Category: Economics

Categories
Economics

[2725] Malaysia’s 4Q13 GDP figures

I was optimistic that the 4Q13 GDP figures would be strong. I was betting on export recovery while mindful that other components, mostly consumption growth, might slow down.

Indeed export growth recovered. But trade surplus was not as strong I thought it would. Still, the prospect of Malaysia experiencing a trade deficit is unlikely. The trade surplus was strong enough for me to say, hey, there would be no twin deficits for Malaysia, no siree.

So, I missed by full-year growth by about 18 basis points. I projected 4.9% growth (well, more like 4.86%) for 2013 but actual growth came at 4.7% (4.68% really).

While the 5.1% YoY for the quarter was still good, especially given the first two quarters had about 3% YoY only, this is one of those quarters which I find growth confusing.

I looked at the numbers and I saw consumption growth slowed, gross fixed capital formation growth slowed, government spending growth slowed and trade balance growth slowed too. I think the exports growth is the only real good news around, but clearly it was not strong enough to make overall growth accelerate.

Now, with every one of those major components had their quarterly YoY growth slowed, what could possible make the overall GDP numbers grew faster?

Inventories had a role in it.

You could see the contribution of all the GDP components to the 5.1% growth below. For the investment contribution, it is the fixed capital formation, which includes inventories:

20140213 4Q13 GDP contribution to growth

I am not so sure how I feel about that.

Categories
Economics

[2723] Is the weaker ringgit contributing to domestic inflation?

I have read in the media of allegation that the weaker ringgit is contributing to the rising inflation in Malaysia.[1]

The allegation makes sense. If Malaysia imports stuff, which the country does, and if the ringgit gets weaker, which it has (at least against several currencies and namely the US dollar), a weaker ringgit should contribute to domestic inflation. In the absence of data, I would support the idea of weaker currency is contributing to inflation.

Except, I am not entirely convinced by the data. In fact, the data is possibly telling me something to the opposite.

I have done some modeling in the past and it is hard to get a relationship between currency and inflation. At least, my modeling skills are not there yet, I would suppose. Even if I ignore all those econometric tests which the models failed, the effect of currency fluctuation under normal times, as I remember from those models, are so small that I would rather ignore them.

But here is something that does not rely on my econometrics. It is more straight forward in answering whether a weaker ringgit is contributing to domestic inflation. There are two possible proofs dismissing the role of the weaker ringgit.

The first is the producer price index (PPI) for imports. Crazily enough, it is still deflating and it has been deflating since January 2013 at the very least:

20140211PPIImportsDecember

One would expect, if the weaker ringgit was contributing to domestic inflation, the PPI for imports would increase and from there, the PPI inflation would somehow transmit to the consumers, affecting the CPI. I have not modeled this but the result for the a priori expectation that one needs to make the assumption that the weaker ringgit is contributing to domestic inflation is not going well here.

The second involves the import value and import volume growth. I have not thought of this thoroughly but if a weaker currency is contributing to domestic inflation, I would expect faster growth on import value than import volume growth. But in December, total import value (the one you see often in the press) rose 14.8% YoY. Volume grew 15.1% YoY. That means imports really are getting cheaper, corroborating the signal from the PPI imports.

So, is the depreciating ringgit contributing to the rising domestic inflation?

No. On the contrary, imports are a counteracting factor against inflation.

Again, this is just a preliminary thought that I just had. If my thinking holds, then I do not think the weaker ringgit is contributing to domestic inflation. At least not yet.

Right now, it seems, the rising CPI inflation in Malaysia is all caused subsidy cuts and domestic demand.

Mohd Hafiz Noor Shams. Some rights reserved Mohd Hafiz Noor Shams. Some rights reserved Mohd Hafiz Noor Shams. Some rights reserved
[1] — A weakening ringgit currency, which is down 1.5 per cent since the start of the year and at five-month lows against the dollar, could add to upward pressure on prices through more expensive imports, and reinforce the case for raising interest rates. [Malaysia inflation jumps as government feels heat over living costs. Reuters. The Malay Mail Online. January 22 2014]

Categories
Economics

[2716] 3Q2013 GDP growth driven by consumption

The GDP in the third quarter grew respectably at 5.0% from the same quarter last year. I think it is the most satisfying growth in a long time. I have not checked for the base effect but consumption grew strongly and net exports did well. It was a plain old growth in the simplest terms, no mathematical quirks. I cannot say much, because I have written most of the stuff I wanted say for work.

