[2661] For the gazillionth time, 2009 was a recession year

Idris Jala in his column in The Star today wrote something that I have always found disagreeable (or maybe since 2010 when I first encountered this kind of argument):

In just two years, we increased our GNI per capita by 45% from US$6,700 in December 2009 to US$9,700 in December 2011, a rare feat in today’s world. [Idris Jala. Davos Takeaways. The Star. February 2013]

My issue has always been the 2009 baseline because the year was a recession year. Because of that, a large portion of growth since 2009 originated from recovery, which has little to do with Pemandu and more importantly, it has little to do with structural growth. In simpler words, it was cyclical growth. The base was extremely low by recent standards. Any post-recovery year level will register high growth rate compared to the base. I have written something similar about this nearly three years ago.

To control for that low base, it is imperative to measure it from previous local maximum. In this case, 2008.

Here is a bar chart of yearly growth of nominal GDP per capita for Malaysia as obtained from the World Bank (the difference between GDP and GNI for Malaysia is relatively small. Whatever pattern you see in GDP, you will very likely see the same pattern in GNI as far as Malaysia is concerned, as long as the dimension is consistent, i.e. compare real numbers with real numbers, or nominal with nominal):

Now, if you measure 2011 GDP per capita in nominal terms since the recession year of 2009 as Idris Jala had done with his nominal GNI figures, 2009-2011 growth would be 37.9% (contrast this with Idris Jala’s 45% claims. Let us assume good faith that the difference is due to honest calculation; population size and actual GNI calculation could be different. The difference between GDP and GNI could contribute to it as well. Data source could be a culprit as well as the Department of Statistics last year updated and improved its time series to include more data, never mind the exchange rate given that it is nominal GDP expressed in USD). It means yearly average of nominal GDP per capita growth is 8.4%.

If you measure that GDP per capita growth based on what I said, 2008-2011 growth would be lower at 18.8%. The yearly average from 2008 to 2011 is 4.4%.

The difference says a lot. It says out of that 37.9% growth, about half of that growth was due to recovery. And that recovery had a lot to do with external demand…

Really, if you look at the chart, meaningful growth, i.e. growth gained after we had caught up with the old level, only came largely in 2011. There was no growth in 2009. We only got back to where we started in 2010. In 2011, we finally grew (the same narrative is true for real numbers as well).

The problem with Idris Jala and company is that they like to use the 2009 baseline as a proof that they are doing good. Based on their narrative, whatever they are doing is reflected in the growth numbers. After all, Najib came to power after forcing Abdullah to come down in 2009. In the same year, Pemandu was established by the new Prime Minister. You see, the correlation is perfect!

But any respectable person will know correlation is not causation. And in this case, Pemandu and Najib are only a coincidental third variable that exhibits correlation because they were lucky to be whatever they were at the most serendipitous time.

For the recent 2012 growth (2012 versus 2011), then maybe something can be credited to Pemandu. For previous recent growth, it just takes too much dishonesty and audacity to say a majority of growth from 2009 to 2011 could be credited to Pemandu. And given the low base effect, measuring growth from 2009 gives an overly sunny growth number that ignores the context of recession.

And of course, in the game of claiming undue credits, the larger the number, the better it is. Be damn with context.