Category: WDYT

The Malaysian GDP figures for the 2015 second quarter will be out next week on Thursday.

I think it will be bad because of how the GST has hit consumption. This will be the focus next week as people write out their commentary. I am a believer of the frontloading theory but admittedly there are some problems with it as I have highlighted yesterday: consumption imports have been growing strongly much against expectations.

The trend in trade is not great either. The funny thing is trade surplus is improving in the quarter. The widening is not something to be celebrated however. Imports raced against exports to the bottom. Imports won that race no thanks to weak consumption.

The industrial index has been doing quite well despite the gloom all around. That is another funky stats that refuse to line up cleanly. The excellent EconsMalaysia believes it is really inventory build-up. That hypothesis can easily be assessed with the GDP figures.

I think, the only real good news will come from investment, especially with the Petronas Pengerang project down south. I have been there myself and it is truly massive. Still, I struggle to think of any other new big public infrastructure project that started recently. I have not heard any large scale work for the Pan-Borneo Highway despite earlier fanfare. MRT and LRT are old news. New water treatment plant? Ask Selangor. New power plant? Ask 1MDB. There are some (an understatement?) residential construction in Danga Bay but…

I could talk about inflation but with the GST in the way, it is hard to be confident about the exact CPI message. My core inflation is out of whack. The Stats Department produces a seasonally-adjusted CPI series but I have no learned to trust it just yet.

On the balance, I think our GDP growth for 2Q15 will probably be in the region of 4.1%-4.2%. I think there is an upward risk with the the weirdness in import composition and the industrial index.

What do you think?

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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…

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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?

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