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[2663] A quick reaction to Malaysia’s RGDP growth for the fourth quarter: irony and non-celebration

So, the Malaysian economy grew by 6.4% from a year ago in the final quarter of 2012.

When I first saw the headline figure, I was pleasantly surprised. Upon closer inspection however, the whole growth figures appeared weird. After I figured out why it was weird, I became uncomfortable with the high growth rate.

Domestic demand growth slowed significantly (it slowed by 3.9 percentage points in fact from the last quarter). That was the first sign that something was not right. The private demand growth figure is particularly worrying. I had expected its growth to moderate slightly but it slowed by 2.4 percentage points (ppt). That is a lot.

Here comes the ultimate irony: trade saved Malaysia. Despite the bad trade numbers we saw throughout the quarter, the one that pushed growth way above market consensus in change in change was net exports. This is where the weirdness comes in: both exports and imports contracted.

How was that possible?

The lower imports helped made net exports what it was in that quarter. Even as exports and imports are down, both can contract in a way that the difference between the two increases (or in this case, less bad).

So, with domestic demand down, exports down and imports down, I would not celebrate too much. Would anybody celebrate a 6.4% growth that was caused by those contractions?

The fourth quarter trade surplus is not the kind of surplus I like.

Look at the year-on-year growth and compare the 4Q growth with 3Q:

  1. government expenditure: growth slowed by 1.2 ppt. This is small because it corresponds to only RM0.1 billion change in change.
  2. private consumption: growth slowed by 2.4 ppt. This is huge chunk: RM2.2 billion change in change.
  3. investment, which I take as gross fixed capital (instead of gross fixed capital formation); growth slowed by 14.2 ppt. RM6.4 billion change in change.
  4. net exports: its rate of deterioration slowed by 44.4 ppt down. Words may fail me here. To be clear, there was a trade surplus. I am referring to the rate of deterioration of trade surplus and it has slowed down. RM11.1 billion change in change.

So, if you think in this terms, the lower rate of deterioration of net exports or in better phrase, trade surplus, provided considerable room for faster overall growth. Graphically:

20130212GDPNX

At the end of the day, the high 6.4% growth hides something worrying: the 6.4% growth was only possible because of mathematical interactions. Domestic demand and total trade did relatively badly.

On the bright side however, the future may appear to be much better than the fourth quarter. And I think it is important to emphasize that even without the improvement in change in trade surplus, the domestic economy did grow anyway.

Mohd Hafiz Noor Shams. Some rights reserved Mohd Hafiz Noor Shams. Some rights reserved Mohd Hafiz Noor Shams. Some rights reserved
p/s — I just want to add that I am not accusing the statistics authority of data manipulation, which is the feeling I get some others have gotten, especially those whom are very anti-establishment. When I wrote that the number hid something worrying, I did not mean to suggest the authority was hiding something. I merely meant to say there was more story behind the headline number. I sincerely apologize if I had convinced you that there was malice involved. I do disagree with that accusation that the authority manipulated the data.

p/s 2 — you can see the net exports level although looking at the level while thinking in change in change can be difficult:

20130212GDPNXlevel

By Hafiz Noor Shams

For more about me, please read this.

9 replies on “[2663] A quick reaction to Malaysia’s RGDP growth for the fourth quarter: irony and non-celebration”

[…] As I have written last week, Malaysia’s 6.4% real GDP growth from a year ago in the fourth quarter of the year hides actual relative weaknesses in the economy. Consumption growth, investment growth and government expenditure growth slowed. Trade contracted. What contributed to faster overall growth was that both exports and imports decreased in a way that made trade surplus erosion less bad. A drop in imports was the reason for high growth. […]

As an economist, would you have worded the headline and the gist of the story differently?

I do agree that there was no manipulation of data. However, the mainstream headlines was worded in such a way that it is almost like pulling a layer of wool over the eyes of the reader.

@upsidedown 119

If you’re comparing against 3Q, it’s as Hafiz said – higher net exports – very specifically, imports fell instead of growing.

@ck

I might buy what you’re saying except that the data doesn’t come from BNM, it actually comes from DOS.

As for inflation, I’ve given up trying to explain.

@ck:

I doubt its actual manipulation of data. The source of the accusation is very possibly originating from misunderstanding of what the data measures.

@upsidedown 119:

No. Growth of government expenditure and public investment in fact slowed from the year before.

Reminds me of the 1st arithmetic acrobat by the Bank Negara under Zeti during Mamak’s reign.

She helped to prop-up a minute growth in Q4 1997 to avoid a technical recession of two consecutive negative GDP growth, thus making Mamak’s reign of all positive annual growth.

Ever since then, she has been sprinkled her magical touch, here & there, by playing with numerical contortion, just to please the atasan!

So, any economist that worth his/her socks, shouldn’t read too much into this figure, which is totally out of touch with the ground feel.

Just like the chronic low level of the inflation rate for M’sia.

If demand/consumption slowed and export and import all contracted, how can there be a 6.4% expansion of the economy? Slowing imports will be reflected in slowing consumption.

Was there a major increase in capital investments especially by foreign investors? If so it should be reflected in some increase in consumption and imports! What about the services sector including government expenditure? The slowdown in consumption, export and import would need to be more than made up by a huge expansion in government expenditure to produce a 6.4% growth in the economy. If this is so, I expect the government borrowings and therefore the national debt, to increase markedly. Has our debt level excluding guarantees, crossed the critical 55% of the GDP in 2012? If so, this will be the real unhealthy aspect of the 6.4% economic ‘growth’!

Yeah, like wow…completely unexpected.

Not sure I agree with your interpretation though. The change in the trade balance was relatively minor, unless you’re looking at sequential growth and not year on year.

The y-o-y growth contribution from the raw numbers looks to be equal parts investment and private consumption. The drop-off in growth is largely because consumption appears to have been unusually high in 3Q. Actually both 3Q and 4Q consumption look like they’re above trend.

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