When faced with the unknown, we form assumptions based on what we know from previous experience. In science, it is fancier to call those assumptions as hypotheses. And hypotheses are meant to be tested. Those whom have done sufficient level of statistics will quickly understand this as hypothesis testing and at the very basic level, this is the philosophical foundation of whatever Covid-19 testing that exist out there.

The logical set-up is simple. There is a null hypothesis that a test seeks to reject. A failure to reject based on some benchmark means the hypothesis may have some truth to it, while a rejection means the alternative hypothesis is likely true. In the case of Covid-19 test, the null hypothesis would be “the person is heathy” and the alternative hypothesis would be “the person is unhealthy.”

Notice the use of ‘may’ and ‘likely.’ It expresses possibility. It reflects an element behind any statistical testing method: confidence. Confidence is an important factor because all testing are prone to error. We try to reduce it, but there is a minimum error level we have to tolerate. The errors come in two forms: it is possible to test a healthy person as unhealthy, and as we have witnessed in the past several weeks in Malaysia, it is also possible to test an unhealthy person as healthy.

When we tested a healthy person as unhealthy, that is known as a Type I error. Here, we rejected the null hypothesis when we should not. It is a false positive. As far as Covid-19 is concerned, this is an inconvenience to the person tested falsely. There will be cost involved, but the person will very likely be fine.

When we tested an unhealthy person as healthy, that is Type II error. Here we failed to reject the null hypothesis when we should. It is a false negative. In our Covid-19 context, this has a life-threatening consequence.

Between the two errors, a false negative is clearly the worse mistake to commit.

This is why adhering to strict and fulltime quarantine is important. Based on what we know from public health professionals, 14 days is the reasonable period for a quarantine. Centers for Disease Control and Prevention in the United States for instance stated that any symptom would manifest itself between 2 to 14 days. If we are truly sick, regardless of test results, there is a very high likelihood the truth will be discovered.

In Malaysia, we have ignored the risk of Type II error so that the ruling class could get their convenience. After violating safety and health procedures regarding social interactions during a time of pandemic, too many Malaysians—the politician class generally, the ruling class particularly—were just too happy to rely on testing to determine whether we are free of Covid-19, without understanding the underlying risk.

Worse, the authority was just too happy to short-circuit the process as if there is no error in testing. Whether the local health authority was strong-armed into it, we do not know. What we know is that quarantine time for those coming from high-risk areas in Sabah was 3 days, and not 14 days. Unlike the 14-day period, there is no scientific explanation why 3-day period were appropriate. In fact, a 3-day quarantine period is inconsistent to what we have been informed by health authority about the nature of Covid-19.

Because of the complete ignorant trust in testing method and failure to understand the risk of Type II error by a group of people—ministers no less—we Malaysians now have to suffer a pandemic wave bigger than we had earlier.

We all have sacrificed to fight Covid-19. We went through a severe lockdown. We worked from home. We stopped going out. We wore mask however uncomfortable the experience was. We were successful in flattening the curve, until the selfish men and women undid our success.

These ignorant, arrogant men and women have triggered a type II error crisis in Malaysia. They all should resign to atone for their sins.

So, I have managed to complete the map for Sabah and Sarawak yesterday after posting the map summarizing median income across Peninsular Malaysia at the district level. Here it is:

Some rights reserved. Creative Commons. By Attribution. By Hafiz Noor Shams

Just like the immediately previous post, these districts are colored based on the median household income, based on data from the 2019 Household Income Survey.

Out of 67 districts:

  • 20 districts have median of less than RM3,000 per month
  • 26 districts between RM2,999 and RM4,000 per month
  • 13 districts between RM3,999 and RM5,000 per month
  • 5 districts between RM4,999 and RM6,000 per month (Kuching, Samarahan, Miri, Penampang, Putatan)
  • 2 district between RM5,999 and RM7,000 per month (Kota Kinabalu and Labuan)
  • 1 district between RM6,999 and RM8,000 per month (Bintulu)
  • None with RM8,000 per month and above

This map is a bit of a challenge to me because unlike Peninsular Malaysia where I pretty much know almost all of the districts and their location, I could not immediately locate many of Sabah and Sarawak districts immediately.

