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Economics WDYT

[2918] Guess the 2Q20 Malaysian GDP growth

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…

Categories
Economics WDYT

[2892] Guess the 2Q19 Malaysian GDP growth

It is that time of the quarter again. The second quarter 2019 GDP will be released by the Department of Statistics next week, on August 16 2019.

How fast do you think did the Malaysian economy expand in 2Q19 from a year ago?

  • Slower than 3.6% (14%, 3 Votes)
  • 3.6% - 4.0% (18%, 4 Votes)
  • 4.1% - 4.5% (32%, 7 Votes)
  • 4.6% - 5.0% (27%, 6 Votes)
  • 5.1% - 5.5% (9%, 2 Votes)
  • Faster than 5.5% (0%, 0 Votes)

Total Voters: 22

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Malaysia’s 2Q19 industrial production growth so far has been stronger than it was in the first quarter. For illustration, April and May factory output expanded 4.0% year-on-year each. In contrast, the 1Q19 industrial production grew by 2.7% year-on-year only. The June industrial production has not been released, but it would have to be really bad before it would bring the 2Q19 growth below 1Q19 rate. There is however a minor possibility given how bad June export growth was.

Yet even with the June exports, exports for the whole 2Q19 did better than in the previous quarter.

Meanwhile, Bank Negara’s public data shows government expenditure growth is stable, with 2Q19 spending growth being about the same as it was in the previous quarter.

Another data set from the central bank does not look pretty though. Loans growth is slow. In 2Q19, total loans in the banking system grew 4.4% year-on-year, versus 7.2% in 1Q19. But there is a noticeable base effect here, possibly due to companies rushing to get their loans prior to the election. Just to highlight the importance of base effect, in month-on-month terms, loans grew 2.4% in April 2018, when the average loans growth in the January 2017-March 2018 was only 0.6% month-on-month. Loans growth is a proxy of private consumption but given the base effect, it is a difficult proxy to use for this quarter.

This is especially so when other proxies of private consumption are doing well. For instance, 2Q19 consumption imports grew 8.0% year-on-year, versus only 1.0% in 1Q19. Retail and wholesale trade statistics are also doing reasonably okay. The rate cut in May 2019 would also boost demand. The labor market is also stable.

Talking about base effect, we also have to remember that in June 2018, consumers in Malaysia faced no consumption tax. That would be a negative to consumption growth from year-on-year perspective.

Nevertheless, I am expecting a high 4%. It could even surpass 5% if Malaysia is lucky enough. Yes, I am optimistic of the second quarter, unlike for the first quarter statistics.

Categories
Economics WDYT

[2887] Guess the 1Q19 Malaysian GDP growth

The 2019 first quarter GDP will be out on May 16. Since we live in an age of trigger warning, let us play the game first:

How fast do you think did the Malaysian economy expand in 1Q19 from a year ago?

  • Slower than 3.6% (17%, 4 Votes)
  • 3.6% - 4.0% (26%, 6 Votes)
  • 4.1% - 4.5% (30%, 7 Votes)
  • 4.6% - 5.0% (26%, 6 Votes)
  • 5.1% - 5.5% (0%, 0 Votes)
  • Faster than 5.5% (0%, 0 Votes)

Total Voters: 23

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The consensus views are that growth for the quarter will be weak, possibly in the lower half of the 4.0%-5.0% range. Some are even betting on something lower. There are at least two justifications for the pessimism.

One, industrial production grew only 2.7% YoY during the quarter, largely due to contraction in mining production. Supply disruption continued to bedevil the sector after a major incident in Sabah last year. Manufacturing did largely okay, except in February. This leads us to the second factor.

Exports. Exports plunged quite drastically in February and a bit in March. While some of it had to do with supply constraints in the mining sector, manufactured goods exports also dropped, which indicated weakness in external demand. The country until recently had benefited from the trade war through trade diversion and business relocation. This could be seen from FDI and trade data. But prolonged and wider trade war would slow the expansion of global trade volume, possibly to a point where trade diversion would not overcome effects from slower trade growth. If the February and March export trend continues (exports for the quarter was down and in fact, so did export volume) in the second quarter, that might indicate we have reached that point where positive trade relocation factor is giving way to volume growth slowdown. The the escalating China and the US trade conflict is very likely the one major contributing factor to Bank Negara Malaysia cutting its policy rate by 25 basis point rate last week.

