.07 1.05

3-month interbank rate 3.40 3.40 3.35 3.35 3.30 3.30 3.30

Taiwan

USD/TWD, eop 32.8 32.7 32.4 32.1 31.3 31.2 31.1

AUD/TWD, eop 25.1 25.2 24.6 24.0 22.8 22.5 22.1

Discount rate 2.75 2.87 2.87 2.87 2.87 2.87 2.87

Thailand

USD/THB, eop 33.6 32.5 34.0 35.5 36.0 36.5 37.0

AUD/THB, eop 25.7 25.0 25.8 26.6 26.3 26.3 26.3

1-day repo rate 4.75 4.50 4.25 4.00 4.00 4.00 4.00

Vietnam

USD/VND, eop 16,011 16,022 16,059 16,091 16,123 16,156 16,185

AUD/VND, eop 12,246 12,337 12,205 12,068 11,770 11,632 11,491

Japan

USD/JPY, eop 121.9 120.0 117.0 113.0 110.0 108.0 106.0

AUD/JPY, eop 93.2 92.4 88.9 84.8 80.3 77.8 75.3


Australia

AUD/USD, eop 0.76 0.77 0.76 0.75 0.73 0.72 0.71

Cash rate 6.25 6.25 6.25 6.25 6.25 6.25 6.00

New Zealand NZD/USD, eop 0.68 0.70 0.68 0.64 0.62 0.60 0.58

AUD/NZD, eop 1.12 1.10 1.12 1.17 1.18 1.20 1.22


United States

Fed Funds Rate, eop 5.25 5.25 5.25 5.25 4.75 4.75 4.75


Macro Economic Forecasts Real GDP Growth (%)

2005 2006e 2007f 2008f

Australia 2.8 2.4 2.6 3.7

Cambodia 13.4 8.1 7.6 7.7

China 9.9 10.7 9.6 8.8

Hong Kong 7.3 6.8 5.5 6.0

India+ 9.0 9.3 8.7 8.5

Indonesia 5.6 5.5 6.3 5.7

Japan 2.6 2.4 2.0 1.8

Korea 4.0 5.1 4.4 4.2

Malaysia 5.2 5.9 5.5 5.6

New Zealand 2.1 1.6 1.6 2.3

Philippines 5.1 5.4 6.0 5.0

Singapore 6.3 7.7 5.0 5.5

Taiwan 4.0 4.6 4.2 4.4

Thailand 4.4 4.9 5.0 6.1

United States 3.2 3.4 2.2 3.0

Vietnam 8.4 8.2 8.1 8.1

Nominal GDP (US$ bn)

2005 2006e 2007f 2008f

Australia 709.9 758.2 803.7 792.5

Cambodia 6.3 7.1 8.0 8.9

China 2233.7 2529.6 2888.9 3234.3

Hong Kong 177.7 188.7 203.2 221.2

India+ 753 872 1005 1150

Indonesia 281.2 336 375 420

Japan 4758.2 4882.2 5024.6 5181.5

Korea 787.2 845.6 913.8 985.5

Malaysia 130.8 144 156 168

New Zealand 108.5 103.1 111.5 100.4

Philippines 98.4 116.9 128.6 142.0

Singapore 116.6 127 134 142

Taiwan 346.2 355.5 376.3 402.1

Thailand 176.5 193 208 227

United States 12,456 13,245 13,820 14,520

Vietnam 53.1 61.3 70.1 80.2

Inflation (%)

2005 2006e 2007f 2008f

Australia 2.7 3.5 2.4 2.6

Cambodia 5.8 4.7 5.0 5.1

China 1.8 1.5 3.8 2.9

Hong Kong 0.9 2.0 1.7 2.3

India+ 4.2 6.0 6.0 5.5

Indonesia 10.5 13.3 5.5 5.5

Japan -0.2 0.0 0.6 1.0

Korea 2.87 2.7 3.3 3.5

Malaysia 2.9 3.6 3.0 2.5

New Zealand 3.0 3.4 1.9 2.6


Singapore 0.5 1.0 0.9 0.7

Taiwan 2.3 0.6 1.5 2.0

Thailand 4.5 4.7 3.5 3.0

United States 3.4 3.2 1.5 2.0

Vietnam 8.2 7.5 6.9 6.7

Fiscal Balance (% of GDP)*

2005 2006e 2007f 2008f

Australia 1.2 1.7 1.5 1.2

Cambodia -5.6 -5.8 -6.0 -6.1

China -1.1 -2.0 -1.9 -2.1

Hong Kong -0.4 -0.2 -0.5 -0.5

India+ -4.2 -3.8 -3.6 -3.5

Indonesia -0.5 -1.0 -1.1 -1.0

Japan -6.2 -6.0 -5.8 -5.5

Korea -0.3 -0.8 -0.2 0.1

Malaysia -3.8 -3.5 -3.4 -3.3

New Zealand 4.1 7.3 3.8 3.4

Philippines -12.1 -4.9 -6.0 -4.0

Singapore 0.2 -0.8 -0.3 0.1

Taiwan -2.5 -2.0 -2.6 -2.0

Thailand 0.1 -0.8 -2.0 -1.0

United States -3.0 -2.0 -1.8 -1.6

Vietnam -2.1 -1.8 -1.9 -1.8

Current Account (% of GDP)

2005 2006e 2007f 2008f

Australia -5.8 -5.1 -5.2 -5.9

Cambodia -10.9 -10.6 -10.3 -10.2

China 6.7 4.4 4.0 3.5

Hong Kong 11.4 9.0 8.0 8.5

India+ -0.9 -1.7 -2.3 -2.8

Indonesia 0.3 0.8 0.4 0.5

Japan 3.9 4.0 3.0 1.0

Korea 2.4 1.7 1.2 1.1

Malaysia 15.3 14.7 12.0 9.1

New Zealand -9.0 -8.9 -7.7 -7.6


Singapore 28.4 29.9 23.5 18.3

Taiwan 4.7 5.8 5.5 6.0

Thailand -2.1 1.9 0.2 -1.6

United States -6.4 -6.4 -5.8 -5.6

Vietnam 0.9 1.5 1.7 1.9

Foreign Exchange Reserves (US$ bn)

2005 2006e 2007f 2008f

Australia 43.3 55.1 n/a n/a

Cambodia 0.94 1.09 1.2 1.3

China 818 1066 1400 1750

Hong Kong 147 154 160 162

India 131.0 170.2 195 215

Indonesia 33 41 45 50

Japan 828 865 880 900

Korea 215 225 230 234

Malaysia 69.3 81.7 89 95

New Zealand 9.1 13.1 n/a n/a

Philippines 18.5 22.3 23.0 24.0

Singapore 115.3 136.3 150 160

Taiwan 301 313 320 325

Thailand 50.5 65.1 70 75

United States 37.84 41.5 n/a n/a

Vietnam 7.0 8.9 12.9 16.5


Long Term Foreign Currency Government Bond Ratings Investment Grade Sub-Investment Grade

Moody’s S&P Moody’s S&P

Aaa AAA Ba1 BB+ Australia Australia Costa Rica Egypt Canada Canada Egypt El Salvador France France Morocco Morocco

Germany Germany Panama Peru Japan Singapore

New Zealand United Kingdom Ba2 BB Singapore United States Brazil Colombia

United Kingdom Colombia Costa Rica United States Fiji Jordan

Aa1 AA+ Guatemala Panama Belgium Belgium Jordan Brazil

New Zealand Guatemala Vietnam

Aa2 AA Ba3 BB- Italy Hong Kong Peru Cook Islands Aa3 AA- Vietnam Indonesia

Cayman Islands Japan Turkey Philippines Hong Kong Taiwan Serbia

Kuwait Turkey Qatar Venezuela

Taiwan Ukraine UAE A1 A+

Czech Republic Italy Macau Kuwait B1 B+

Qatar Papua New Guinea Argentina Saudi Arabia Philippines Ghana Suriname Pakistan

A2 A Ukraine Fiji China Chile Indonesia Uruguay Chile China Pakistan

Cyprus Cyprus Uruguay Hungary Korea B2 B

Israel Oman Honduras Papua New Guinea Kuwait Venezuela Poland

Saudi Arabia A3 A- B3 B-

Korea Czech Republic Argentina Bolivia Malaysia Hungary Bolivia Lebanon

Oman Israel Lebanon Paraguay Malaysia

Baa1 BBB+ Mexico Bulgaria Caa1 and below CCC and below

South Africa Hungary Cuba Ecuador Thailand Poland Ecuador

Russia Nicaragua South Africa Paraguay Thailand

Baa2 BBB Mauritius Mexico Tunisia Tunisia Russia Russia

Baa3 BBB-

Bulgaria Romania India India

El Salvador Romania

At the end of May, Moody’s changed its ratings methodology and established new country ceilings that are 1 or 2 notches above the sovereign credit rating for many countries rated A and below. Bloomberg’s CSDR page now shows the new country ceilings rather than the old sovereign bond ratings. We are evaluating the change and how we will interpret the new rating.


Country Update: Australia The trend in retail sales in clearly easing

0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

Dec-04 Dec-05 Dec-06

quarterly % ch.

Retail sales

Source: Westpac and Melbourne Institute

Upside risks to inflation stem from the labour market

2

3

4

5

6

Dec-00 Dec-02 Dec-04 Dec-06

Private

Public

Total

Annual % ch.