Sarawak especially has complicated divisions, districts and subdistricts. The subdistricts threw me off a bit and I had to spend a little bit more time to draw Sarawak.

And a few notes:

  • Kuching has a spillover effect on neighboring districts. But I had expected Kuching to be more prosperous from median perspective. At least a green, but it is not.
  • Bintulu has the oil and gas effect, just like in Terengganu.
  • Miri gets a spillover effect from Brunei (and O&G)
  • Kota Kinabalu (and Labuan) is an exceptional prosperous city amid a state of reds.

This is something that I have always wanted to see but I do not think I have seen them in the media. So, I decided to do it myself.

This is a map representing the median household median income for all Peninsular Malaysian districts, based on data from the 2019 Household Income Survey.

Some rights reserved. Creative Commons. By Attribution. Hafiz Noor Shams.

Out of 90 districts:

  • 3 districts have median of less than RM3,000 per month (all in Kelantan)
  • 29 districts between RM2,999 and RM4,000 per month
  • 24 districts between RM3,999 and RM5,000 per month
  • 16 districts between RM4,999 and RM6,000 per month
  • 9 districts between RM5,999 and RM7,000 per month
  • 3 districts between RM6,999 and RM8,000 per month (Klang, Johor Bahru, Kulai)
  • 6 districts RM8,000 per month and above (KL, Putrajaya, Gombak, Petaling, Sepang and Hulu Langat)

There are a lot of reds in the map but it is worth to remember, the map is not weighted by population. There are much more people living in the non-red districts than in the red ones.

On another point, Terengganu offers a contrast to the red-orange Peninsular east coast.

I used a Wikipedia map as the base and then colored it based on 7 income classifications I made. I have not done the same for Sabah and Sarawak because… the number of administrative districts there is humongous. And it took me about an hour to do this map alone.

Despite the deep second quarter GDP contraction for Malaysia, monthly data suggests the economic situation is sitting somewhere between “becoming less bad” and improving. The new monthly GDP (April, May and June 2020) estimates shared by the Department of Statistics suggest the recesssion is becoming less bad from year-on-year perspective (it is impossible to independently verify the Department’s assessment because the monthly series is not available publicly). Industrial data suggests production is returning to pre-crisis level. Unemployment rate is coming off its peak but it is important to state that there is still a long way to go toward pre-crisis average.

The improvement has led to the narrative that we are recovering fast.

But as mentioned before, there are two types of shock at play in this recesssion: supply shock and demand shock. So when we talk of recovery, I think it is important to note that we need to complete two recoveries before we can confidently claim we have come out of the overall economic crisis.

At the moment, we can safely say we are recovering from the supply-side crisis. Some damage has done to the economy from the supply perspective but if things continue to proceed as it is, the overall industrial production would return to its pre-crisis level in the coming months. Somewhat full recovery from the supply-side would likely be possible once the partial domestick lockdown is removed, with the borders opened. The earliest that would happen is likely January 1 2021. Full recovery will depend on our major trading partners aboard, some of which are not doing too well.

In contrast, I think it is much more difficult to say whether we are recovering from the demand-shock, with some statistics possibly becoming unrealiable (a question of quality versus quantity, like the one besetting the unemployment rate calculation). This is where we should turn our attention to now.

To graphically represent that I am thinking about the two shocks, I have produced a chart.

The solid blue region represents the GDP (output), with Point 100 indicating the maximum production under normal times for convenience’s sake. There are 11 time periods from 0 to 10. Period 0 is pre-crisis. For each time period, output depends on two shocks: supply (pink) and demand (yellow).

From the chart at time Period 1, I am showing the GDP contracting due to a massive sudden supply shock. But beginning Period 2, the supply shock begins to be removed from the equation and as a result, the GDP is improving rapidly (for Malaysia, that comes in the form of successfully addressing the Covid-19 infection and lifting the full lockdown). But the supply shock simultaneously generates a demand shock. But the latter shock is more persistent than the supply shock, lasting longer in the following time periods. Our supply shock has a mechanical feeling to it. You know what is going on and if the supply shock gets removed, things would rapid go back to normal. But the demand transmission is more complex and this lies the danger of believing in a V-shape recovery.

