Tag: GDP

Categories
Economics WDYT

[2662] Guess the GDP growth rate!

How fast, do you think, did the Malaysian economy grow in the fourth quarter of 2012 in real terms from a year ago?

  • 6% and above (0%, 0 Votes)
  • 5.5%-5.9% (16%, 3 Votes)
  • 5.0%-5.4% (47%, 9 Votes)
  • 4.5%-4.9% (11%, 2 Votes)
  • 4.0%-4.4% (5%, 1 Votes)
  • Less than 4.0% (21%, 4 Votes)

Total Voters: 19

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Here is some background. Malaysian exports did badly in the fourth quarter. Europe and the US suffered from contraction at the same time.

Nevertheless, domestic demand appeared strong. Private consumption growth was likely pretty solid.

In the first, second and third quarter, the real GDP grew by 5.1%, 5.6% and 5.2% from a year ago respectively.

Out of 21 private economists surveyed by Bloomberg, the median estimate is 5.5% growth. The highest projection is 6.4%. The lowest is 4.3%. My own model estimates it to be 5.2% (this is based on old data and I have not touched it for almost two months).

But they are economists. What do they know, eh?

So, what is your favorite number?

The official GDP numbers will be released tomorrow by the Department of Statistics.

Categories
Economics

[2661] For the gazillionth time, 2009 was a recession year

Idris Jala in his column in The Star today wrote something that I have always found disagreeable (or maybe since 2010 when I first encountered this kind of argument):

In just two years, we increased our GNI per capita by 45% from US$6,700 in December 2009 to US$9,700 in December 2011, a rare feat in today’s world. [Idris Jala. Davos Takeaways. The Star. February 2013]

My issue has always been the 2009 baseline because the year was a recession year. Because of that, a large portion of growth since 2009 originated from recovery, which has little to do with Pemandu and more importantly, it has little to do with structural growth. In simpler words, it was cyclical growth. The base was extremely low by recent standards. Any post-recovery year level will register high growth rate compared to the base. I have written something similar about this nearly three years ago.

To control for that low base, it is imperative to measure it from previous local maximum. In this case, 2008.

Here is a bar chart of yearly growth of nominal GDP per capita for Malaysia as obtained from the World Bank (the difference between GDP and GNI for Malaysia is relatively small. Whatever pattern you see in GDP, you will very likely see the same pattern in GNI as far as Malaysia is concerned, as long as the dimension is consistent, i.e. compare real numbers with real numbers, or nominal with nominal):

Nominal GDP per capita Malaysia

Now, if you measure 2011 GDP per capita in nominal terms since the recession year of 2009 as Idris Jala had done with his nominal GNI figures, 2009-2011 growth would be 37.9% (contrast this with Idris Jala’s 45% claims. Let us assume good faith that the difference is due to honest calculation; population size and actual GNI calculation could be different. The difference between GDP and GNI could contribute to it as well. Data source could be a culprit as well as the Department of Statistics last year updated and improved its time series to include more data, never mind the exchange rate given that it is nominal GDP expressed in USD). It means yearly average of nominal GDP per capita growth is 8.4%.

If you measure that GDP per capita growth based on what I said, 2008-2011 growth would be lower at 18.8%. The yearly average from 2008 to 2011 is 4.4%.

The difference says a lot. It says out of that 37.9% growth, about half of that growth was due to recovery. And that recovery had a lot to do with external demand…

Really, if you look at the chart, meaningful growth, i.e. growth gained after we had caught up with the old level, only came largely in 2011. There was no growth in 2009. We only got back to where we started in 2010. In 2011, we finally grew (the same narrative is true for real numbers as well).

The problem with Idris Jala and company is that they like to use the 2009 baseline as a proof that they are doing good. Based on their narrative, whatever they are doing is reflected in the growth numbers. After all, Najib came to power after forcing Abdullah to come down in 2009. In the same year, Pemandu was established by the new Prime Minister. You see, the correlation is perfect!

But any respectable person will know correlation is not causation. And in this case, Pemandu and Najib are only a coincidental third variable that exhibits correlation because they were lucky to be whatever they were at the most serendipitous time.

For the recent 2012 growth (2012 versus 2011), then maybe something can be credited to Pemandu. For previous recent growth, it just takes too much dishonesty and audacity to say a majority of growth from 2009 to 2011 could be credited to Pemandu. And given the low base effect, measuring growth from 2009 gives an overly sunny growth number that ignores the context of recession.

And of course, in the game of claiming undue credits, the larger the number, the better it is. Be damn with context.

Categories
Economics

[2629] Recent RGDP growth versus sort of long-run growth

The recent real GDP growth were considered strong given how expectations were low to start with. In fact, expectations have consistently been on the bearish side over the past quarters as actual growth, or rather the official government estimates, have beaten market expectations over and over again. In fact, real GDP growth for the first and the second quarter have been revised upward to 5.1% year-on-year and 5.6% year-on-year from 4.9% and 5.4% respectively, making the official growth numbers even farther away from market expectations. The first quarter number itself was originally reported as 4.7% in May 2012.

The bearish expectations have partly to do with pessimism in the global economy and how it may affect the Malaysian economy. The Eurozone was not doing enough and went into recession, the Chinese economy slowed down and recovery in the US just had not been fast enough. Malaysian trade and export figures, especially in the third quarter had not been convincing.

But the economy was estimated to have grown by 5.2% from a year ago in the third quarter despite problems abroad. The domestic economy powered through the dark clouds with what I think essentially was a de facto fiscal stimulus. From BRIM to bonuses for civil servants to Felda payment, it sounds like a fiscal stimulus to me, especially if one considers that consumption has been growing above and beyond its usual growth rate in the last two quarters.

