Some concrete evidence that the economy may have recovered faster than expected:
The Coincident Index (CI) rose by 0.5% in February 2009. The increase of the index was mainly contributed by real sales in manufacturing sector (0.5%), real salaries & wages in manufacturing sector (0.2%) and real contributions in EPF (0.2%). The six-month smoothed growth rate of CI showed a slight improvement to -9.8% from -11.9% recorded in the previous month.
The Leading Index (LI) which monitor the economic performance in advance also increased in February 2009. The index grew by 1.1% to 158.2 points in the current month. These were attributed by real total trade of eight major trading partners (0.5%), number of new companies registered (0.5%), Bursa Malaysia industrial index (0.1%) and number of housing permits approved (0.1%). The six-month smoothed growth rate of LI improved -0.7% in February 2009.
The six-month smoothed growth rate of Leading Index (LI) and Coincident Index (CI) showed a slight improvement in February 2009. However, it is too early to conclude that the improvement of these index provide signal of the slow economic growth to be over in the near term. [Malaysia Economic Indicators – Leading, Coincident And Lagging Indices February 2009. Department of Statistics. April 29 2009]
If indeed the economy began its recovery in February, it would provide a damning evidence proving the worthlessness of fiscal stimuli announced earlier. Why?
By February, there was no real spending with respect to the first fiscal stimulus and money only beginning to be distributed among various ministries. That is of course with the exception of the RM5 billion given to ValueCap but we can safely discount that RM5 billion because throwing money in the equity market is like hoping to raise the sea level by throwing is a pabble.
Furthermore, the second stimulus was yet to be announced.
In other words, the economy might be recovering even without the stimulus packages so celebrated by Malaysian Keynesians. But as mentioned by the Department of Statistics, it is still too earlier to confirm the worthlessness of economic stimuli. Let us wait for March first.
In the meantime, I am taking bets that March data is going to confirm February’s trend!
7 replies on “[1965] Of Malaysian recovery began in February?”
[…] taken this position from early one and I am being proven right. In fact, signs for recovery began as early as February, way before any stimulus has any […]
Thanks for the clarification, and your forbearance. Not that I agree with you, but an interesting viewpoint.
oster,
An excellent observation, one I agree with.
Dear Hishamh,
You are misreading the post.
First, I didn’t write government spending is worthless as a whole. I wrote the fiscal stimulus may be worthless.
It is unnecessary to mix up government spending under normal circumstances and government spending under stimulus circumstances.
Indeed, if “normal” spending is able to help, that would give greater credence to the hypothesis that fiscal stimulus is worthless. If it by itself is able to hasten recovery, why do we need additional spending?
Secondly, the question of necessity does not depend on only one fact. In fact, even if the gap needs to be filled is not an imperative. It’s only normative.
Others considerations are fiscal deficit and others’ fiscal stimulus, among others. Other countries’ fiscal stimulus (especially of our major trading partners) is especially important when the prime cause of economic downturn in Malaysia is weakened external demand, not internal demand. It’s unrealistic to fill in the gap of weakened demand given its size and the limited resources of government.
Besides, reports have indicated that a big reason why there is a rebound in February is due to increased exports to the PRC!
The economy is a social construct, existing due to the subjective thoughts of humans. This is why people talk of confidence in economics, no?
Thus, the announcement of a stimulus will inevitably have an impact on the subjective thoughts of individuals, which in turn might affect the economy.
In fact, the people who formulate stimuli prolly intend it to be that way. Keen observers will realise that funds only begin to trickle down after a few months, certainly, but very few of us are keen observers,
cheers
Perhaps I wasn’t clear: Even though implementation of the stimulus packages has yet to have any impact, the numbers seem to indicate that spending of the “normal” allocations under the 2009 budget appear to have been accelerated. Ergo, fiscal stimulus is occuring even without the additional spending under the two stimulus packages – not all government spending is “worthless”.
Whether the two packages are necessary or not depends on your view of how big an output gap that needs to be covered. A recovery to the same growth trajectory (5%-6%) means the economy would still be operating below potential output. BNM’s annual report (pg 1010) seems to point to a max output gap of around 4% of GDP this year that the stimulus is designed to overcome.
BTW, you can find my assessment of the accuracy of the indicators here.
I’ve already mentioned it. If the economy is recovering in February, that would write off the effect of stimulus announced as hurrying recovery because no real spending WRT the stimulus had been done in significant matter. The economy may have re-bounced without stimulus.
Indeed, stimulus package is additional spending on top of typical government spending. But the issue is if that additional spending is required. So, I don’t see your purpose when you wrote about stimulus package is additional spending.
Besides, I myself agreed with the Dept of Statistics that it might be too soon to pass a judgment. (but it is not just the leading indicators that are improving. As mentioned, even the coincident indicators are improving.)
I’m curious to know why you think fiscal stimulus is worthless. Under the circumstances, what are you proposing we should do?
In this case, I think you’re a bit too quick to dismiss government spending as a factor. It’s true that the stimulus packages are not relevant in terms of a February bounceback.
On the other hand you should realise that the stimulus packages are additional spending on top of a planned 2009 RM21.8 billion fiscal deficit. In fact the government appears to have spent a bit more than a net RM24 billion between Oct 2008 and Feb 2009 (drop in govt balances at BNM, less net funds raised). The fourth quarter budget shortfall is in fact the second highest on record.
I’d also be a bit cautious in relying on the leading index – usually pretty accurate but it overstated underlying growth in the last quarter, and is likely to do so again through this first half.