Labour Price Index

Source: Australian Bureau of Statistics

• Evidence is mounting that recent interest rate rises have begun to moderate consumer demand. In trend terms, retail sales grew by 0.3% in December (around half the rate as at the start of 2006), while residential building approvals fell by 1.1%. Momentum in credit growth also eased in the second half of 2006, and recent falls in housing finance approvals portend a further moderation in credit demand in early 2007.

• Against this backdrop, and with inflation moderating in the December quarter, the RBA now appears more comfortable with the outlook for inflation, lowering its forecast for core inflation to 2¾% in its February Statement on Monetary Policy from 3% previously.

• Notwithstanding the improved inflation outlook, the RBA retains a bias to tighten interest rates. In the words of former Governor Ian Macfarlane, “the next move in interest rates is still more likely to be up than down”.

• The labour market, in particular, remains tight and a source of upside risk for wages and inflation. Despite an employment fall of 3,600 jobs in January, the unemployment rate fell to a fresh 30-year low of 4.5%. And recent wages data, while far from conclusive, may be signalling that wages are beginning to respond to the tight labour market. The Wage Price Index rose by a stronger-than-expected 1.1% in the December quarter to be 4% higher over the year.

• However, these remain ‘risks’ at present and are counterbalanced by two years of sub-trend economic growth which is already beginning to alleviate inflationary pressures in the economy. Overall, we expect an ‘on hold’ strategy for a considerable period from the RBA, as it seeks to maintain interest rates at their current, slightly restrictive, level as insurance against any unexpected swelling of inflationary pressures.

Mark Rodrigues

Economic data – Australia Monthly data Jun 06 Jul 06 Aug 06 Sep 06 Oct 06 Nov 06 Dec 06 Jan 07 Building Approvals, 000’s 13.0 14.2 12.5 13.3 12.2 12.6 12.4 n/a Retail Sales, % YOY 5.7 6.0 5.4 6.2 6.8 6.6 6.3 n/a Exports, % YOY 23.2 14.2 18.5 15.9 16.6 14.2 4.5 n/a Imports, % YOY 14.9 10.6 11.6 10.9 17.2 5.3 8.1 n/a Trade Balance, AUD bn -0.44 -0.43 -0.39 -0.76 -1.49 -0.90 -1.34 n/a Foreign Exchange Reserves, US$ bn 47.4 52.4 51.1 46.2 50.1 51.3 55.1 59.3 Quarterly data Mar 05 Jun 05 Sep 05 Dec 05 Mar 06 Jun 06 Sep 06 Dec 06 Real GDP, % YOY 2.0 3.0 2.9 3.2 3.2 2.2 2.2 n/a - Private consumption 3.6 3.4 2.7 2.4 2.8 2.6 2.8 n/a - Government consumption 3.8 3.8 2.8 3.5 2.6 4.6 5.3 n/a - Gross fixed capital expenditure 3.4 8.1 9.3 9.9 10.4 6.2 3.1 n/a Consumer Price Index, % YOY (nsa) 2.4 2.5 3.0 2.8 3.0 4.0 3.9 3.3 Current Account, AUD bn -15.0 -11.8 -13.0 -14.3 -13.3 -13.3 -12.1 n/a Capital Account, AUD bn (nsa) 14.2 10.6 15.1 14.3 13.1 11.3 14.3 n/a

Sources: Australian Bureau of Statistics, RBA Note: data seasonally adjusted unless otherwise statedNote: data seasonally adjusted unless otherwise stated


Country Update: Cambodia Exports growth remains strong…

0

50

100

150

200

250

2002 2003 2004 2005 2006

Imports

Exports

$US mn

Cambodian Trade with the US

-30% -15% 0% 15% 30%

Indonesia

Cambodia

Bangladesh

Vietnam

China

Pakistan

Philippines

India

Sri Lanka

Thailand

Italy

Canada

Taiwan

Korea,South

Hong Kong

% change in textile

imports in to US,

2006 to 2005

US Textile imports from Asia

Source: IMF DOTs, US Census Bureau

…yet the trade deficit widens

-6000

-5000

-4000

-3000

-2000

-1000

0

1000

2000

3000

4000

1/01/2002 1/01/2003 1/01/2004 1/01/2005 1/01/2006est

1/01/2007forecast

ExportsImportsTrade Balance

$US, mn External Trade Performance

Source: IMF, World Bank, Economics@ANZ

• The diversification of the economy is one of the key priorities for the Cambodian government going forward. With only three main sources of growth; tourism, agriculture and the garments industry, the government is looking to broaden its economic base to insulate against external shocks as well as to attract investors. Continued reforms are also required to maintain the viability of current industry. The National Export Strategy 2007-2010 and the Small & Medium Enterprise Development Framework are both new initiatives looking to address this problem of Cambodia’s narrow growth base. The government has already taken some measures to support the existing garment industry and maintain its market share with key trading partners.

• The signing of the Trade and Investment Framework with the United States in July 2006 has assisted with garments exports and trade and investment liberalisation generally. The garments sector has shown again in 2006 that it can compete against its major international competitors. Cambodia’s exports to the US, primarily garments, increased by just under 24% in 2006. This strong growth pushed Cambodia’s market share of US textile imports to 2.2% (ranked 11th) up from 1.7% (ranked 18th) in 2005. However, international competition is likely only to get tougher. Vietnam’s accession to the WTO in January will significantly increase competition in Cambodia’s traditional textile markets. However, at least in the short term, Cambodia’s competitive wage structure and comparable levels of productivity should give them the edge. However, challenges to the industry will be ongoing. The most significant of these will be in 2008, when the US and EU are set to loosen safeguards imposed on imports of garments from China.

• Despite the rapid growth of exports, the trade deficit is expected to widen further. Cambodia’s import bill will continue to be driven by reliance of the manufacturing industry on imported input materials. Also, import demand in general will continue to expand as incomes rise and tariff barriers continue to come down under WTO and ASEAN Free-Trade Area (AFTA) agreements. The trade deficit should continue to be offset on the current account by growth in tourism receipts.

Alex Joiner

Economic data – Cambodia Monthly data Jun 06 Jul 06 Aug 06 Sep Oct 06 Nov Dec 06 Jan 07 Consumer Price Index, % YOY 3.8 5.1 5.1 4.4 4.1 3.2 2.8 n/a -Transport & Communication 10.1 11.2 10.5 8.6 6.2 6.7 7.4 n/a -Food & Beverages 4.3 6.3 6.1 5.0 4.9 2.9 2.0 n/a Exports, % YOY 24.1 30.4 21.4 23.1 n/a n/a n/a n/a Imports, % YOY 27.2 18.4 18.6 43.7 n/a n/a n/a n/a Trade Balance, US$ mn -117.2 -51.8 -13.1 -105.3 n/a n/a n/a n/a Foreign Exchange Reserves, US$ mn 1,026.8 1,034.8 1,022.0 1,007.5 1,050.1 1,082.1 n/a n/a Tourist Arrivals, % YOY 20.7 9.7 12.6 23.2 18.8 n/a n/a n/a GDP Composition 2005 Trading Partners Exports Imports Real GDP, % YOY 13.4 2005 % share US 60.0 Thail’ 24.7 - Agriculture, % YOY 5.1 Germany 11.5 China 16.3 - Industry, % YOY 3.3 UK 4.6 HK 13.4 - Services, % YOY 4.5 Vietnam 4.5 Vietn’m 12.8 Nominal GDP, US$ bn 5.5 Cananda 3.9 Sing’ 8.2

Sources: Datastream, National Institute of Statistics of Cambodia


Country Update: China Inflation is picking up….

Components of CPI

-4

0

4

8

01 02 03 04 05 06

% YOY

Headline CPI

Sources: Datastream, Economics@ANZ

-15

-10

-5

0

5

10

15

20

02 03 04 05 06

Durables UtilitiesFood Rent

% YOY (smoothed)

… but the economy is slowing

0

10

20

30

40

50

60

04 05 06

% YOY cumulative index

Fixed asset investment

0

5

10

15

20

25

03 03 04 04 05 05 06 06

% YOY

Retail sales

• The most important event to occur in China in February happened on the last day of the month, when the equity market plunged almost 10% on 27 February after a series of rumours about measures the authorities may take to stem the rally. Locally the sell-off – unless it is prolonged – is likely to be viewed as a healthy correction in light of the market’s P/E ratio rising to an incredible 30. Moreover, reforms to improve governance and make more shares available to retail investors is positive for the market’s development over the medium term.

• Also in February, the PBOC announced another hike in the reserve requirement, to 10%, in an effort to curb liquidity. Although M2 growth slowed to 15.5% in the fourth quarter from 16.5% in the third, headline CPI rose above 2% in December and January. Moreover, components of CPI including consumer durables, food, utilities and rent are all on an upward trend. We expect at least one more hike in the reserve requirement this year.

• While higher inflation has sparked speculation that the PBOC would soon lift interest rates, we continue to believe the authorities will resist this move. First, the economy is already slowing in response to the three interest rate hikes implemented last year; raising rates further risks overdoing it. Second, higher interest rates would tend to put upward pressure on the currency and attract more capital inflows, which would exacerbate rather than alleviate the high liquidity conditions that are raising inflation expectations.

• Data for January and February will be skewed by the Chinese New Year holiday, which fell in the second half of February this year. February data released in the next few weeks should not be given undue weight. We expect March data will confirm the continued solid expansion of the economy, led by still relatively strong growth in fixed asset investment, high levels of industrial production and rising consumption. Rising import demand should alleviate the trade surplus, which we project will decline from US$67 bn in Q4 2006 to US$44 bn in Q1 2007.

Amy Auster

Economic data – China Monthly data Jun 06 Jul 06 Aug 06 Sep 06 Oct 06 Nov 06 Dec 06 Jan 07 Industrial Production, % YOY 19.5 16.7 15.7 16.1 14.7 14.9 n/a n/a Retail Sales, % YOY 13.9 13.7 13.8 13.9 14.3 14.1 14.6 n/a Consumer Price Index, % YOY 1.5 1.0 1.3 1.5 1.4 1.9 2.8 2.2 Exports, % YOY 23.3 22.5 32.7 30.6 29.5 32.8 24.9 33.0 Imports, % YOY 18.9 19.7 24.5 21.9 14.7 18.3 14.1 27.5 Trade Balance, US$ bn 14.4 14.6 18.8 15.3 23.8 22.9 20.7 15.9 Foreign Exchange Reserves, US$ 941.1 954.6 972.0 987.9 1009.6 1038.8 1066.3 n/a Quarterly data Mar 05 Jun 05 Sep 05 Dec 05 Mar 06 Jun 06 Sep 06 Dec 06 Real GDP, % YOY 9.9 10.1 9.8 9.9 10.4 11.5 10.6 10.4 - Primary sector 4.6 5.0 5.0 5.2 4.5 5.1 4.9 5.0 - Secondary sector 10.9 11.0 10.9 11.7 12.5 13.2 13.3 12.5 - Tertiary sector 9.7 9.8 10.0 10.5 8.9 9.4 9.5 10.3 Nominal GDP, US$ bn 511.2 532.5 563.9 638.1 593.7 626.5 648.3 755.2 Current Account, US$ bn 148.7 155.8 168.3 170.5 182.2 205.0 221.5 236.6 FDI (actual), US$ bn* 13.4 15.2 14.7 17.7 14.3 14.2 14.2 20.4 Sources: Datastream, Bloomberg * - Quarterly sum


Country Update: Hong Kong The economy is enjoying its longest run of

uninterrupted growth in more than a decade

GDP

Source: Datastream, Economics@ANZ

-10

-5

0

5

10

15

98 99 00 01 02 03 04 05 06

% yearly change

This is underpinning an improvement in the Government’s fiscal position

Hong Kong Government budget surplus/deficit


-100

-80

-60

-40

-20

0

20

40

60

03 04 05 06 07

HKbn (12mma yearly sum)

• The Hong Kong economy continues to exceed expectations, growing by a strong 7.5% in the year to the December quarter. This the nineteenth consecutive quarter of expansion, the longest run of uninterrupted growth in more than a decade.

• In a good sign for the sustainability of the recovery, growth is continuing to rotate away from the external sector and towards domestic demand. Consumer spending rose by 6% YOY in the December quarter and investment increased by a strong 9.9%. With the unemployment rate at an eight-year low and with the strong equity market supporting corporate profitability, the outlook for domestic spending remains strong.

• The domestic economy is set to receive a further boost this year with the Hong Kong government announcing a range of tax cuts in its 2007 budget. Income tax relief is the centrepiece of the budget with the government cutting the marginal rate for the top two salary bands by 1ppt. The government will also waive 50% of the tax owed by workers in the year to March, up to a maximum of HK$15,000 per person. Child allowance payments will have a five-fold increase, from HK$10,000 to HK$50,000. The government will also cut stamp duty on real-estate sales, waive property tariffs for two quarters and halve duties on wine and beer.

• These new measures are expected to cost HK$20.3bn and on our estimates could boost economic growth by up to 0.5ppt this year.

• Despite tax cuts and increased spending, government coffers remained buoyed from the proceeds of the current economic expansion. As such, the budget is still expected to post a surplus of HK$25.4 bn in the 2007-08 fiscal year, although this is still lower than the 2006-07 surplus of HK$55.1bn.

• This feel-good budget comes one month before Hong Kong’s Chief Executive Donald Tsang seeks re-election. Tsang, who has run Hong Kong for two years, is widely expected to retain power.

Katie Dean

Economic data – Hong Kong Monthly data Jun 06 Jul 06 Aug 06 Sep 06 Oct 06 Nov 06 Dec 06 Jan 07 Visitor Arrivals, %YOY 8.3 5.7 11.2 2.4 2.5 1.0 9.3 n/a Retail Sales, % YOY 3.4 5.2 6.5 5.9 5.2 5.0 8.2 n/a Consumer Price Index, % YOY 2.1 2.3 2.5 2.1 2.0 2.2 2.3 2.0 Exports, % YOY 6.9 10.7 9.8 4.5 7.5 13.8 13.4 8.5 Imports, % YOY 10.1 11.5 12.2 7.9 10.8 15.9 14.2 13.4 Trade Balance, US$ bn -1.8 -0.7 -1.2 -1.5 -0.4 -1.1 -2.7 -0.6 Foreign Exchange Reserves, US$ bn 127.0 127.0 129.0 130.0 131.0 133.0 133.0 134.0 Quarterly data Mar 05 Jun 05 Sep 05 Dec 05 Mar 06 Jun 06 Sep 06 Dec06 Real GDP, % YOY 5.9 7.5 8.6 8.1 8.0 4.9 7.0 7.5 - Private consumption 4.0 2.0 4.0 3.0 5.0 5.0 4.0 6.0 - Government consumption -5.0 -2.0 -2.0 -4.0 1.0 -2.0 -1.0 2.0 - Gross fixed capital expenditure 1.0 5.0 3.0 9.0 7.0 4.0 10.0 10.0 Nominal GDP, US$ bn 42.7 44.3 44.9 45.8 46.3 46.9 48.0 n/a Current Account, US$ bn 5.2 4.5 4.6 5.9 4.8 1.9 6.7 n/a Capital Account, US$ bn -0.3 -0.2 -0.1 -0.1 -0.1 0.1 n/a n/a Source: Datastream


Country Update: India Inflation pressures persist

Inflation Nominal credit growth

Sources: Bloomberg, Datastream

2

7

12

17

22

27

32

37

03 04 05 06

% YOY

-4

-2

0

2

4

6

8

10

12

14

03 04 05 06

% YOY

Total WPI

Food articles

Claims on private sector

Financial market trends

42

43

44

45

46

47

482005 2006

2000

4000

6000

8000

10000

12000

14000

16000INR Index

INR per USD (lhs)(inverted scale)

Bombay Stock Index (rhs)

Source: Datastream

• Accelerating inflationary pressures have prompted the central bank to lift the cash reserve ratio (CRR) by half a point to 6% - the second increase in two months. The latest increase occurred in two stages, with the CRR rising by 25 bps to 5.75% from 17 February and to 6% on 3 March. The WPI has stayed above 6% this year, well above the RBI’s target range of 5-5.5%. Inflation is expected to moderate in coming months as the reduction in import duties on selected food products and new harvests alleviate food-related price pressures. Cuts in freight charges for gasoline and diesel will also help to check inflation. However, further increases in interest rates and the reserves ratio cannot be ruled out if the impact of the previous rate hikes and recent monetary measures fail to significantly curb credit growth. The economy expanded at a robust, albeit slower-than-expected, pace of 8.6% YOY in the December quarter.

• Liquidity management will be the central bank’s key focus as capital inflows are likely to accelerate given the higher yields as well as India’s improved credit ratings (S&P’s lifted its rating of India to investment grade in late January which brings it in line with Moody’s and Fitch). This will exacerbate money supply conditions and keep inflation expectations elevated. The central bank’s challenge over the medium term is to manage inflation in a high growth environment with real GDP forecast to expand by 9.3% in FY2006/07 (year ended March 2007) and expected to stay above 8.5% pa. over the next two years.

• Central bank intervention has been evident in stemming the pace of rupee appreciation, which has recovered to levels reached in early 2006. Nevertheless, a further strengthening of the currency is forecast over the year, underpinned by solid growth expectations as well as buoyant liquidity conditions and a healthy global growth outlook which will continue to support further currency appreciation across Asia.

