Here is something I have taken for granted before, taken from the latest Malaysian national accounts (GFCF is investment).
Category: Economics
Malaysia’s GDP grew 4.3% YoY in the second quarter of 2013, slightly faster than 4.1% YoY in the previous quarter.
While it is faster growth, I find the numbers worrying because if it was not for government spending, overall growth would have been much worse. Investment growth was down, private consumption was down and exports contracted.
The government spending was just because of electioneering. Election saved Malaysia. Really (This can be confusing since federal government spending actually decreased from a year ago. Yea, I was surprised to find that out. The GDP government spending includes non-federal government spending. Please take note of that).
The good news is that, I think things will be brighter from now on. Investment should increase because there is more political clarity moving out of the second quarter.
I also think exports will improve, for reasons I have written previously.
It is that time again. Malaysia’s Department of Statistics will release the second quarter GDP figures on August 21. Growth in the first quarter was 4.1% YoY no thanks to eroded trade surplus. Domestic demand however held up well and prevented the growth figure from being worse.
The situation on the trade surplus front has worsened tremendously over the second quarter. In fact, some private economists are fretting over the possibility of Malaysia experiencing its first trade deficit in a long time as exports have been doing really bad.
I think exports will improve in the second half of the year. Imports of intermediate goods have grown faster in June while imports of capital goods contracted less badly. I think these figures say something about future exports since Malaysia re-exports a lot of its imports.
In any case, there are some indications that domestic demand growth finally slowed. I have some expectations that bad news on the external front will affect domestic demand. It has not happened so far but we will see soon how domestic demand grew in the second quarter.
The upside is that government spending could prove to be an important driver of growth in this quarter, mostly because it was an election quarter. For the same reason, investment might grow slower.
There is also base effect to worry since in the 2012 second quarter, growth was 5.6% YoY. While it is a mathematical artefact, it does highlight how hard it is for the GDP to grow faster than it did previously, especially in this kind of environment. This is a case for somebody to develop seasonally adjusted GDP, but that is another story for the wonks.
Ultimately, I expect growth to be about the same as last quarter, if not worse. I will be surprised if growth is anything greater than 4.5% YoY. What about you?
How fast do you think did the Malaysian economy grow in 2Q2013 from a year ago?
- Above 5.0% (6%, 1 Votes)
- 4.5% to 5.0% (18%, 3 Votes)
- 4.0% to 4.4% (35%, 6 Votes)
- 3.5% to 3.9% (18%, 3 Votes)
- Below 3.5% (24%, 4 Votes)
Total Voters: 17
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Joseph Stigliz argues that the Trans-Pacific Partnership (TPP) will disrupt pre-existing efficient Asian supply chain.[1] That essentially suggests that the TPP creates trade diversion away from non-TPP Asian countries. While this argument is true if it stands in isolation, it is not applicable for Malaysia.
This is because Malaysia already maintains free trade deals with major Asian economies. Either through bilateral means or through Asean, Malaysia has free trade agreement with China, India, Korea and Japan among others (also, Australia), never mind that Malaysia is also a part of Asean Free Trade Area. Combined, they are Malaysia’s major Asian trade partners. Other Asian export destinations are small compared to the combined exports to the aforementioned countries. Major trading Asian countries also have multiple free trade agreements among themselves.
At the same time, Malaysia does not have an FTA with the US. With the TPP, Malaysia will.
So if anything, it is these Asian FTAs that Malaysia maintains which are creating trade diversion away from Malaysia-US trade, contrary to Stigliz’s assertion that the TPP will create diversion away from intra-Asian trade.
That means, if agreed upon and implemented later, the TPP will help in neutralizing some of the trade diversion Malaysia-US trade is suffering from. TPP makes diversion less of a factor and creation, more.
I am unsure what to think about the recent move by Bank Negara Malaysia (BNM) to tighten lending on the non-bank side of the lending system. While the statistics in that sector is scary when compared to the banks, the non-bank sector does provide financial services to the low-income earners. The financial services provided here are not the fancy derivative kinds but rather, it is pretty much bread and butter things: giving out vanilla loans for a lot of stuff.
Without these institutions, these low income groups would probably lack access to financial services that they are enjoying now. That in some way has to mean improved welfare because these loans have to be used for something, either investment or consumption. And investment is simply deferred consumption anyway, which improves welfare eventually.
I have to admit that there are some problems with lending in non-bank financial institutions (NBFI). There is an explosion of personal financing granted by NBFI but in the grand scheme of things, it is small compared to the safer banking sector. Still, in the personal financing sector, more than 50% of loans were granted by NBFI according to BNM in its 2012 Financial Stability and Payment Systems Report. What makes it more worrying is that NBFI has looser requirements compared to the banks. Also, average amount for personal financing given out by NBFIs in 2012 was RM68,000 per person while most of the borrowers are civil servants who do not make much. (Still, impaired loans ratio in 2012 was extraordinarily low in spite of looser requirements. That has to do with a government deduction program. While the program is useful in keeping the ratio low, one wonders what the disposable income level of these borrowers is given that the borrowers are mostly government servants who do not earn too much).
Nevertheless, what would happen if these finance services were restricted? Or tightened?
Some might not go to the banks because they would likely be unqualified to obtain loans. If you cannot qualify for loans from NBFIs, what are the chances of getting loans from a sector with tighter regulation?
Others might not borrow at all, which is probably the ideal outcome for advocates of tighter lending requirements. For those who used the loose requirement to buy unnecessary stuff like buying an iPhone, a widescreen television or an expensive laptop to show-off, then the non-borrowing outcome is good.
But if they borrowed money for education, for food or essentially for smoothing their basic consumption, tightening will make them worse off. In their case, those loans give them a chance to build their life. These loans give them a leg up. Making it costlier for them sounds exceedingly cruel.
The worst outcome is probably if they go to the shadowy part of the economy and that quite possibly means going to the loan sharks. Having borrowers migrating to the least regulated (or even unregulated) sector of the economy cannot be considered a success of regulation. Protection in the underground economy is not as robust in the ”upper ground” economy. There is no bankruptcy law there. Here, not only one increases the systemic risk rather than reducing it through regulation, there will like be human cost — that is costlier than being condemned to bankruptcy — by becoming victims of crime.
That said, the restrictions by BNM are not drastic and those regulations, while it may reduce lending by NBFI, it is unlikely to cause mass exodus from NBFI to elsewhere. So, it is hard to imagine if BNM’s move increases systemic risk at all.
Yet, a small group of individuals will probably do just that and this group may be worse off.
Here is the point I want to stress. There is human cost to the tightening and that has been ignored while the mass media praises the tightening.