Tag: economic growth

After years of economic disruptions and wild growth swings, the Malaysian economy is now in a sweet spot. Strong GDP expansion rates in the past two quarters show us as much: 4.2% year-over-year in the first quarter and then 5.9% yoy in next. Lest somebody points to base effect playing a role (indeed the large variability is still a problem), adjusted quarter-over-quarter numbers are robust as well: 1.5% qoq during first and then 2.9% qoq in the second quarter. These qoq figures are respectable because the post-Covid-19 2021-2024 median qoq rate so far is 1.4%-1.5%.

The government is quick to claim credit. To some extent, it is deserving. The Malaysian government of all colors (2018-2020 PH, 2020-2021 PN-BN, 2021-2022 BN-PN and the current PH-BN-GPS) has been trying to capitalize on fraying global supply chain. Malaysia understood of the need to move quickly as early as 2019 (or possibly earlier). But political crisis (coupled with a health and economic crises) led to policy paralysis and that crisis only ended in 2022 with PH returning to power with unlikely partners. The stability plays an important role in sharpening the minds beyond domestic partisan survival, which allows us to pursue new tech investment opportunities and boost Malaysia’s role in the global manufacturing and technological services (it is not without concerns, especially with the influx of data centers which create little jobs and consume tremendous amount of water and electricity which could push out other manufacturing industries that are not necessarily low-tech).

But in some other ways, it is also about the stars aligning involving sectoral syncing and growth normalization. To understand this, we need to go back to 2020 when many parts of the world hunkered and locked down in response to the pandemic. Yes, the pandemic remains relevant four years after it spread.

The year 2020 was the ground zero, which everything in free fall. By 2021, the pandemic was still a concern but things were improving. Yet many could not move around freely. Services—a labor-intensive sector—had a weak growth and an incomplete recovery. In contrast, the goods sector experienced a surge and production surpassed pre-pandemic levels: XBox, IPhone and a whole lot of electronics were bought and sold to keep everybody sane at home. Afterwards when the economy opened up in 2022 with all the tangible stuff that could be bought were bought (notwithstanding orders unfulfilled due to the then supply chain disruption which kept the goods sector going), goods demand growth took a break in return for heightened services: tourism, restaurants and other related sectors boomed. That is more or less the story for Malaysia, as can be seen from the goods-services growth chart below:

The Malaysian cycle for goods and services almost synchronized at the top in 2022, which in return led to the synchronized whiplash a year later. From 8.9% growth in 2022 thanks to complete reopening of the economy, 2023 GDP rose by only 3.6%. The 2023 goods market was so bad and that was reflected in Malaysian industrial production and export figures. Only the almost complete tourism recovery helped the overall 2023 economy from doing worse.

What makes 2024 a sweet spot is that it is likely a proper normalization amid further synchronization. Normalization because the gyration of growth since 2020 is finally stabilizing for both sectors. Additionally, that normalization and stabilization are bringing balanced growth since both goods and services are expanding faster at the same time (so far).

Normalization, synchronization and balanced expansion. The government under Anwar Ibrahim has done well in adapting to changing global environment and lucky at the same time. Not only has growth been firm. Global prices have been kind to Malaysia as well, leaving inflation benign. Job creations are going well. In short, economic conditions are good. I would argue this leaves the government with a lot of leeway to commit to reforms.

The question now is if the great conditions brought by the cycles would persist. There is some hope (and bad news too) for that but we cannot run on hope that much this time around. With cyclical normalization from here on and definitely in 2025, the government would have to depend less on luck and more on its own initiatives.

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.