February 20th, 2013 by Hafiz Noor Shams
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:
- government expenditure: growth slowed by 1.2 ppt. This is small because it corresponds to only RM0.1 billion change in change.
- private consumption: growth slowed by 2.4 ppt. This is huge chunk: RM2.2 billion change in change.
- 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.
- 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:
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.
p/s 2 — you can see the net exports level although looking at the level while thinking in change in change can be difficult: