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Economics WDYT

[2976] Guess the 2Q23 Malaysian GDP growth

The second quarter GDP for Malaysia will be published tomorrow, at noon Malaysian time.

As a reminder, the first quarter economy grew by 5.6% year-on-year. That was a surprisingly resilient quarter, despite deceleration in growth.

How fast do you think did the Malaysian economy expand in 2Q23 from a year ago?

  • 2% or slower (8%, 1 Votes)
  • 2.1%-3.0% (38%, 5 Votes)
  • 3.1%-4.0% (23%, 3 Votes)
  • 4.1%-5.0% (23%, 3 Votes)
  • 5.1%-6.0% (8%, 1 Votes)
  • Faster than 6.0% (0%, 0 Votes)

Total Voters: 13

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All available statistics point towards a second quarter slowdown. Export numbers during the quarter have been horrible, and the country’s industrial output, given how Malaysia is an small, open economy, has not been doing well either.

Part of the reason why the decline in exports and industrial output is due to the extraordinary post-lockdown growth, amid severe supply chain complications: that created an extremely high base effect and that effect will likely persist until the third quarter.

But that should distract us from the ongoing global growth slowdown. Europe is in recession and China is in trouble. The only real bright spot is the US, which is surprising because much, much earlier, many had expected the country to go into a recession.

But the US strength itself is causing troubles elsewhere in the form of capital outflows and foreign exchange volatility, since it gives more room for the Fed to raise rates. The end of the hike cycle keeps getting delayed.

The good news is that the domestic labor market remains solid, and there has been a little bit more medium-term direction given out by this government. The political heat has come down a bit after the recent state elections, which hopefully, will convince the government to shift more attention towards the economy, and other nation-building exercise.

And challenges in the next several quarters will not be small. Next in the list is a strong El Nino phenomenon, resulting, very likely, the hottest season we will go through yet. That will require a little bit of preparation: water supply, electricity transmission, manufacturing inputs, health services, firefighting services, etc.

And I pray there will be no forest fire and haze this time around.

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Economics WDYT

[2964] Guess the 3Q22 Malaysian GDP growth

It is almost certain the third quarter growth will be massive as far as year-on-year calculations are concerned. Consensus compiled by Bloomberg has it at 12.1%. What do you think the number would be? The official figures will be released this Friday.

How fast do you think did the Malaysian economy expand in 3Q22 from a year ago?

  • Slower than 8.0% (64%, 7 Votes)
  • 8.0%-9.9% (0%, 0 Votes)
  • 10.0%-11.9% (18%, 2 Votes)
  • 12.0%-13.9% (18%, 2 Votes)
  • 14.0% or faster (0%, 0 Votes)

Total Voters: 11

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Big as it will be, it will not inform us much about the state of the economy. At least, not by itself alone. So, do not be taken by it and read it with extra context.

It is important to remember what happened a year ago: the third quarter 2021 real GDP dropped by 4.5%, as shown in the chart below (in the same chart, you could see another instance of massive base effect in the second quarter of 2021, responding to the drop the year before).

One simple way to avoid the problem of base effect altogether is to look at quarter-on-quarter growth, and compare it with historical numbers.

For 2015-2019, quarter-on-quarter growth for the third quarter averaged around 3.5% (range: 3.1%-3.9%). Let us ignore 2020 and 2021 due to the usual circumstances those years represent. Since 2022 appears to be a more normal year (as far as normality is concerned, we could probably take the first quarter of this year as the beginning), 2015-2019 appear like a reasonable for casual comparison.

Now, if third quarter growth is indeed 12.1% year-on-year, then quarter-on-quarter growth would be 2.9%.

That 2.9% is below the quarter-on-quarter average of 3.5%, and misses the lower bound of 3.1% (see the second chart above). This also means, if the year-on-year growth figures is to be truly impressive, third quarter growth will have to be significantly higher than 12.1%. Maybe 13% or 14%. Else, it would be either bad, or normal at best.

