Apparently, the second quarter GDP results came out way better than expected.

Aug. 27 (Bloomberg) — Malaysia’s economy is expected to resume growth this year after slipping into its first recession in a decade last quarter, mirroring recoveries across Asia.

Gross domestic product shrank a less-than-expected 3.9 percent in the three months ended June from a year earlier, after a 6.2 percent contraction in the first quarter, the central bank said yesterday. Economists, who were expecting a 5 percent decline, are raising their GDP forecasts for Southeast Asia’s third-largest economy.

Asian economies are reporting better second-quarter GDP numbers as the global slowdown eases after fiscal and monetary stimulus around the world. Malaysian central bank Governor Zeti Akhtar Aziz said yesterday that the government will revise its GDP forecast for a 5 percent contraction this year in the budget to reflect the nation’s economic improvement. [Malaysia’s Economy May Resume Growth This Year on Higher Demand. Shamin Adam. Bloomberg. August 27 2009]

Now, first of all, this dismisses concerns from some quarters that there was a need for a third stimulus package. These alarmists should be shot. No, I am not kidding. I really mean shot. I almost had a heart attack when I read about the suggestion months ago.

Secondly, we will only notice the stimulus money in full action only after recovery has taken place. I have taken this position from early one and I am being proven right. In fact, signs for recovery began as early as February, way before any stimulus has any impact. Since February, various indicators have shown general improvement independent of stimulus.[0A] The good news is that exports also improved;[0B] I have also maintained that recovery will be export-driven.

The official line is that the stimulus package helped cushion the fall. It may help by a tiny bit but changes in exports is more significant than increase in public spending, which more or less. a proxy of the stimulus package. Imports too went up but it is unclear if it was due to domestic consumption or instead, correspond to the increase in exports. Given that the make-up of the economy is that many of imported goods are intermediary goods which are used for exports, I am more inclined to favor the exports answer.

On top of that, in contrary to the celebrated increase in private consumption as announced by the Governor, in real terms, it fell to further gives credence to the exports explanation.

The same could be said about the increase in for capital formation. It is probably due to increased exports more than it could be about stimulus spending.

Furthermore, it appears that Malaysia may not have any need for a stimulus in the first place, or at the very least, the kind of outrageous size that we saw earlier. Proponents of stimulus, especially ones who advocated greater government spending as the base of that stimulus, were merely panicking more than anything else when they decided to unveil a large stimulus package, as I have accused them of.

As an aside, the much hyped Rangsangan Ekonomi website[1] which was announced as a site to make the stimulus spending transparent is especially a great cheat. For the second stimulus, it does not give actual progress. Rather, it only gives distribution of money. The whole thing is a big fat lie.

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[0A] — See The Coincident, Leading and Lagging Indicators, and Growth Rates, 2005-2009 table by the Department of Statistics.

[0B] — See Gross National Income (GNI) by Expenditure Components in Constant Prices (2000=100) and Current Prices table by the Bank Negara Malaysia.

[1] — To see it, go to http://www.rangsanganekonomi.treasury.gov.my/. Information for the first stimulus package however is respectably shared, unlike the second and much larger one. Accessed on August 27 2009.

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p/s — I am delighted to discover that the BNM website has been upgraded. Kudos to BNM.

One Response to “[2068] Of o stimulus, where art thou?”

  1. on 28 Aug 2009 at 11:50 hishamh

    You know, it’s funny. I’m looking at the exact same data as you are, but I don’t see the same story at all.

    No doubt exports went up in 2Q – but then trade almost always goes up in 2Q relative to 1Q. Seasonally adjusted, the level of exports relative to 1Q is actually the same, i.e. no growth in real terms. In short, recovery so far is not export driven. That puts a completely different complexion on the increase in investment.

    I’d also point out that the opposite applies to private consumption – seasonally adjusted it’s up 2.6% q-o-q, 10.8% annualised.

    A second point is that q-o-q import growth exceeded export growth, so the net marginal contribution of the external sector to 2Q GDP was negative, not positive.

    The biggest item that pulled up GDP in 2Q was actually changes in inventories. Although the number is still negative, it appears that production was ramped up for restocking – which could explain the higher import figure as well. But if this is an inventory bounce, then the basis of the recovery is still very weak.

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