Jasmine Robinson

Economic data – India Monthly data Jun 06 Jul 06 Aug 06 Sep 06 Oct 06 Nov 06 Dec 06 Jan 07 Industrial Production, %YOY 9.3 12.9 10.1 11.9 4.4 15.0 11.6 n/a Passenger car sales, % YOY 24.3 20.9 13.2 20.4 15.5 25.2 24.7 23.3 Consumer Price Index, % YOY 7.3 6.3 6.0 6.4 6.9 6.0 6.6 n/a Exports, % YOY 40.2 40.7 41.1 41.2 19.0 57.1 20.2 n/a Imports, % YOY 24.0 42.8 32.2 49.1 39.3 60.3 41.8 n/a Trade Balance, US$ bn -3.8 -4.0 -3.5 -5.3 -6.2 -6.2 -5.7 n/a Foreign Exchange Reserves, US$ bn 156.0 157.0 159.0 158.0 161.0 168.0 170.0 n/a Quarterly data Mar 05 Jun 05 Sep 05 Dec 05 Mar 06 Jun 06 Sep 06 Dec 06 Real GDP, % YOY (at factor cost) 8.6 8.4 8.0 9.3 9.3 8.9 9.2 8.6 - Agriculture 6.8 9.8 6.6 7.2 7.9 9.7 10.5 10.0 - Industry 1.5 4.0 4.0 8.7 5.5 3.4 1.7 1.5 - Services 11.4 9.8 9.7 8.2 10.8 3.7 11.1 n/a Nominal GDP, US$ bn 175.9 170.2 169.9 193.4 196.4 185.3 182.5 222.6 Current Account, US$ bn 4.1 -3.6 -3.6 -3.8 1.8 -6.1 -6.9 n/a Capital Account, US$ bn 12.4 4.4 10.0 -0.6 10.9 10.7 8.6 Source: Datastream, Bloomberg


Country Update: Indonesia Investment approvals pick up

0

5

10

15

20

25

30

35

40

45

05 72 05 05 78 05 05 84 05 88 90 05 05 96 05 05 02 04 06

Value of Investment approvals

Foreign

Domestic

US$ bn

* : excludes oil & gas and finance-related institutionsSources: Investment Coordinating Board (BKPM)

Jan-Nov 06

Capacity constraints likely to emerge with weak investment

50

55

60

65

70

75

80

85

90

95

100

2003 2004 2005 2006

Agriculture

Mining & Quarrying

Manufacturing

% Capacity Utilisation rates

• The economy expanded by 6.1% YOY in Q4 2006, bringing full-year growth to 5.5%. This was in line with our estimate but lower than the government’s target of 5.8%. Growth was underpinned by private consumption and net exports and gross fixed capital formation ticked up. We expect the economy to accelerate to 6.3% in 2007 which is the same as the government’s forecast. While private consumption will continue to be the main driver of growth, we expect investment to pick up and exports to stay strong. While realised investment dipped in 2006, both foreign and domestic direct investment approvals rose, signalling the potential for a pick-up in investment activity.

• Flood-related pressures on food prices did not produce as strong a spike in inflation as initially expected, proving scope for Bank Indonesia to cut rates in March. Average inflation is forecast to ease to around 5.5% in 2007 compared with 13.3% in 2006. However, capacity constraints aggravated by weak investment is likely to present upside risks to our inflation forecast. According to a recent Bank Indonesia survey, average capacity utilisation in manufacturing, agriculture, power and mining sectors rose to 71.4% in Q4 2006, up from 66.3% in Q3 2006 but slightly lower than 71.9% in December 2005.

• In a separate move, Bank Indonesia is considering shifting its benchmark interest rate to the overnight rate from the current 1-month rate. The Bank of Thailand moved to a 1-day rate as its benchmark in January.

• Indonesia’s trade surplus soared in 2006, assisted by strong resource-based exports. Total exports increased 17.7% YOY to US$90 bn during January-November 2006, outpacing imports which rose by just 4.5% YOY, bringing the trade surplus to US$35.7 bn, up 45% from January-November 2005.

Jasmine Robinson

Economic data – Indonesia Monthly data Jun 06 Jul 06 Aug 06 Sep 06 Oct 06 Nov 06 Dec 06 Jan 07 Industrial Production, %YOY -0.7 0.4 0.7 5.5 0.2 29.0 23.4 n/a Motor cycle sales, % YOY -28.0 -21.6 -12.8 9.1 -29.8 49.7 27.2 28.6 Consumer Price Index, % YOY 15.5 15.2 14.9 14.6 6.3 5.3 6.6 6.3 Exports, % YOY 26.1 26.2 26.4 19.0 12.3 30.7 17.4 n/a Imports, % YOY 20.2 11.8 4.0 15.5 -6.2 45.0 3.1 n/a Trade Balance, US$ bn 2.8 3.4 3.3 3.1 4.2 3.1 4.6 n/a Foreign Exchange Reserves, US$ bn 38.3 39.2 40.3 40.7 38.2 39.9 n/a n/a Quarterly data Mar 05 Jun 05 Sep 05 Dec 05 Mar 06 Jun 06 Sep 06 Dec 06 Real GDP, % YOY 6.3 5.7 5.8 4.7 4.8 5.2 5.8 6.1 - Private consumption 3.4 3.8 4.4 4.2 2.9 3.0 3 3.8 - Government consumption -7.0 -5.7 14.9 32.7 11.2 26.7 1.51 2.2 - Gross fixed capital expenditure 13.9 14.7 9.1 2.7 1.5 1.4 0.01 n/a Nominal GDP, US$ bn 67.7 69.2 69.7 74.6 83.0 87.9 92.83 n/a Current Account, US$ bn 0.3 0.4 -1.2 0.8 1.6 0.6 4.0 n/a Capital & Financial Account, US$ bn -0.6 0.5 -3.3 3.6 2.2 -0.1 -0.7 n/a Sources: Bloomberg, Datastream, Bank Indonesia


Country Update: Japan Consumption drove growth higher in Q4

-12

-8

-4

0

4

8

12

2000 2001 2002 2003 2004 2005 2006Private consumptionBusiness investmentReal GDP growth (annualised)

YOY%


Inflation should rise if consumption is on track Disposable income &

expenditurePrice trends

Sources: Datastream, Economics@ANZ

-10

-5

0

5

10

01 02 03 04 05 06

% YOY (smoothed)

-3

-2

-1

0

1

2

3

4

01 02 03 04 05 06

Corporate goodsprice index

% YOY

Headline CPI

Core CPI

Disposable income

Household expenditure

• Real GDP rose faster than expected in the fourth quarter, up 1.2% over the previous quarter and 4.8% on an annualised basis. The main reason was an unanticipated surge in private consumption, which rose 1.1% from the previous quarter – a rate not seen since late 2003. Business investment remained strong, up 2.2% from the previous quarter, so that even weak public sector consumption and investment failed to make a dent in the final figures. Although exports rose strongly in the quarter, net exports rose only 0.2% on a quarterly basis and 0.6% on an annual basis, thus making little contribution to the overall result.

• The consumption data was evidently sufficient to convince the Bank of Japan that the domestic recovery is on track; the BOJ voted with one dissenting opinion to raise its benchmark rate by 25 bps at its February meeting. This was despite a relatively weak CPI reading in December, and the fact that the GDP deflator is still in negative territory on an annual basis. Subsequent BOJ statements indicate the BOJ is committed to the continued normalisation of monetary policy, albeit at a very cautious rate. We thus expect the BOJ will now remain on hold through at least July, but that there will be two more interest rate hikes in 2007.

• BOJ’s February move failed to provide significant support for the yen, which continued to trade above the USD/JPY120 level. The yen has weakened significantly against all Asia currencies this year due to continued capital outflows from households looking for higher returns offshore as well as by offshore investors using the yen as a funding currency for carry trades. The equity market sell-off at the end of February did lead to an unwinding of carry trades, however, with the yen trading to USD/JPY117. The yen is thus much stronger against its trade partners, as most Asian currencies have sold off.

• In the real economy, we are carefully watching household income and consumption data. Disposable income rose an encouraging 7.5% YOY in December, while expenditure was up 0.2%. Unless this trend reverses, inflation should gather steam soon.

Amy Auster

Economic data – Japan Monthly data Jun 06 Jul 06 Aug 06 Sep 06 Oct 06 Nov 06 Dec 06 Jan 07 Industrial Production, %YOY 5.1 5.0 5.8 4.9 6.1 4.9 4.6 3.1 Retail Sales, % YOY 0.2 -0.1 1.1 0.7 0.1 -0.2 -0.2 -0.8 Consumer Price Index, % YOY 0.5 0.3 0.9 0.6 0.4 0.3 0.3 n/a Exports, % YOY 8.6 10.5 12.2 9.4 8.0 13.3 10.8 14.1 Imports, % YOY 12.2 13.1 10.8 11.0 13.8 8.6 8.6 6.6 Trade Balance, US$ bn 7.0 7.4 1.7 8.6 5.1 7.8 9.5 0.0 Foreign Exchange Reserves, US$ bn 844.0 850.6 857.9 861.1 865.6 875.9 874.6 874.5 Quarterly data Mar 05 Jun 05 Sep 05 Dec 05 Mar 06 Jun 06 Sep 06 Dec 06 Real GDP, % YOY 0.7 1.8 2.2 2.8 2.7 2.2 1.5 2.3 - Private consumption 0.6 1.3 1.7 2.6 1.8 1.4 -0.2 0.63 - Government consumption 2.1 1.5 2.5 0.7 -0.8 0.6 0.2 1.24 - Gross fixed capital formation 1.1 2.3 3.9 2.6 3.4 3.5 1.5 4.4031 Nominal GDP, US$ bn 4533.6 4709.4 4774.6 4798.9 4762.4 4729.6 4705.4 4670.2 Current Account, US$ bn 170.2 170.9 167.9 165.5 167.4 200.4 190.5 159.7 Capital Account, US$ bn 0.7 1.8 2.2 2.8 2.7 2.2 1.5 2.3 Source: Datastream


Country Update: Korea The won relatively stable against USD

Won versus JPY, USD, EUR & AUD

90

95

100

105

110

115


KRW/JPY

Jan 2000 = 100

KRW/USD

KRW/AUD

KRW/EUR


Effective policy rate allowed to rise Effective and target policy interest rate

0

1

2

3

4

5

Jan-04 May-04 Sep-04 Jan-05 May-05 Sep-05 Jan-06 May-06 Sep-06 Jan-07

-0.4

-0.2

-0

0.2

0.4

0.6

0.8% p.a ppts

Target rate(LHS)

Difference b/n TargetOCR and effective OCR (RHS, 3mma)

Effective Target rate(LHS)


• The KRW has been in a holding pattern throughout much of this month, trading in the 930-45 range against the US dollar since late January. This has prompted BoK Governor Lee Seong Tae to state that he believes “The pressure on the won to appreciate was high in December but has weakened recently”. Despite any lack of movement against the dollar, the won has maintained its strength against the lacklustre yen. However, the won has depreciated against other major currencies including the Euro and Australian dollar.