One point I want to highlight: while the supply-driven GDP contraction is much, much bigger than the demand-linked contraction, under normal times, such demand-contraction would be considered as serious (with the superlarge numbers we have seen during the Covid-19 crisis, it is easy to lose track of “normal” perspective).

The next critical points for demand-side will be end of moratorium on September 30, and December 31 when the wage subsidy program will expire. I think these two measures have prevented the supply-shock from fully being translated into a demand-shock. The end of the two measures would remove the barriers. Those dates would likely negatively affect income level and unemployment, which would translate to spending.

So, as a summary: the so-called rapid recovery is largely due to the supply shock removal (both successfully addresssing Covid-19 infection and lifting the full lockdown). And it is unclear yet to me if we have begun to undo the demand shock. At the very best, we have only partially delayed it.

We are back and tomorrow, the Department of Statistics Malaysia will be releasing the second quarter GDP figures. Without further ado…

How fast do you think did the Malaysian economy expand in 2Q20 from a year ago?

  • Grew by more than 0% (0%, 0 Votes)
  • Contracted by 0.1%-2.5% (9%, 2 Votes)
  • Contracted by 2.6%-5.0% (13%, 3 Votes)
  • Contracted by 5.1%-7.5% (17%, 4 Votes)
  • Contracted by 7.5%-10.0% (22%, 5 Votes)
  • Contracted by 10.1%-12.5% (17%, 4 Votes)
  • Contracted by more than 12.5% (22%, 5 Votes)

Total Voters: 23

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And… what. A. Ride. It. Has. Been. Politics. Economics.

The result is… there is no doubt the second quarter GDP figures will be terrible with a capital T. The question now will be by how much, and for how long.

The problem for the past perhaps 6-7 months has been the unreliability of statistics. Many statistical causal relationships depend on stable correlation. The supply-side shock has changed those relationships and there is a good risk those relationships are broken for good. In the aftermath of the 1990s Asian Financial Crisis for instance, economic growth rate has slowed in the decades after. This recession, the worst since forever, could do the same for various macroseries.

That, I think is how important the past months have been to Malaysian economics.

Now to the statistics.

Industrial production had taken a blow for the whole quarter. However in June, it was almost back up to pre-shock level. Almost, although I feel it is unclear whether a big chuck of the back-to-normal is due to old production lines coming back up, or some sectors overperforming. Or just factories trying to make up lost time (or just goddamn rubber gloves… joking). I write so because mining (with its perpetual supply disruption; investment is needed there to upgrades those facilities) and electricity production are not there yet. But for manufacturing, it shot up quite strongly. But overall, they are bad numbers, and increasingly less.

Similar observations for exports and imports. Both June exports and imports had jumped from May, but for imports, it has not returned to pre-crisis level yet. Not close at all. Imports are important numbers because it is a proxy to consumption and weak June imports suggest domestic consumption will remain weak going into the third quarter. Retained imports mirrored overall import figure: meaning a majority of imports recovery, if it could be called as such, was due to re-exporting activities.

As for inflation, I do not know what it shows with respect to demand. With fuel prices down so much, I think inflation is a bit of a whack as a signal. Core inflation also is not very helpful, which suggests it needs to be improved. For what it is worth, inflation is in negative territory, but I would not call it deflation.

Unemployment rate is another iffy indicator. It has surged, but in June, like other figures, it has become less bad by a margin. But as somebody on social media mentioned, the composition of unemployment might be different now, with more lower quality employment coming in. I would quote him directly I suppose because the way he put it is more eloquent than me (translated roughly):

Unemployed pilots, engineers and other professionals working as food deliverers should not be considered as employed. [@The_Eddie. Twitter. August 11 2020]

Here is where underemployment figure would shed light on the matter. DOSM did report it once several months back in the form of working fewer than 30 hours per week. But we need more regular reporting on that front.

So, until tomorrow…

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