The quarter-on-quarter growth is something to watch out for, especially at a time when the global economic outlook points toward recession in Europe and the US, along with a weak China. Ignore the year-on-year one for the time being.

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Economics WDYT

[2946] Guess the 3Q21 Malaysian GDP growth

Let us go straight to it:

How fast do you think did the Malaysian economy expand in 3Q21 from a year ago?

  • Faster than 5.0% (0%, 0 Votes)
  • 2.5%-5.0% (29%, 2 Votes)
  • 0.1%-2.5% (29%, 2 Votes)
  • -2.5 to 0.0% (29%, 2 Votes)
  • Slower than -2.5% (14%, 1 Votes)

Total Voters: 7

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With lockdown imposed throughout the third quarter and more—done to address the government’s mismanagement of the pandemic—economic growth is unlikely to be strong, if there is growth at all. Reuters’s poll has GDP falling 1.3% year-on-year. Bloomberg’s panel is more pessimistic by putting it at 1.9% contraction.

Supporting statistics are out there. Industrial production contracted in the quarter. Unemploment is still significantly high versus prior to the pandemic. More people are joining the job market and getting employed, but the rate that is happening is just not fast enough.

I do not know what to read from the inflation data anymore. It is mixed with supply-driven issues. Along with massive base effect, it makes the whole measurement less useful for assessing demand. There is core yes, but I don’t know.

One good news is the import growth, particularly retained imports were okay, signalling recovery momentum for private consumption during the quarter and going forward. In contrast, exports did not grow as fast, don’t expect much support from the trade front. Still trade issues with all its supply chain complication might not reflect the health of demand in the first place. That is yet another complication in assessing demand.

But the more important thing is, most relevant to people on the streets, the worst is probably behind us. Vaccination rates are high and further lockdown seems unlikely, unless somehow the vaccines suddenly stop working, or the Malacca election gets mismanaged like how Sabah was. That means, the fourth quarter would likely be much stronger (fingers crossed).

Yet another important point is that, we are very unlikely to return to pre-pandemic peak of 2019 this year. 2022, almost certainly but we are definitely behind the pre-pandemic growth trend. I blame Budget 2021 for that, due to the government’s misplaced priorities.

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Economics WDYT

[2932] Guess the 1Q21 Malaysian GDP growth

The 2021 first quarter GDP for Malaysia will be out next week. As usual, before we go into the details, let us play some games.

How fast do you think did the Malaysian economy expand in 1Q21 from a year ago?

  • Faster than 10.0% (0%, 0 Votes)
  • 7.6%-10.0% (0%, 0 Votes)
  • 5.1%-7.5% (0%, 0 Votes)
  • 2.6%-5.0% (36%, 5 Votes)
  • 0.1%-2.5% (50%, 7 Votes)
  • 0% or slower (14%, 2 Votes)

Total Voters: 14

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January, February and March industrial figures grew 1.2%, 1.5% and 9.3% year-on-year respectively. That is a 3.9% industrial expansion for the whole quarter. With industrial production representing  approximately a third of the 2020 economy, this is a good sign.

This is especially so when services (60% of the 2020 economy) contracted slightly in the first quarter, falling 0.3% from a year ago.[1] This is likely caused by the second lockdown imposed by the government in January and February 2021. But I do not think that small contraction should not bring down the overall growth (and I do not think agricultural output will be too bad that it would bring the whole GDP growth down).

But we are in danger of getting distracted by growth number. We have been distracted earlier and the belief in V-shape recovery is a proof of that. Now, we are paying the price in the form of bad government response, and bad planning.

Instead of whether the first quarter (or the second quarter for that matter) would grow, there are two benchmarks we should focus on as far as the top line recovery is concerned:

  1. When will the GDP level (not growth) return to pre-pandemic level? This level should be the fourth quarter of 2019, and the answer will determine whether we have somewhat recovered.
  2. When will the GDP level (not growth) match the level it would have been if the 2020 recession did not happen? The answer to this question will tell us the long-term damage the economy has suffered.