But I can share you this chart, which shows what contributed to the GDP growth.

201311153QGDPGrowthContributionIt was a good quarter. Growth with solid foundation, domestically and externally. And it is pretty much close to my internal target (although for the wrong reason: I had expected exports to drive the GDP growth, but it was consumption instead.)

I am unsure why consumption was that strong. I will look into it later. Or wait for somebody to look into it. Hint hint.

Categories
Economics WDYT

[2715] Guess the 3Q2013 GDP growth!

I have not been this optimistic in a long time. I was right for being bearish for 1Q2013 and 2Q2013. I have also mentioned that 2Q growth would have been much worse if it was not for government spending. Even for the 4Q2012 when actual growth beat all estimates, I was not too impressed. Only the politicians were crowing about it.

All that was caused by weak trade.

I think I will be right to smile a little this time around.

Export growth recovered in the third quarter after months dragging the economy down. The trend had been so bad that some people worried Malaysia might experience current account deficit for the first time in ages. But the recovery in export growth, I think, has pushed the concern behind, especially with the decision by the US Federal Reserve to prolong its monetary stimulus. Having Janet Yallen as the chairwoman also helps, I suppose.

The bad news is that some revisions might be in order for last year’s GDP growth. I have noticed the authority revised last year’s trade numbers down by about 1o basis points in its recent release. We will see how they revised last year’s growth. The GDP in 3Q2012 grew 5.3% from the same quarter the year before. But that is the past. Nobody really quite cares for the past.

I am unsure how government spending changed during the quarter but I have imputed a very low growth in my projection. It is the post-election quarter anyway. There was less temptation to  spend money in a big way. Furthermore, there was this sudden panic about government finance because of what Fitch Ratings did last quarter.

Private consumption might have grown slower as well, by a little tiny weeny bit because of the gasoline and diesel subsidy cut, but I think it was not too bad as to negate good news from the improved trade figures during the quarter. In any case, private consumption growth should be around 7.0% still, and that is healthy by any mean.

Investment in terms of gross fixed capital formation might have improved as well because there was no more election. The greater clarity in terms of political outlook should increase confidence.

Because of this, I am expecting growth for the third quarter to be faster than 5.0% year-on-year. I would like to be crazy and say it would be closer to 6.0% year-on-year, but that would be me being too excited.

The official GDP estimate will be released by the Department of Statistics on Friday, November 15 2013. To journalists, note that it is the Department of Statistics, not the Bank Negara Malaysia.

So…

How fast do you think did the Malaysian economy grow in 3Q2013 from a year ago?

  • 6.0% or faster (7%, 1 Votes)
  • 5.5%-5.9% (7%, 1 Votes)
  • 5.0%-5.4% (43%, 6 Votes)
  • 4.5%-4.9% (14%, 2 Votes)
  • 4.0%-4.4% (14%, 2 Votes)
  • Slower than 4.0% (14%, 2 Votes)

Total Voters: 14

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Categories
Economics

[2714] Look at those prices!

The government cut subsidy off gasoline and diesel back in September by 20 sen per liter, resulting in a cool chart:

MalaysiaCPISept2013

I am just showing this because it is an awesome chart. Price index can be boring because nothing really happens. In September, well, it jumped. Inflation on yearly basis had been creeping up slowing to 2% for the past few months. In August, it was 1.9% YoY. In September, it was up 7 percentage points to 2.6% YoY. You can see the cause of the jump from the chart above.

It should jump again in October because of the abolition of sugar prices. I am expecting inflation to go well above 3% YoY in 2014. The government however expects inflation in 2014 to be 2.5%-3.0% YoY. I just think the government projection is just too low given those subsidy cuts, further expected subsidy cuts in 2014 and simply, a growing economy (unless, disaster is up ahead somewhere).

Anyway, you can also see the drastic increase in inflation for the alcohol and tobacco category. Smokers would know why (cough, 50 sen, cough).