• Economic pressures on the won have certainly eased. GDP growth softened throughout 2006, remaining at a relatively solid 4.0%YOY in Q4. Inflation continues to be relatively benign, falling to 1.7%YOY in January, the lowest rate of headline inflation since May 2000. Consequently, most observers have tipped interest rates to stay on hold in Korea in 2007.

• Despite interest rates peaking, lending growth has continued to be of concern to the BoK. Not wanting to adversely impact the wider economy, or add to any pressure for the won to appreciate, the BoK is adopting alternate policies to keep monetary conditions as tight as possible without raising official interest rates. Increasing commercial bank reserve requirements late last year, to soak up liquidity and curb lending growth, has been the most prominent of these measures. BoK Governor Lee stated that shifts in the reserve requirement are used as a “complement” to interest rates which remain the primary monetary policy instrument. It would seem other Asian central banks have also adopted this view, with China and India also raising reserve requirements to curb credit growth. Further tightening policy in recent months has been the BoK’s willingness to allow the effective overnight call rate to fluctuate significantly higher than the target rate. This differential peaks at over 30 bps in early February and has been attributed to an increase in liquidity demand in the lead-up to Lunar New Year celebrations.

Alex Joiner

Economic data – Korea Monthly data Jun 06 Jul 06 Aug 06 Sep 06 Oct 06 Nov 06 Dec 06 Jan 07 Industrial Production, %YOY 12.0 6.4 11.6 12.6 11.7 7.0 5.3 2.1 Retail Sales, % YOY 6.7 4.2 6.8 2.5 6.1 5.0 2.9 -3.6 Consumer Price Index, % YOY 2.4 2.4 2.7 2.5 2.2 2.1 2.1 1.7 Exports (US$), % YOY 17.9 10.9 16.9 20.9 10.5 18.5 12.3 20.9 Imports (US$), % YOY 22.2 18.8 22.9 21.6 13.1 12.2 13.8 20.3 Trade Balance, US$ bn 1.9 0.2 0.3 2.0 2.4 3.8 1.3 0.35 Foreign Exchange Reserves, US$ bn 224.0 225.3 226.6 227.8 228.6 233.7 238.4 239.7 Quarterly data Mar 05 Jun 05 Sep 05 Dec 05 Mar 06 Jun 06 Sep 06 Dec 06 Real GDP, % YOY 2.6 3.3 4.5 5.3 6.0 5.4 4.8 4.0 - Private consumption 1.7 3.1 4.0 4.1 4.9 4.4 4.0 3.7 - Government consumption 3.2 4.2 5.1 4.8 5.3 5.2 5.8 6.5 - Gross fixed capital expenditure 0.4 2.0 1.9 4.2 3.9 0.8 3.8 4.5 Nominal GDP, US$ bn 192.4 197.6 197.7 199.6 211.7 220.6 223.2 n/a Current Account, US$ bn 5.3 2.4 2.2 5.2 -1.1 0.7 0.4 6.1 Capital Account, US$ bn -0.5 -0.7 -0.7 -0.5 -0.7 -0.8 -0.7 -0.9 Source: Datastream


Country Update: Malaysia Ringgit strengthens against most currencies

Movement of Asian currencies against the USD

20 July 05 = 100

Cross rates

Source: Datastream

95

97

99

101

103

105

107

109

111

113

2005 2006

20 July 05 = 100

CNY/USD

SGD/USD

MYR/USD

85

90

95

100

105

110

115

120

2005 2006

MYR/JPY

MYR/CNY

MYR/SGD

Real GDP expand by 5.9% in 2006

Source: Datastream

-20

-10

0

10

20

30

40

00 01 02 03 04 05 06

% YOY

Gross Fixed Capital Formation

Private consumption

Real GDP growth

• The key focus in February has been the appreciating ringgit, which has climbed by 1% against the US dollar since the start of the year, making it the third best performer in Asia after the Thai baht and Philippine peso. The ringgit has also made solid gains against its major trading partners. The US and Singapore are Malaysia’s top two export markets while Japan is its top source of imports. Its strength over the past months has been underpinned by rising commodity prices (eg. palm oil and rubber) and an upturn in portfolio inflows although the sharp global stockmarket correction at the end of the month saw the ringgit retreat to USD/MYR3.50. The ringgit is expected to appreciate by a nominal 3% in 2007 to USD/MYR3.40 by end-2007 from the current level of USD/MYR3.50, supported by a relatively healthy economic outlook for Malaysia as well as continued FX appreciation across Asia as liquidity conditions remain buoyant.

• Real GDP rose by a slower 5.7% YOY in Q4 2006, bringing full-year growth to 5.9% which was slightly ahead of the official forecast of 5.8%. The moderation in growth largely reflected slower exports as electronics demand softened. A moderation in external demand is likely to see economic growth ease to around 5.5% in 2007 but domestic demand is expected to stay healthy. Growth in manufacturing activity will be underpinned by record foreign investments in 2006 totalling RM20.2 bn (US$5.8 bn), particularly in the petroleum refining sector. Inflation is expected to ease to around 3% from an 8-year high of 3.6% in 2006. This paves the way for a cut in interest rates probably in the second half of the year. Bank Negara left its key policy rate unchanged at 3.5% in February, for a seventh successive meeting.

• While the ringgit is not a high yielding currency, an expected softening in the US Fed Funds rate in the second half of 2007 is likely to be accompanied by US dollar weakness and support for the ringgit. However, central bank intervention is likely to be evident to smooth the ringgit’s appreciation and to help maintain regional export competitiveness.

Jasmine Robinson

Economic data – Malaysia Monthly data Jun 06 Jul 06 Aug 06 Sep 06 Oct 06 Nov 06 Dec 06 Jan 07 Industrial Production, %YOY 7.0 6.7 4.9 3.0 -1.6 7.2 6.3 n/a Motor Vehicle sales, % YOY -14.3 -4.5 -5.6 -14.9 -37.3 -6.9 -24.3 -14.1 Consumer Price Index, % YOY 3.9 4.1 3.3 3.3 3.1 3.0 3.1 3.2 Exports, % YOY 14.6 19.9 17.6 14.4 -1.2 22.7 13.0 n/a Imports, % YOY 15.5 14.1 20.6 9.9 0.7 25.8 8.1 n/a Trade Balance, US$ bn 2.2 2.5 2.7 2.8 2.6 2.5 3.3 n/a Foreign Exchange Reserves, US$ bn 78.9 79.2 79.3 79.9 79.8 80.9 81.8 n/a Quarterly data Mar 05 Jun 05 Sep 05 Dec 05 Mar 06 Jun 06 Sep 06 Dec 06 Real GDP, % YOY 5.9 4.1 5.4 5.2 5.7 6.2 6.0 5.8 - Private consumption 10.1 7.4 10.4 9.0 7.5 7.3 6.8 6.6 - Government consumption 1.0 0.6 4.7 12.6 3.9 7.2 13.0 6.9 - Gross fixed capital expenditure 2.0 6.7 9.6 0.4 11.4 7.6 3.4 9.9 Nominal GDP, US$ bn 31.2 32.0 33.6 34.1 35.5 37.1 38.0 38.4 Current Account, US$ bn 5.8 4.8 4.9 4.5 5.3 5.2 7.2 n/a Capital & Financial Account, US$ bn 0.9 0.1 1.5 -12.4 -1.4 -0.1 -4.9 n/a Sources: Datastream, Bloomberg


Country Update: New Zealand Durable and Non-durable retail spending

-15

-10

-5

0

5

10

15

98 99 00 01 02 03 04 05 06

YOY% Change

Durable

Non-durable

Sources: Statistics NZ; ANZ National Bank

90 day rate v futures

4.5

5.0

5.5

6.0

6.5

7.0

7.5

8.0

00 01 02 03 04 05 06 07

%

Source: Reuters; ANZ National Bank

90 day futures

90 day bank bills

• It is looking increasingly like the New Zealand economy has achieved the fabled soft landing. Growth has slowed from 4½% in 2004 to 1½% in 2006. And the economy is showing signs of vibrancy, and partial indicators suggest this resilience has carried through into 2007. The recent National Bank Business Outlook survey recorded a further improvement in confidence and firms’ activity outlooks, and the activity measures within that survey are consistent with economy-wide growth north of 2½%. This is despite the recent tightening in financial conditions.

• However, we expect the recent pickup in activity to be short-lived. The NZ economy is fraught with imbalances (notably an unsustainable current account deficit), which will require a sustained period of sub-trend growth to alleviate. Furthermore, the Reserve Bank’s patience with the buoyant housing and consumer sectors has worn thin, and it is looking odds on that the Reserve Bank will increase interest rates in an attempt to slow these parts of the economy.

