Tag: GDP

The Department of Statistics will release the GDP figures for the last quarter of 2015 tomorrow.

I fear we will see the ugliest numbers within the past three years, if we are lucky. It will not be a contraction but for a country like Malaysia — a young population which suggests strong potential growth — anything close to 4% YoY is pretty bad. In 1Q13, the GDP grew 4.3% YoY. To find something worse, you will have to go all the way back to 2009 during the last recession.

I think private consumption growth decelerated in the last quarter. In 3Q15, it expanded only 4.1% YoY after increasing 6.4% YoY. If I have to guess, the GST is having a prolonged negative impact on the economy, on top of other things happening. The various layoffs we saw last year added further stress to consumption growth. These people who lost their jobs should begin to cut their spending. I have also heard discouraging stories over the Chinese New Year, suggesting it is not over yet, which made me re-read a joke I wrote three years ago that is no longer funny. I have also noticed many oil and gas professionals are turning to Uber to meet their financial obligations.

At work as well, we maintain various index measuring all kinds of things from sentiment to spending pattern. I cannot share them with you but I can tell you, it ain’t pretty.

But perhaps, the surest indication of a slower economy beyond anecdotes is from the manufacturing side. The GDP does follow industrial growth rather closely. So closely in fact, you could make a decent econometric forecast based on the index. The following chart comparing GDP with industrial growth gives you an idea of what had happened in the quarter.

Another piece of bad news is the government is in love with its deficit target out of fear of credit rating downgrade. I generally supportive of cutting the deficit but this is the wrong time to do it. But, I am just a keyboard warrior.

Exports however might cushion the domestic slowdown. In the fourth quarter, I think, it finally exhibited a J-curve, which essentially describes the idea that exports would slow rise up after a currency depreciation. Indeed, exports to the US have been phenomenal for a number of months now. Overall exports of goods have grown faster in 4Q15 on yearly terms compared to the previous quarter. But it will not be enough to fight off the domestic growth slowdown.

At the end of the day, this keyboard warrior’s model suggests the 4Q15 GDP growth will be around 4.2%-4.4% YoY.

But I could be wrong. Could you do better?

This not-nearly-as-scientific poll will close at noon tomorrow when the official GDP figures are out.

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Oh, this post is dedicated to this man.

Growth in 2Q15 was bad but we know it due to the GST with all the front-loading spending.

The question now is, was the GST largely the one exerting negative pressure on growth?

In a very superficial way, growth should rebound in 3Q15 if the answer to the question is in the affirmative because it suggests consumption would return to normal.

If not, we should see worse growth in the last quarter, and possibly bigger trouble ahead.

Things are quite confusing for me at the moment because of the GST as well as due to low energy prices. Inflation has stopped being a useful proxy to demand and is out of wack. It is driven by cost factor and not really demand. I have not figured out how to handle this yet but things might only stabilize April next year, assuming energy prices remain at about current levels.

There are signs something bigger than GST is at work. The service sector is not doing too well. We know this from official 3Q15 statistics. Service growth was mostly pulled down by the finance sector, but retail growth also moderated. I am also hearing many anecdotes of personal hardship with greater frequency than usual. Some of my friends run businesses and they are not doing great either. I usually would dismiss anecdotes but I dare not do it this time around. There are just too many of them.

But there are good news. Industrial production did well, and so did construction and exports.

Net exports should give a big boost to the GDP, cushioning any expected slowdown in the domestic economy. I do not know how long the export strength will last, but for 3Q15, it looks like we had the two engine-model back. The weak ringgit might have a contributing factor, but I think it is a bit too soon to pass judgment about currency and competitiveness despite the temptation to claim so.

But, yea, the only reason I write this post is to do this poll:

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The official GDP figures will be released midday tomorrow.

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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