Additionally, the real bad news is that, recovery has been uneven and its pace is flagging. March 2021 unemployment rate is stuck at 4.7%, after spiking to 5.3% back in May last year. The reason for the stubbornly high unemployment rate is that people are returning to the labor market, except that the economy is not creating jobs fast enough. Definitely, some jobs have been eliminated permanently.

Bottom line is, even if there is growth in the first quarter, I would not label it recovery just yet. In this situation, I rather not pay Genting Casino a visit. I prefer to err on the side of caution.

Hafiz Noor Shams. Some rights reserved

[1] — I made a noobish careless mistake here. I mistook quarter-on-quarter number for year-on-year. The year-on-year was much worse, and if I had realized it, I would have expected a contraction for the first quarter. Apologies.

Categories
Economics WDYT

[2918] Guess the 2Q20 Malaysian GDP growth

We are back and tomorrow, the Department of Statistics Malaysia will be releasing the second quarter GDP figures. Without further ado…

How fast do you think did the Malaysian economy expand in 2Q20 from a year ago?

  • Grew by more than 0% (0%, 0 Votes)
  • Contracted by 0.1%-2.5% (9%, 2 Votes)
  • Contracted by 2.6%-5.0% (13%, 3 Votes)
  • Contracted by 5.1%-7.5% (17%, 4 Votes)
  • Contracted by 7.5%-10.0% (22%, 5 Votes)
  • Contracted by 10.1%-12.5% (17%, 4 Votes)
  • Contracted by more than 12.5% (22%, 5 Votes)

Total Voters: 23

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And… what. A. Ride. It. Has. Been. Politics. Economics.

The result is… there is no doubt the second quarter GDP figures will be terrible with a capital T. The question now will be by how much, and for how long.

The problem for the past perhaps 6-7 months has been the unreliability of statistics. Many statistical causal relationships depend on stable correlation. The supply-side shock has changed those relationships and there is a good risk those relationships are broken for good. In the aftermath of the 1990s Asian Financial Crisis for instance, economic growth rate has slowed in the decades after. This recession, the worst since forever, could do the same for various macroseries.

That, I think is how important the past months have been to Malaysian economics.

Now to the statistics.

Industrial production had taken a blow for the whole quarter. However in June, it was almost back up to pre-shock level. Almost, although I feel it is unclear whether a big chuck of the back-to-normal is due to old production lines coming back up, or some sectors overperforming. Or just factories trying to make up lost time (or just goddamn rubber gloves… joking). I write so because mining (with its perpetual supply disruption; investment is needed there to upgrades those facilities) and electricity production are not there yet. But for manufacturing, it shot up quite strongly. But overall, they are bad numbers, and increasingly less.

Similar observations for exports and imports. Both June exports and imports had jumped from May, but for imports, it has not returned to pre-crisis level yet. Not close at all. Imports are important numbers because it is a proxy to consumption and weak June imports suggest domestic consumption will remain weak going into the third quarter. Retained imports mirrored overall import figure: meaning a majority of imports recovery, if it could be called as such, was due to re-exporting activities.

As for inflation, I do not know what it shows with respect to demand. With fuel prices down so much, I think inflation is a bit of a whack as a signal. Core inflation also is not very helpful, which suggests it needs to be improved. For what it is worth, inflation is in negative territory, but I would not call it deflation.

Unemployment rate is another iffy indicator. It has surged, but in June, like other figures, it has become less bad by a margin. But as somebody on social media mentioned, the composition of unemployment might be different now, with more lower quality employment coming in. I would quote him directly I suppose because the way he put it is more eloquent than me (translated roughly):

Unemployed pilots, engineers and other professionals working as food deliverers should not be considered as employed. [@The_Eddie. Twitter. August 11 2020]

Here is where underemployment figure would shed light on the matter. DOSM did report it once several months back in the form of working fewer than 30 hours per week. But we need more regular reporting on that front.

So, until tomorrow…