• In January, the Reserve Bank said that in the absence of a slowing trend in housing and consumer spending, they would raise interest rates. While recent data has been mixed on consumer spending, the housing market is showing no signs of moderating, and an interest rate increase from the Reserve Bank at their March Monetary Policy Statement looks locked and loaded. The rhetoric accompanying the Statement is likely to keep a further rate hike firmly in play. While our central view does not incorporate a follow-up hike, the Reserve Bank will reiterate that further hikes are likely if the housing market does not moderate.

• With financial markets fully anticipating at least one rate hike, financial conditions have tightened markedly, further reducing the likelihood of a speedy economic recovery. We expect the high NZD will act as a dampening force on the economy over 2007, and a material improvement in economic activity looks to be a late 2008 story at the earliest.

Sean Comber

Economic data – New Zealand Monthly data Jun-06 Jul-06 Aug-06 Sep-06 Oct-06 Nov-06 Dec-06 Jan-07 Retail Sales, % YOY 4.3 2.9 2.9 3.7 5.9 4.5 3.6 5.3 Residential building consents,% YOY -9.4 9.3 7.4 16.6 17.3 -1.1 -20.8 -5.2 Exports, % YOY 16.5 24.5 15.8 20.0 10.6 8.0 11.1 12.5 Imports, % YOY 3.3 21.7 6.4 3.8 16.1 -5.3 11.3 7.0 Annual Trade Balance, US$ bn -4.4 -4.4 -4.3 -4.0 -4.2 -3.9 -4.0 -3.9 Quarterly data Mar 05 Jun 05 Sep 05 Dec 05 Mar 06 Jun 06 Sep 06 Dec 06 Real GDP, % YOY 3.7 3 2.5 2.1 2 1.6 1.4 - - Private consumption 5.5 5.5 5.1 4.9 4.5 3.4 2.5 - - Government consumption 4.6 4.4 4.2 4.2 4.7 3.9 4.1 - - Gross fixed capital expenditure 7.2 4.5 3.8 4.5 5.9 3 0 - Nominal GDP, US$ bn 100.3 104.9 107.6 108.5 107.6 104.7 103.3 - Annual Current Account, US$ bn -7.4 -8.4 -9.2 -9.8 -10.3 -10.1 -9.4 - Consumer Price Index, annual % 2.8 2.8 3.4 3.2 3.3 4.0 3.5 2.6 Sources: Statistics NZ, ANZ National Bank


Country Update: Philippines Recent peso depreciation has been in line with

regional trends

47

48

48

49

49

50

Jan-07 Feb-07

USD/PHP

Philippines peso


Indonesian rupiah

Malaysian ringgit

8,8508,9008,9509,0009,0509,1009,1509,200

Jan-07 Feb-07

USD/IDR

3.473.483.493.503.513.523.533.54

Jan-07 Feb-07

USD/MYR

3031323334353637

Jan-07 Feb-07

USD/THB

Thailand baht

Exports have slowed, but sales to China are surging

-5

0

5

10

15

20

25

05 06

% yearly change (3mma)

Exports Exports

-20

-10

0

10

20

30

40

50

Apr-06 Oct-06

US$ % yearly change (3mma)

China

Japan

US


• The peso has depreciated since the announcement of the new rules on USD/PHP trading (see feature article) in mid-February. However, this has been in line with broader movements in other regional currencies with higher global risk aversion prompting some reallocation of funds outside of East Asia. Moreover, at 48.30 against the US dollar, the peso still remains stronger than the start of the year.

• Going forward we expect the BSP’s commitment to further foreign exchange liberalisation will improve investor sentiment towards the Philippines. This, together with abundant global liquidity, solid local economic growth and continued high remittances will underpin a further appreciation of the peso, to 47.0 against the US dollar by the end of 2007.

• The new USD/PHP rules should help to slow down the rate of domestic liquidity growth. Growth in M3 surged to 23% in the year to January, largely fuelled by continued strong growth in overseas workers remittances.

• To date, strong liquidity growth is not feeding into inflation with the CPI easing to 3.9% in the year to January. Nevertheless, the rapid expansion of the money supply, together with the recent rebound in global oil prices and a likely fiscal expansion ahead of the May elections suggest the risks to the inflation outlook remain to the upside. We think these risks will be enough to prevent the BSP from easing interest rates in the first half of 2007.

• Turning to economic activity and export growth unexpectedly slowed sharply, albeit to a still strong 7.2% yearly pace in December. Weaker export sales to the Philippines’ two major trading partners, the United States and Japan were the main drags on growth. In a promising sign however, growth in exports to China, currently the Philippines’ third biggest export destination, is surging by 40% in YOY terms. Increased rotation of exports towards the rapidly growing Chinese market will provide an important boost to the Philippines’ longer-term prospects.

Katie Dean

Economic data – Philippines Monthly data Jun 06 Jul 06 Aug 06 Sep 06 Oct 06 Nov 06 Dec 06 Jan 07 Manufacturing Production, %YOY -6.3 -10.8 -6.1 -8.9 -16.8 -15.9 -9.2 n/a Motor Vehicle sales, % YOY -9.7 9.4 6.3 3.8 -7.0 26.4 11.4 -2.8 Consumer Price Index, % YOY 6.7 6.4 6.3 5.7 5.4 4.7 4.3 3.9 Exports, % YOY 20.6 12.9 21.4 13.5 15.5 10.8 -3.8 n/a Imports, % YOY 7.7 14.8 15.3 -0.3 12.5 13.4 -1.3 n/a Trade Balance, US$ mn -484.0 -445.0 -621.0 -153.0 -479.0 -486.0 -476.0 n/a Foreign Exchange Reserves, US$ bn 18.1 18.2 18.5 18.7 19.3 19.5 19.9 n/a Quarterly data Mar 05 Jun 05 Sep 05 Dec 05 Mar 06 Jun 06 Sep 06 Dec 06 Real GDP, % YOY 4.2 5.4 4.8 5.3 5.7 5.8 5.3 4.8 - Private consumption 5.0 4.8 5.0 5.0 5.6 5.4 5.2 5.6 - Government consumption 2.2 12.4 -0.3 1.1 8.1 2.3 4.0 9.3 - Gross fixed capital expenditure -8.1 -2.5 -0.1 -4.6 0.4 -0.3 0.2 2.0 Nominal GDP, US$ bn 23.4 24.5 24.4 26.1 27.8 28.3 29.5 31.5 Current Account, US$ bn 0.7 0.0 0.3 1.1 1.2 1.5 0.9 n/a Capital Account, US$ mn 1.6 2.3 1.1 -3.1 1.5 -1.7 0.1 n/a Sources: Datastream, Bloomberg


Country Update: Singapore Comparative tax rates and budget estimates

Headline corporate tax rate (%) Budget : 2007

Sources: Business Times Singapore 16 Feb 07, KPMG, Ministry of Finance Singapore

0 10 20 30 40 50

Macau

HK

S'pore

Taiwan

S. Korea

M'sia

Vietnam

Australia

Indonesia

Thailand

China

NZ

India

P'ppines

Japan

2.022.84Add:Net Investment Income

-0.3-0.8% of GDP

-0.69-1.28Overall Balance (S$ bn)

2.073.58Less:Special Transfers (S$ bn)

8.06.7% change

14.319.1% of GDP

33.030.55Less:Expenditure (S$ bn)

7.96.5% change

14.118.8% of GDP

32.3630Operating Revenue (S$ bn)

2007(estimate)

2006(revised)

Global competitiveness Index ranking - Asia

2006 ranking 2005 ranking

Singapore 5 5

Japan 7 10

Hong Kong 11 14

Taiwan 13 8

South Korea 24 19

Malaysia 26 25

Thailand 35 33

India 43 45

Indonesia 50 69

China 54 48

Philippines 71 73

Vietnam 77 74

Source: Singapore Economic Development Board, The Global

Competitiveness Yearbook 2006-2007, World Economic Forum

• Singapore’s budget for FY2007 (year beginning 1 April) was announced on 15 February. The overall budget deficit for FY2007 is expected to narrow to S$0.69 bn (0.3% of GDP) compared with a shortfall of S$1.28 bn (0.8% of GDP) in FY2006 which was smaller than the S$2.9 bn projected at the start of the fiscal year. Economic growth projections are for a realistic 4½%-6½% expansion in 2007 after a robust growth of 7.9% in 2006 (ANZ’s forecast is 5%).

• In a bid to enhance competitiveness, the government announced a 2 percentage point reduction in the headline corporate income tax rate to 18% for the Year of Assessment 2008 (ie. CY2007). This brings it to be one of the lowest rates in East Asia. However, employer CPF contribution rates will increase by 1.5 percentage points to 14.5% from 1 July with separate employer contribution adjustments for older low-wage workers geared towards improving their employment prospects. The government is moving to increase indirect revenue with a hike in the GST from 5% to 7% from 1 July. This, however, will be accompanied by a S$4 bn GST offset package over 5 years to assist in the adjustment to the GST increase. GST collections are estimated to rise by 23.4% in FY2007 reflecting the GST hike and expected lift in consumption from the offset measures.

• Fourth quarter GDP results saw a stronger-than-expected outcome of 6.6% YOY, buoyed by a 6.6% YOY expansion in the services sector and 7.7% YOY increase in the manufacturing sector. Total manufacturing investment commitments were up 3.8% in 2006 to S$8.8 bn and are likely to increase further in 2007, boosted by its top competitiveness ranking in Asia. The robust economy kept unemployment low at 2.6% in December.

