I have been extremely busy and I have just realized the last time I updated this blog was just slightly more than 3 months ago.
I still want to keep this going, except this time, no real commentary. But the second quarter was quite a quarter, externally and especially domestically. These events had added significant short-term uncertainty that might have affected growth.
How fast do you think did the Malaysian economy expand in 2Q18 from a year ago?
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.
The Malaysian GDP has been growing strongly so far this year. So strong, that a lot of economists and institutions had to revise their 2017 projections significantly.
The growth has been partly due to consumption recovery that took a tumble thanks to the GST, and partly due to strong trade figures (though this is true for the second quarter only). You can see the actual contribution of each component to the GDP below:
Industrial production rose about 6.0%-6.8% YoY in the third quarter, which is quite respectable. The September numbers are not out yet but I do not expect it to be bad. The fourth quarter could be a different story with all the major flooding happening, especially in Penang which is an industrial powerhouse in Malaysia. And we are not yet done with November. I am unsure how the major Penang industrial spots are affected but it does not seem like the disastrous Bangkok-style 2011 flooding. But at the very least, several production days could have been affected just because of labor and commuting issues.
This monsoon season feels stronger than usual but I probably should look at the rainfall data first before making that statement. Unfortunately, data at the Met Department is… not really forthcoming. But this is one negative impact of climate change on GDP growth. Addressing climate change for Malaysia might not be easy since our emission contribution is not big compared to other countries, but we can do our part by keeping our jungle healthy and perhaps, institute a carbon tax or at least a tax on petrol.
Trade figures continue to be outrageously strong. Total trade has been growing at double digits since December last year. There is no temporary “base effect” and instead there is a level shift, as you can see in the second chart. More relevantly, net exports are strong too.
You might say, “but these are in nominal prices!” Well, the same level shift is also visible in export and import indices that strip price effect out. So, it is real (Get it? Did you get it?).
But the double-digit yearly growth on the nominal part will not last, and so this I agree with Mr Econsmalaysia. Eyeballing the levels, December sounds like the time when the double-digit growth phenomenon will end. But, that also means, Penang flooding notwithstanding, trade would likely have a positive effect on the GDP in the fourth quarter.
Anyway, the labor market and core inflation appear stable despite the relatively strong GDP growth so far this year. Meaning, no overheating yet.
The Department of Statistics will release the GDP figures on Friday. So…
How fast do you think did the Malaysian economy expand in 3Q17 from a year ago?
The first quarter 2017 Malaysian GDP figures will be out on May 19. So…
Industrial production in 1Q17 did not grow as strongly as it did in the previous quarter. Nevertheless, manufacturing had swell of a time. Trade figures were very good, with both goods exports and imports grew double digits, which indicates both the external and the domestic demands are somewhat healthy. But in terms of net exports, I do not think it would contribute much to the GDP growth since import growth was stronger than export expansion.
Talking about the domestic market, the unemployment rate seems to have finally responded to the better economic environment. Eyeballing, the seasonally-adjusted UE for the quarter is about 0.2 percentage points lower than what seems to be the average for 2016. Core inflation is slightly up, also showing domestic demand is recovering, assuming this core inflation calculation by the Department of Statistics completely isolates cost-push inflation.
The final quarterly GDP figures will out next week on February 16. The GDP grew 4.3% YoY in the third quarter, up from 4.0% YoY in 2Q16. In the first quarter of 2016, it was 4.2% YoY. So, as the game goes…
How fast do you think did the Malaysian economy expand in 4Q16 from a year ago?
3.0% or slower (13%, 3 Votes)
3.1%-3.5% (0%, 0 Votes)
3.6%-4.0% (9%, 2 Votes)
4.1%-4.5% (35%, 8 Votes)
4.6%-5.0% (39%, 9 Votes)
5.1%-5.5% (0%, 0 Votes)
Faster than 5.5% (4%, 1 Votes)
Total Voters: 23
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Judging from industrial and import figures, I would think the domestic demand part of the economy grew reasonably okay in the fourth quarter although other statistics like car sales remain depressed, suggesting not all is well.
The labor market says as much. Unemployment rate is relatively high at 3.6%. That suggests the recent economic growth recovery has not brightened up the labor market. It is not that there is no job creation, but the pace of job creation is not happening as fast as the growth of the labor force.
(Interestingly, the core inflation has been stable at about 2.0%-2.2% in annual terms. Nerdy stuff to note: core inflation fell as unemployment rate rose. This is cool, assuming the GST had minimal impact on the core inflation. Cool because unemployment rate and demand-pull inflation that the core is supposed to measure tell something about the output gap: it may suggest the gap has not changed by much despite 2015-2016 economic weakness. One would start to worry if unemployment rate goes up but core inflation remains unchanged, which suggests the output gap might be widening. A worse worry is when unemployment rate goes up together with core inflation: gap is shrinking but potential is decreasing)
The other good news is that exports did great. But with strong import growth, trade balance for the quarter will not help the GDP. Indeed, from the merchandize goods trade stats, 4Q16 net exports actually fell in the quarter by nearly 10% YoY.
So, in the end, I am thinking the 4Q16 GDP growth will be somewhere in the mid-4.0%, leaving the full year 2016 GDP growth at 4.2%-4.3%.
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You might say, “but these are in nominal prices!” Well, the same level shift is also visible in export and import indices that strip price effect out. So, it is real (Get it? Did you get it?).