This is the Malaysian government spending year-on-year quarterly growth from 2001 till 2011, as classified in the real gross domestic product.
Tag: GDP
Before this, nominal GDP is hardly a statistics one would look at. Things are starting to change with the rise of market monetarism.
Here is how the nominal GDP for Malaysia looks like, in comparison to real GDP. As you can see, there is a big gap between potential and actual output in nominal GDP.
A market monetarist will want the loss in potential output in nominal terms be dealt with. If the person had gotten his way, there would not have been a drop in the nominal GDP. Or rather, the nominal trend would have been more constant instead of exhibiting large variation year after year.
The same loss can be seen in terms of growth.
A market monetarist at Bank Negara would have engaged in big expansion of money supply in late 2008 and 2009 to stabilize the nominal GDP. And he would have tightened supply in 2007 and much of 2008.
This raises a question for me. While I do see the virtues of market monetarism, especially when inflation is persistently too low like in the US, would it work in Malaysia?
The reason I am asking is that I am worried about stagflation. We know that the stagflation of the 1970s was terrible but would that be better than what we experienced in 2009?
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[2461] The unexpected 5.8% growth
The GDP growth number for Malaysia shown on the Bloomberg machine surprised me. I had expected somewhere between 4.0% and 5.0%.
Trade numbers had been very good for the fast few months but I did not expect it to push the GDP growth figure close to 6%. In fact, I watched in awe the growth of the trade numbers given the current confusing state of the world’s economy.
For the GDP figures themselves, the year-on-year growth for the third quarter was 5.8%. The average growth expected by economists listed on Bloomberg was 4.8%. This number had progressively grown over the past months from a number close to 4.0% to what it is now.
Looking at the numbers sweepingly and superficially, government spending grew the largest percentage wise. It grew close to 22%. In terms of absolute value, consumption grew the largest and indeed, it was the main contributor to most of the GDP growth.
I am tempted to say the consumption growth was related to government spending (since the separation between government and the private sector is not so clear cut) but without the energy to mine for that, I will refrain from making more courageous statement.
But what exactly is the driver behind the consumption? In my head, I can only think of government. If I want to know more, I clearly need to dig deeper into the numbers.
Was the growth due to base effect? I do not believe so. Base effect is not a convincing case in post-recovery period. Year 2010 had been a year of normalization and year 2011 grew from a somewhat normalized base. So, I am discounting base effect from explaining the unexpected high growth rate.
There is an expectation that the second half of the year will boost the annual GDP growth for Malaysia to make up for the relatively weak first half. That was a reasonable expectation to have in the first half of the year but with only less than four weeks to go before the final quarter of 2011 is here, it is becoming increasingly untenable.
The basis for the optimistic second half expectation has been the planned construction boom as a result from the Najib administration’s Economic Transformation Program. A friend told me that it is to rival the construction boom of the 1990s.
From casual observation, there is a slow start to the boom. If the casual observation proves correct, the boom may yet pick up full steam in the fourth quarter but I doubt the fourth quarter alone will be sufficient to bring respectability to the whole year growth number, at which I define respectability as at least meeting the minimum target of 5% set by the Najib administration.
When the boom actually begins, there will be a question of lag. The economic expansion arising from multiplier effect will be even slower to hasten growth, adding to the issue of lag. Even if the boom had actually begun, the length of the lag is unclear and it is possible that the lag is still ongoing. It is hard to know this conclusively before November, when the actual third quarter result of the Malaysian real GDP will be released.
There are question marks on both domestic and foreign demands. Foreign demand on domestic goods is substantial. It is so substantial that I have made the case that the Malaysian recession and the subsequent recovery has been primarily caused by the global economy before.
The global economy is not doing so well at the moment. If there was a global central planner, then that planner had yet to make up his mind whether to grow or contract the world’s economy. There have been renewed talks of a double dip but truly without projecting the future, I think current statistics are giving confusing signal at the moment. Some statistics are performing worse than before and expectation. Others are doing better.
I myself have done some rudimentary forecasts for the Malaysian real GDP. It ranges from 4.60% to 5.15%. Okay, those are the only two rough forecasts that I have calculated through two slightly different but still simple methods. There is much work to be done to improve the model and I am not very satisfied with it. It does give me a general view nevertheless.
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[2351] PEMANDU’s GDP folly
The Najib administration intends to make Malaysia a high-income country and that alone with the end goal. Here is the problem: a project is supported not because it is viable, but because it increases the gross domestic product (GDP) — or the gross national income (GNI) depending on context — of the country.
The latest case in point is the 1Malaysia email, which the PM has said that it will increase the GNI by RM39 million… by 2015.[1]
Let me say that this is mindless. It is so because while it does increase the GDP, it will increase it only temporarily. Without viability, it cannot sustain economic growth and make permanent a state of high-income. The focus on the GDP is as good as a project producing a million toilet bowls just because it increases production and hence the GDP, never mind that there is no requirement them.
One commits to a project because there is a need or demand for it. It should not be done just for the sake of increasing the GDP and the GNI. These statistics are not financial statistics. They are macroeconomic statistics for good reasons. Do it for the sake of increasing the GDP frequent enough and soon business failures will be the norms. Given that the government is at the center of it, so too will be the events of bailout.
The GDP and the GNI are descriptive statistics, not prescriptive statistics like the way PEMANDU is using it. These macro statistics are descriptive because only organic growth are sustainable. Once one makes these macro statistics prescriptive, then we will get the nonsense like “a particular project contribute to the GNI by so and so ringgit.” We will get PEMANDU.
Financial statistics can be used prescriptively to ensure viability of a project. Macroeconomic statistics mostly do no such thing. The GDP, for instance, measures what have been spent and says nothing whether a project should be invested in or not. Dig a hole for RM50 million and fill it again for another RM50 million, then the GDP will increase by at least RM100 million. The question whether that action is productive cannot be known through the GDP.
All the more outrageous is that the 1Malaysia email project is projected to contribute RM39 million by 2015 to the GNI. Ladies and gentlemen, the GDP of Malaysia for last year was more than RM600 billion. That is RM600,000 million, just in case the contexts of million and billion need clarification. The GDP numbers are so big that they are usually rounded up to the nearest billion. RM39 million will not typically register in any general statistics.
Yet, the 1Malaysia email project’s celebrated point is its contribution to the GDP.
That is a good joke.
My suggestion is this: take out the reference to individual projects’ contribution to the GDP.
[1] — This is followed by the RM250 million investment by Pensonic Holdings Bhd to build its manufacturing hub and international distribution network over 10 years. The project will see a GNI impact of about RM500 million and create 850 new jobs by 2020.
The third project comes under the Malaysia Administrative Modernisation and Management (Mampu), which will invest RM3.26 million to improve the electronic services provided by the government and is expected to create 155 jobs.
The fourth project will come under the communications content and infrastructure national key economic area. It involves Tricubes Bhd, which will invest RM50 million, to develop a web portal for all Malaysian citizens above the age of 18 by 2020.
The 1Malaysia email project is expected to contribute RM39 million in GNI by 2015. [7 new ETP projects with RM901m in investments. Roziana Hamsawi. Zaidi Isham Ismail. Business Times. April 20 2011]