• Strong economic fundamentals and prudent macroeconomic management will continue to underpin the Singapore dollar which has appreciated by some 0.5% against the US dollar since the start of the year.

Jasmine Robinson

Economic data – Singapore Monthly data Jun 06 Jul 06 Aug 06 Sep 06 Oct 06 Nov 06 Dec 06 Jan 07 Industrial Production, %YOY 22.3 19.6 4.8 5.5 3.3 15.6 5.6 14.6 Retail Sales, % YOY 4.2 3.4 2.8 2.4 0.4 9.2 4.9 n/a Consumer Price Index, % YOY 1.4 1.1 0.7 0.4 0.4 0.5 0.8 0.2 Exports, % YOY 27.8 20.6 16.6 19.9 10.0 17.8 4.2 22.3 Imports, % YOY 26.9 25.8 21.2 18.4 3.1 19.5 16.9 18.8 Trade Balance, US$ bn 2.6 1.8 2.4 3.7 3.7 3.5 1.6 4.4 Foreign Exchange Reserves, US$ bn 127.3 129.0 129.9 129.2 131.6 134.3 136.7 n/a Quarterly data Mar 05 Jun 05 Sep 05 Dec 05 Mar 06 Jun 06 Sep 06 Dec 06 Real GDP, % YOY 3.9 6.1 8.1 8.2 10.3 8.1 6.9 6.5 - Private consumption 3.5 3.1 2.5 3.3 2.4 2.2 2.5 2.7 - Government consumption 8.0 -1.1 7.4 11.5 12.2 9.5 19.7 3.7 - Gross fixed capital expenditure -8.7 -5.5 -3.1 18.2 10.6 7.8 10.2 17.0 Nominal GDP, US$ bn 28.2 28.8 29.1 30.4 31.3 32.3 33.4 35.2 Current Account, US$ bn 5.6 7.0 8.6 7.4 8.1 9.3 9.0 9.8 Capital & Financial Account, US$ bn -4.4 -2.1 -8.5 -4.0 -3.6 -6.2 -5.7 -5.5 Sources: Bloomberg, Datastream, Economic Survey of Singapore


Country Update: Taiwan Exports have received a temporary boost from

the Lunar New Year

-20

-15

-10

-5

0

5

10

15

20

25

30

35

05 06 07

% yearly change


Exports Industrial production

-4

-2

0

2

4

6

8

10

05 06 07

% yearly change, 3mma

The CBC remains keen to move interest rates to a neutral level

-2

-1

0

1

2

3

4

05 06 07

% YOY

Core

Headline

Interest rates

Source: Datastream, Bloomberg, Economics@ANZ

CPI

0

2

4

6

8

00 01 02 03 04 05 06 07

% pa

Taiwan money market

Fed funds

• The Taiwan economy grew by a stronger-than-expected 4.0% in the year to the December quarter 2006. A pick up in consumer spending was the main driver of growth, with households starting to recover from the credit card boom and bust. With the unemployment rate close to a six-year low at 3.94% in January, this recovery looks to be on a firm footing. Taiwan’s statistical bureau is forecasting growth in consumer spending to rebound to a three-year high of 3.2% in 2007, up from 1.5% in 2006.

• A recovery in household spending is important for Taiwan’s economic prospects, which will rely increasingly on domestic demand as the global economy slows. The external sector has become an increasing drag on economic growth in recent months as slower exports prompt a narrowing of the trade surplus. While exports did surge by 18.8% in the year to January, this was largely driven by a sharp increase in Chinese demand of electronics products ahead of the Lunar New Year holiday. This seasonal spike will likely reverse in February.

• Inflationary pressures in Taiwan remain low with the core CPI turning in a negative monthly reading for the first time in five months in January. The firmer data on domestic demand, however, will make it easier for the CBC to continue lifting interest rates towards the central bank’s desired ‘neutral’ level. We continue to pencil in a 12.25 bps rise in the Taiwan discount rate to 2.87% at the CBC’s next meeting in March.

• As always, the Taiwan economy continues to operate in a volatile political environment as campaigning for the 2008 presidential election begins. Nominations for President from the ruling DPP party include Taiwan Premier Su Tseng-chang, party chairman Yu Shuyi-kun and Premier Frank Hsieh. Meanwhile the opposition KMT is in disarray after its chairman, former Taiwan Mayor, Ma Ying-jeou was indicted on charges of misuse of government allowances. Ma Ying-jeou has since quit the KMT and announced he will run for President as an independent.

Katie Dean

Economic data – Taiwan Monthly data Jun 06 Jul 06 Aug 06 Sep 06 Oct 06 Nov 06 Dec 06 Jan 07 Industrial Production, %YOY 5.8 7.3 4.7 2.3 1.3 1.9 -1.7 n/a Retail Sales, % YOY 1.5 2.4 -0.6 -0.2 3.9 4.1 n/a n/a Consumer Price Index, % YOY 1.7 0.8 -0.6 -1.2 -1.2 0.2 0.7 0.4 Exports, % YOY 15.6 21.4 17.6 19.5 5.6 8.7 8.9 16.2 Imports, % YOY 11.0 17.7 18.0 12.1 6.2 8.3 16.1 22.1 Trade Balance, US$ bn 1.2 1.7 1.2 2.8 2.3 2.4 2.9 1.8 Foreign Exchange Reserves, US$ bn 260.4 260.4 261.0 261.6 261.8 265.1 266.2 266.0 Quarterly data Mar 05 Jun 05 Sep 05 Dec 05 Mar 06 Jun 06 Sep 06 Dec 06 Real GDP, % YOY 2.4 3.1 4.1 6.5 5.0 4.2 5.1 4.2 - Private consumption 2.2 2.9 3.9 2.0 2.1 1.1 0.6 2.4 - Government consumption -0.4 1.5 0.8 1.8 -0.3 -1.2 0.1 0.4 - Gross fixed capital expenditure 9.2 7.3 2.2 -12.5 -4.0 -5.1 3.9 7.1 Nominal GDP, US$ bn 86.2 86.8 87.0 86.3 86.6 87.4 90.1 91.5 Current Account, US$ bn 4.4 1.6 0.9 9.1 5.8 4.6 6.3 8.5 Capital Account, US$ bn -4.6 -3.4 -2.9 -7.6 -6.0 -6.8 -6.3 -10.1 Sources: Bloomberg, Datastream, National Statistics


Country Update: Thailand Local sentiment slides

Sentiment indices Growth slows

Sources: Bloomberg, Datastream

40

50

60

70

80

90

100

110

120

00 01 02 03 04 05 06

Index

Consumer confidence

Business sentiment

0

1

2

3

4

5

6

7

8

9

00 01 02 03 04 05 06

% YOY

Privateconsumption

Real GDP

Thai baht climbs against its major trading partners

Source: Datastream

80

90

100

110

120

130

140

3-Jan-05 4-Jul-05 2-Jan-06 3-Jul-06 1-Jan-07

1 Jan 2005=100

THB/JPY

THB/CNY

THB/USD

• The Ministry of Finance has cut its growth forecast for 2007 to 4-4.5% from 4-5% previously. Consumer and business sentiment is down and foreign direct investment is likely to be slow amidst an uncertain operating environment. Market consensus for real GDP in Q4 2006 suggest a moderation in growth of 3.9% YOY, the slowest pace since Q1 2005. This easing in domestic demand has prompted the central bank to cut its benchmark interest rate for the second time this year to 4.5%.

• Meanwhile, the Thai baht continues to climb, making it the best performer in Asia. The Bank of Thailand has indicated that there is no target for the baht and will relax capital controls further in March. Global liquidity conditions have been buoyant and this has underpinned currency appreciation across Asia. The baht has appreciated by some 4.5% against the US dollar since the start of the year.

• The central bank will, on 9 March, sell its first floating-rate bonds which will mature in three years, creating a new instrument to help manage liquidity in the local financial market and enhancing the development of the local debt market. Previously, bonds issued were of a fixed type with maturities of up to two years.

• The political climate continues to be tenuous. The government has suffered setbacks with the resignation of former deputy PM Somkid Jatusripitak as economic advisor a week after assuming the appointment. This has been followed by the recent resignation of deputy PM and Finance Minister Pridiyathorn. Interim PM Surayud Chulanont has indicated the possibility that elections could be delayed as a referendum of the yet-to-be finalised new constitution needs to take place first. The unrest in southern Thailand has been heightened by the series of coordinated bombings that took place in four southern provinces in February. The interim administration has agreed to talks with separatist groups, with support from Malaysia, but the road to addressing the conflict will be a long and difficult one.

