Tag: exports

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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.

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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.

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Economics WDYT

[2865] Guess the 4Q17 Malaysian GDP growth

It is the final GDP release before the year goes to the dogs! The Department of Statistics will announce the fourth quarter figures tomorrow at noon. Before that, let us play a game:

How fast do you think did the Malaysian economy expand in 4Q17 from a year ago?

  • 4.5% or slower (13%, 3 Votes)
  • 4.6%-5.0% (13%, 3 Votes)
  • 5.1%-5.5% (22%, 5 Votes)
  • 5.6%-6.0% (43%, 10 Votes)
  • 6.1%-6.5% (0%, 0 Votes)
  • Faster than 6.5% (9%, 2 Votes)

Total Voters: 23

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For some context, the year 2017 was a pretty good year for GDP growth. It came after a pretty bad two-year period that in large part caused by the GST-shock to the economy.

But the fourth quarter growth is unlikely to be faster than the 6.2% yearly expansion we experienced in the July-September period. The third quarter was the peak and it was extraordinary. Even the 5.8% year-on-year growth in the second quarter now seems slightly on the high side.

You could see that industrial production has taken a break from the pace it grew for much of last year. Hot export and import growth are tapering off, with the volume index growing at a more modest pace now. There will be no more double-digit growth in the near future. Improving foreign exchange rates for the ringgit (with the exception against the Euro) will also keep export growth from flying off as it did from December 2016 to November 2017. Money supply growth is stabilizing after climbing for much of 2017 from a trough.

Change in government spending would be super-interesting this time around since the general election is just around the corner. Other GDP components like consumption and investment would likely expand at a rate not too different from the recent quarters.

Whatever the fourth quarter GDP growth would be, the first nine-month strong growth has translated well in the labor market. Seasonally-adjusted unemployment rate fell to 3.3% in December after staying at 3.5% for the longest time. So, consumption growth seems sustainable and okay in light of labor market improvement.

This happens at a time when core inflation has also fallen, suggesting potential output for the economy may have risen up, which is good news. As a result, unemployment rate could probably drop further with little impact on demand-pull inflation. I think this may also mean another rate hike by the central bank might be unnecessary this year, if things go as it is now.

Oh, happy lunar new year. Given how things are happening with the dogs here in Malaysia, I already cannot wait for the year of the pig. Too oinking exciting.

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Economics WDYT

[2822] Guess Malaysia’s 1Q16 GDP growth

I have been slacking off a little bit. My models have not been updated as frequently as it should. Reason is, one fine March day, something wiped the models out. Electrons arranged neatly disintegrated into disorder, destroying the microfoundations (heh!) of my models.

I have backup files, but updating them is a tedious exercise.

So, my projections, especially on quarterly basis might be off for now.

Nonetheless, it does not take much effort to look into the latest data.

And I cannot find much stuff to celebrate.

The full industrial production index for the first quarter is not out yet but for February, production grew only 3.9% YoY. Remember, 2016 is a leap year and in essence, people produced more this year compared to the last just because of the extra day. So normalized growth will be lower than that. At the same time, with all the heatwave going on, I think we also need to discount electricity production spike. It is very likely the electricity generated mostly went into cooling purposes instead of for manufacturing. My electricity bill spiked by about 100% in March. Some of my friends had it worse.

February 2016

I am unsure how much the electricity generation surge is due to mining growth recovery (is it a recovery?) however. I can run a regression model I suppose, but meh. Looking at the lines alone can tell you much about the correlation.

The new core inflation published by the Department of Statistics appears stable, suggesting consumption growth might be stable too. But who knows. With the way economy is going, there might be enough slack that increased economic activities would not affect inflation much. Import expansion for the quarter was uninspiring as well, pointing to the possibility that the economy did not go far enough toward fulfilling its potential. Stable (and low?) inflation and weak import growth mean weak consumption growth.

Export growth is also not convincing by the way.

Government spending growth might be hurting. For most of the first quarter, Brent prices were below $40 per barrel and the government really wanted to cut its deficit still. Things might be better in 2Q16, but not before as far as public expenditure is concerned.

In the end, I think growth might be about the same as the last one. Might be slightly slower too for all I know. In 4Q15, the Malaysian RGDP grew 4.5% YoY.

Maybe you know better?

The Department of Statistics will release Malaysia’s GDP figures on Friday, May 13.

How fast do you think did the Malaysian economy grow in 1Q16 from a year ago?

  • 3.0% or slower (8%, 1 Votes)
  • 3.1%-3.5% (8%, 1 Votes)
  • 3.6%-4.0% (23%, 3 Votes)
  • 4.1%-4.5% (54%, 7 Votes)
  • 4.6%-5.0% (8%, 1 Votes)
  • 5.1%-5.5% (0%, 0 Votes)
  • Faster than 5.5% (0%, 0 Votes)

Total Voters: 13

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Categories
Economics

[2700] It is not the end of the world, but that is a bad trade number

Malaysian exports continue to take a hit. This time, it contracted by close to 6% in May. Imports also decreased. Those domestic cylinders better get going.

Malaysian May 2013 Exports