But what if recent growth is compared a sort of long-run trend instead of expectations?

Recent growth becomes less impressive and more mundane.

The red line is the geometric mean of growth in all quarters (1Q2006 to 3Q2012) except those from the fourth quarter of 2008 to the second quarter of 2010. The reasons these quarters were excepted was that there were outliers and geometric mean does not work well with negative numbers. The blue bars are real GDP growth in the respective quarters.

Why choose 2006 as the starting year? Well, The Department of Statistics produces the 2005 base series only up to 2005. I can make it longer well into 1957 but that will necessarily introduce a systematic error into the rebased pre-2005 figures and I do not want to do that.

Anyway, the geometric mean is approximately 5.6%.

So it appears that Malaysia is growing at its natural rate (maybe? natural rate is hard to discover but the long run trend I think is a good proxy. Also, it appears that the Malaysian economy is working near its limit although I have a lingering suspicion that the limit is farther out still), despite the estimates-expectations divergence.

Categories
Economics Poetry Politics & government

[2628] 5.2% in the third quarter, 5.6% in the second and 5.1% in the first

It’s above consensus,
so says the missus,
so shall we pop the champagne,
and start with the campaign?

Categories
Economics

[2627] Does inflation hidden between the CPI and GDP deflator explain the CPI dissonance?

I have argued before that too many disbelieve the CPI inflation because they do not understand how inflation is measured. Some do not get the fact that CPI inflation is the change in price level and not the price level itself. Too many think that it is impossible that inflation is really that low in Malaysia when prices have jumped up so much over the years. They essentially compared prices to a different base than that used by the CPI and failed to take that difference into account. Others are just too stubborn that they express disbelief but they are unable to systematically justify their disbelief other than resorting to rhetoric. While this is a trivial macroeconomic issue, it does have real political implications in Malaysia unfortunately. This really highlights importance of communication between economists and the lay public in Malaysia.

Lars Christensen, an economist and a giant in the market monetarist circle, may have implicitly provided another explanation to describe the discrepancy between CPI inflation and the disbelieving sentiment on the ground.

He suggests that price controls are causing a wedge between CPI inflation and GDP deflator change.[1] If there were no controls, the CPI inflation and the GDP deflator change should have moved in tandem. So, price controls are suppressing the CPI inflation (because price controls target goods consumed locally and CPI measures good consumed domestically while GDP deflator is more descriptive of prices all of Malaysia because it measures prices of good produced locally regardless where it ends up). The claim on inflation suppression (by price controls and not the data itself) is completely uncontroversial.

So, as Christensen puts it, the difference between CPI inflation and GDP deflator change is hidden inflation. Would be it possible that despite the official CPI figures, the consumers feel the pain from the GDP deflator?

While this can be used to describe the dissonance between the official CPI inflation rate and disbelief on the ground, there is an obvious problem to the implicit explanation of the dissonance. Consumers do not face prices as measured by the GDP deflator. They face prices measured by the CPI instead.

Christensen does not explicit use the term hidden inflation in the same context that I am framing the issue. He uses it to describe the problem of shortage of controlled items, which does happen from time to time in Malaysia. I am just preempting any argument that may come out to explain the CPI dissonance that may originate from his points.

My view is that the CPI inflation is right and the reason for the disbelief has more to do with the fact that many do not understand the CPI. Furthermore, some components of the CPI are growing faster than the overall CPI and this might have contributed to the disbelief. In this sense, the pain index designed by Hisham of Economics Malaysia is helpful in addressing the disbelief.[2]

Mohd Hafiz Noor Shams. Some rights reserved Mohd Hafiz Noor Shams. Some rights reserved Mohd Hafiz Noor Shams. Some rights reserved
[1] — The Christensen family arrived in Malaysia yesterday. It is vacation time! So since I am in Malaysia I was thinking I would write a small piece on Malaysian monetary policy, but frankly speaking I don’t know much about the Malaysian economy and I do not follow it on a daily basis. So my account of how the Malaysian economy is at best going to be a second hand account.

However, when I looked at the Malaysian data something nonetheless caught my eye. Looking at the monetary policy of a country I find it useful to compare the development in real GDP (RGDP) and nominal GDP (NGDP). I did the same thing for Malaysia. The RGDP numbers didn’t surprise me — I knew that from the research I from time to time would read on the Malaysian economy. However, most economists are still not writing much about the development in NGDP.

In my head trend RGDP growth is around 5% in Malaysia and from most of the research I have read on the Malaysian economy I have gotten the impression that inflation is pretty much under control and is around 2-3% — so I would have expected NGDP growth to have been around 7-8%. However, for most of the past decade NGDP growth in Malaysia has been much higher — 10-15%. The only exception is 2009 when NGDP growth contracted nearly 8%! [Lars Christensen. Malaysia should peg the renggit to the price of rubber and natural gas. The Market Monetarist. November 15 2012]

[2] — Inflation as measured by the CPI is up 1.6% in annual log terms, but my core inflation measure (CPI ex-food, ex-transport) decelerated to 1.1% from 1.2% from April’s reading. Price’s are up from the month before, but not by much — not so coincidentally, the Ringgit has been falling slightly against major currencies, so some pass through of inflation is to be expected. But the magnitude of price increases is still far below what people seem to feel is happening to their monthly household bills.

To get a feel for this, I’m going to invert the components of my core measure — instead of excluding the more volatile components to arrive at a stable long term inflation measure that’s useful for policy analysis, I’m going to exclude the non-volatile components instead i.e. measure inflation based exclusively on food and transport prices, which is more representative of what’s happening to people’s wallets.

You could call this the ”Pain” Index [Hishamh. May CPI: Measuring The Pain. Economics Malaysia. June 21 2010]