Jasmine Robinson

Economic data – Thailand Monthly data Jun 06 Jul 06 Aug 06 Sep 06 Oct 06 Nov 06 Dec 06 Jan 07 Manufacturing Production, %YOY 6.7 6.1 8.0 5.1 5.8 8.2 6.9 n/a Car Sales, % YOY -12.4 -0.4 1.6 -10.4 -10.5 -8.9 8.5 -23.4 Consumer Price Index, % YOY 5.9 4.4 3.8 2.7 2.8 3.5 3.5 3.0 Exports, % YOY 18.2 17.2 16.5 15.3 20.1 20.7 16.4 n/a Imports, % YOY 3.0 17.9 13.4 9.0 9.5 3.5 6.5 n/a Trade Balance, US$ bn -0.4 -0.2 0.3 1.6 0.8 1.8 0.8 n/a Foreign Exchange Reserves, US$ bn 56.4 57.1 57.7 60.0 60.7 62.8 65.3 n/a Quarterly data Mar 05 Jun 05 Sep 05 Dec 05 Mar 06 Jun 06 Sep 06 Dec 06 Real GDP, % YOY 3.6 4.6 5.5 4.4 6.2 5.1 4.7 n/a - Private consumption 4.1 4.7 4.7 3.6 4.0 3.3 2.8 n/a - Government consumption 14.0 12.7 18.9 9.5 6.8 5.8 4.8 n/a - Gross fixed capital expenditure 15.0 14.6 9.0 6.4 6.1 4.0 3.1 n/a Nominal GDP, US$ bn 43.7 43.3 43.9 45.2 48.7 50.8 52.3 n/a Current Account, US$ bn -2.4 -5.4 0.1 -0.2 0.6 -2.2 1.3 3.6 Capital & Financial Account, US$ bn 1.4 5.6 3.1 2.4 2.9 3.0 2.3 -0.7 Sources: Bloomberg, Datastream,


Country Update: United States Economic growth is slowing

0

1

2

3

4

5

03 04 05 06

% change

GDP quarterly

GDP year-ended

GNE year-ended


First housing, now business?

1.5

1.6

1.7

1.8

1.9

2.0

2.1

2.2

00 01 02 03 04 05 06 07425

450

475

500

525

550

575

600

625

Permits(LHS)

No. (million), trend

Starts(LHS)

Real dwelling

investment

$bn

0

2

4

6

8

10

12

05 06

ann % change, trend

Housing construction activity Durable goods orders

• The near-term US growth outlook has weakened over the past month. December quarter economic growth was revised down sharply to just 2.2% (from the initial estimate of +3.5%). Annualised growth slumped from 4.1% in the first half of 2006 to just 2.1% in the second half, due largely to the collapse in dwelling construction and more recently, a downturn in business investment.

• Despite signs of a bottoming in housing sentiment, the outlook for dwelling investment remains weak and housing will continue to detract significantly from growth in 2007.

• Growth in business investment provided a partial offset to the housing slump through much of 2006. However, both equipment investment and non-residential construction fell in the December quarter and the recent slump in durable goods orders points to further weakness in early 2007. Trend growth in durable goods orders has fallen from a solid 11.8% at the start of last year, to just 1.2% in January 2007.

• In contrast, the household sector has remained resilient, buoyed by solid income gains and reduced gasoline prices. But a return to more normal weather conditions and a renewed rise in gasoline prices in February foreshadow a softer outcome in the March quarter.

• Inflation news has been mixed. A rise in the core CPI of 0.3% in January surprised on the upside, however the core PCE deflator for the December quarter was revised down from 2.1% to within the Fed’s comfort zone at 1.9%. Recent Fed commentary reveal increased confidence that below trend economic growth will deliver inflation back below 2% over the year ahead.

Paul Braddick

Economic data – United States Monthly data Jun 06 Jul 06 Aug 06 Sep 06 Oct 06 Nov 06 Dec 06 Jan 07 Building permits, 000’s 1869 1763 1727 1638 1553 1513 1613 1571 Retail Sales, % YOY 5.1 4.5 6.1 5.1 4.4 4.2 5.3 2.0 Consumer Price Index, % YOY 4.3 4.2 3.9 2.1 1.3 2.0 2.5 2.1 Core Consumer Price Index, % YOY 2.6 2.7 2.8 2.9 2.8 2.6 2.6 2.7 Exports, % YOY 16.6 13.8 15.2 19.5 16.2 14.8 12.6 n/a Imports, % YOY 13.4 14.7 15.8 9.7 3.2 4.5 5.3 n/a Trade Balance, USD bn -64.6 -67.6 -68.6 -64.4 -58.9 -58.1 -61.2 n/a Quarterly data Mar 05 Jun 05 Sep 05 Dec 05 Mar 06 Jun 06 Sep 06 Dec 06 Real GDP, % YOY 3.3 3.1 3.4 3.1 3.7 3.5 3 3.1 - Private consumption 3.5 3.8 3.8 2.9 3.4 3 2.7 3.6 - Government consumption 0.8 0.5 1 1.2 2 2 1.6 2.6 - Gross fixed capital expenditure 8 7.4 6.4 5.6 7.4 7.2 8.3 6.2 Unit labour costs (non-farm), %YOY 2.2 2.3 2.1 1.6 3.6 3.1 3.1 2.8 Current Account, US$ bn -191.7 -193.3 -183.4 -223.1 -213.2 -217.1 -225.5 n/a Capital & Financial Account, US$ bn 134 149.2 255.7 242.2 169.8 152.2 175.8 n/a

Sources: Datastream. Note: data seasonally adjusted unless otherwise stated

ANZ International Economics Monthly – February 2007

Country Update: Vietnam

Export growth continues in 2006

Exports as % of GDP Composition of Exports - 2006

Rubber &Coal

(5.6%)

Electronics (6.2%)

Wooden Products(4.8%)

Seafood(8.5%)

Food(9.0%)

Other(16.8%)

Durables(4.5%)

Textiles & footwear (25.7%)

Crude oil (22.9%)

0102030405060708090

95 96 97 98 99 00 01 02 03 04 05 06

Non-Oil Oil

% of GDP

0

20

40

60

80

100

120

95 96 97 98 99 00 01 02 03 04 05 06

Foreign invested sectorDomestic economic sector

% of exportsExports by ownership

Source: Vietnam General Statistics Office, Economics@ANZ

FDI focussed on industrial development…

-5 5 15 25 35 45 55

Heavy industry

Light industry

Petroleum

Foodstuff manufacturing

Construction

Hotel & tourism

Service

ransportation and communication

Finance-banking

Culture, Health & Education

Agriculture, forestry, fishing

Projects Capital

Foreign Direct Investment by Sector 2006

% of Total

Source: Vietnam General Statistics Office, Economics@ANZ

• Vietnam’s trade performance has been steadily improving in recent years. Consequently, the trade deficit continued to narrow in 2006. Exports expanded 22.1% last year, reaching US$39.6 bn, US$2 bn more than the official target. The government will again be aiming for plus-20% growth in 2007, assisted by WTO accession and PNTR with the US. With these agreements reducing tariff rates, the government will require these rates of export growth to offset the loss of tariff revenues. The government expects the loss of revenue from tariff rate reductions to be around US$62.5 mn over the next 5 years.

• The foreign invested sector will continue to play a key role in export growth. The foreign invested and domestic exports sectors expanded at 23.2% and 20.5% in 2006, with the former still accounting for over 57% of exports. Official forecasts predict strong growth in particular sectors, including heavy industry, electronics, aquatic products and in the traditional textiles & footwear sectors. The government has a specific focus on developing the domestic high-technology sector, as well as attracting foreign technology companies to operate in Vietnam. The most prominent example of this last year was US company Intel registering to invest US$1 bn to build the largest of its seven plants worldwide in Vietnam. It is envisaged that 4,000 local labourers will be employed at the future plant.

• Heavy industry is also a priority for the government. This sector attracted over 54% of registered FDI capital and around 30% of total FDI projects in 2006. The largest of these projects has been Korea’s Posco group investing US$1.13 bn in a steel mill that is expected to employ 10,000 local workers. Developing domestic heavy industry is also a priority, in particular shipbuilding. The government is aiming to develop Vietnam into a world-class shipbuilder rivalling China, South Korea and Japan, believing that the large labour force and natural harbours give local industry an advantage. To this end, significant resources are being directed into this sector. It is expected support will be given to build a new US$500 mn shipyard covering 300 hectares in the Van Phong economic zone. In addition, the government had already invested the US$750 mn raised by Vietnam’s first international bond issue in state-owned shipbuilder Vinashin.

Alex Joiner

Economic data – Vietnam Monthly data Jun 06 Jul 06 Aug 06 Sep 06 Oct 06 Nov 06 Dec 06 Jan 07 Industrial Production, %YOY 16.1 16.5 16.7 16.8 16.9 16.9 18.8 26.6 Retail Sales, % YOY 19.7 19.8 20.2 20.4 20.5 20.7 20.9 21.3 Consumer Price Index, % YOY 7.6 7.5 7.5 6.9 6.7 6.9 6.6 6.5 CPI-Food & Foodstuffs, %YOY 8.1 8.5 8.4 7.7 5.9 8.7 7.9 7.4 Exports, % YOY 25.7 25.7 24.3 24.2 24.2 23.7 22.0 7.7 Imports, % YOY 14.1 16.5 17.4 19.3 20.7 21.4 20.1 30.8 Trade Balance, US$ bn -0.6 -0.6 -0.4 -0.6 -0.65 -0.64 -0.50 -0.10 Tourist Arrivals, %YOY 7.2 7.0 4.8 4.6 3.6 2.5 3.0 9.5 Quarterly data Growth Q1-Q4 2006 Real GDP+, % YOY 8.2 Agriculture, forestry, fishery, % YOY 3.4 Industry & construction, % YOY 10.4 Services, % YOY 8.3 +: January-to date vs same period in previous year *: January to date ^: US$ bn

Source: General Statistics Office of Vietnam


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