These two trends could hit the domestic economy in terms of employment. But so far, employment statistics have been going strong. It has not budged from 3.3% and anecdotally, there has been no story of widespread layoffs caused by weakened domestic and external demand. There were layoffs, but those appear directly induced by government policy, not demand per se. For instance, the non-renewal of contracts for political appointees and other politically-linked projects, which are not quite demand-driven.

There are complaints of economic slowdown among the public and in the media for awhile now, but again, that has not quite affected employment statistics by one bit. This makes the slowdown in the past few quarters puzzling to me. A pure supply-driven slowdown could explain this and there were supply problems. It is also possible that firms are hoarding labor supply, with a view of better economic performance in the near future.

From pure GDP growth statistics perspective, there might be some good news. Net exports might be doing better, or more accurately, external demand is doing better than domestic demand. Export volume index fell 2.2% YoY for the first quarter; import volume dropped 3.1%. The usual goods exports decreased 0.7% versus import drop of 2.5%. This could boost the GDP growth up by way of net exports, even if it is just math at work. If the actual GDP growth does surprise the market on the upside, I think it would come from here.

The downside is, the import volume drop suggests private consumption growth had slowed down. After all, imports are just a reflection of domestic demand. But to be honest, the consumption growth in the past several quarters have been extraordinarily high due to the changes in the tax regime. Such growth should decelerate and we would only see a “normal” growth rate for consumption in the fourth quarter of this year once the tax factor has been equalized across the relevant period (This of course is purely from year-on-year perspective and this is where quarter-on-quarter calculation offers a quicker and a better way of measuring changes).

As for government spending, it should be on the recovery mode and I think the worst should be behind us (or nearby, if it is not behind). As for gross fixed capital formation, I would want to say the same thing, but I really do not know.

Categories
Economics WDYT

[2886] Guess the March 2019 inflation rate

When the Malaysian consumer price index dipped 0.7% an 0.4% year-on-year in January and February this year, there were hysterical claims that Malaysia was experiencing deflation, never mind that deflation is characterized as persistent decline in prices rather than temporary dip. And never mind that the bad deflation is one associated with decline in demand, rather than supply-driven, which was what the dips in January and February of weighted average consumer prices were.

Just for context, the prices for January and February were heavily affected by the drop in retail petrol prices, on the back of the shift from GST to SST. But by March and April, retail petrol prices were on the way up and for RON95 and diesel, it hit the ceiling set by the government. RON97 continues to be on the prices as crude prices now soars to above $70 per barrel.

Additionally, we know when inflation would stabilize as we know when retail petrol and diesel prices were stabilized. Given the structural changes and its effect on year-on-year calculation, year-on-year and headline figures should not be the focus at the moment.

Anyway, the March numbers that will the out tomorrow should reflect this, as has been highlighted as early as January. And so…

How do you think did the consumer price index change in March 2019?

  • It fell (14%, 1 Votes)
  • It did not change (0%, 0 Votes)
  • It rose (71%, 5 Votes)
  • Unsure/Do not know (14%, 1 Votes)

Total Voters: 7

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Categories
Economics WDYT

[2881] Guess the 4Q18 Malaysian GDP growth

The Department of Statistics will be releasing the 2018 fourth quarter GDP statistics tomorrow.

I was wrong about expecting the 2018 third quarter GDP growth to quicken based on the faster consumption growth. Consumption growth did rise spectacularly and as stated earlier, there was no austerity. But external pressures prevented overall GDP growth from going off.

But I will repeat myself. I think we have hit the trough in the third quarter and so, we should see a rebound. Trade balance in the fourth quarter expanded slightly unlike in the previous quarter when it contracted. At the same time, consumption should grow healthily (in fact, stronger versus historical standard) albeit at a slightly slower pace. Meanwhile, pressures faced by the agriculture and the mining sectors should moderate.

But enough of me quacking.

How fast do you think did the Malaysian economy expand in 4Q18 from a year ago?

  • Below 3% (4%, 1 Votes)
  • 3.0%-3.9% (22%, 6 Votes)
  • 4.0%-4.5% (37%, 10 Votes)
  • 4.6%-5.0% (33%, 9 Votes)
  • 5.1%-5.5% (4%, 1 Votes)
  • 5.6%-6.0% (0%, 0 Votes)
  • More than 6.0% (0%, 0 Votes)

Total Voters: 27

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