Tag: GDP

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Economics

[2990] Malaysia’s GDP advance estimates: outdated consensus, errors and institutional transparency

The Department of Statistics has been releasing GDP advance estimates publicly since the middle of last year. The next advance quarterly release is set for next week on October 21 and that will mark one year since the practice began. The actual Q3 GDP numbers themselves will only be made available publicly in mid-November.

I want to highlight that advance releases do three things in the market.

First, it messes up almost everybody’s forecast rounds and their plan for press exposure. I know more than a few economists are still gearing their forecast process around actual GDP release date instead of that of advance estimate. While this is understandable as many are waiting for various data to come out before making their final quarterly GDP forecast, this leaves consensus numbers being gathered after advance estimates are out, which in turn makes consensus outdated and less informative than it used to. After all, who would be impressed when a forecast is released after the advance estimates?

Second, maybe there is still a room to be had to keep existing forecast processes since there are errors to the advance releases. But here so far, average error has been minimal. Mean absolute error for the past three quarters were only 0.25 percentage point, although the largest error is quite big. Currently, the absolute error for individual quarter that we have are:

  • Q3 2023: 0.17 percentage point (ppt)
  • Q4 2023: 0.43 ppt
  • Q1 2024: 0.28 ppt
  • Q2 2024: 0.10 ppt

But the two points I think are minor concerns. The first is a mere inconvenience and easily rectifiable, although it necessarily leads to more work. For the second point, I have some confidence the MAE will get smaller in the future.

The third point is more important: advance releases increase transparency in data and therefore confidence in public institutions. As much as there is science behind the GDP data collection and processing, there are still subjective decisions need to be made in finalizing the numbers. These decisions however subjective are mostly innocent but it does leave space for abuse in some circumstances. Advance releases limit that room for subjectivity by anchoring the final numbers to the former numbers.

Categories
Economics

[2988] Malaysia’s 2024 sweet spot for 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:

Some rights reserved. Hafiz Noor Shams

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.

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Economics WDYT

[2976] Guess the 2Q23 Malaysian GDP growth

The second quarter GDP for Malaysia will be published tomorrow, at noon Malaysian time.

As a reminder, the first quarter economy grew by 5.6% year-on-year. That was a surprisingly resilient quarter, despite deceleration in growth.

How fast do you think did the Malaysian economy expand in 2Q23 from a year ago?

  • 2% or slower (8%, 1 Votes)
  • 2.1%-3.0% (38%, 5 Votes)
  • 3.1%-4.0% (23%, 3 Votes)
  • 4.1%-5.0% (23%, 3 Votes)
  • 5.1%-6.0% (8%, 1 Votes)
  • Faster than 6.0% (0%, 0 Votes)

Total Voters: 13

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All available statistics point towards a second quarter slowdown. Export numbers during the quarter have been horrible, and the country’s industrial output, given how Malaysia is an small, open economy, has not been doing well either.

Part of the reason why the decline in exports and industrial output is due to the extraordinary post-lockdown growth, amid severe supply chain complications: that created an extremely high base effect and that effect will likely persist until the third quarter.

But that should distract us from the ongoing global growth slowdown. Europe is in recession and China is in trouble. The only real bright spot is the US, which is surprising because much, much earlier, many had expected the country to go into a recession.

But the US strength itself is causing troubles elsewhere in the form of capital outflows and foreign exchange volatility, since it gives more room for the Fed to raise rates. The end of the hike cycle keeps getting delayed.

The good news is that the domestic labor market remains solid, and there has been a little bit more medium-term direction given out by this government. The political heat has come down a bit after the recent state elections, which hopefully, will convince the government to shift more attention towards the economy, and other nation-building exercise.

And challenges in the next several quarters will not be small. Next in the list is a strong El Nino phenomenon, resulting, very likely, the hottest season we will go through yet. That will require a little bit of preparation: water supply, electricity transmission, manufacturing inputs, health services, firefighting services, etc.

And I pray there will be no forest fire and haze this time around.

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Economics WDYT

[2964] Guess the 3Q22 Malaysian GDP growth

It is almost certain the third quarter growth will be massive as far as year-on-year calculations are concerned. Consensus compiled by Bloomberg has it at 12.1%. What do you think the number would be? The official figures will be released this Friday.

How fast do you think did the Malaysian economy expand in 3Q22 from a year ago?

  • Slower than 8.0% (64%, 7 Votes)
  • 8.0%-9.9% (0%, 0 Votes)
  • 10.0%-11.9% (18%, 2 Votes)
  • 12.0%-13.9% (18%, 2 Votes)
  • 14.0% or faster (0%, 0 Votes)

Total Voters: 11

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Big as it will be, it will not inform us much about the state of the economy. At least, not by itself alone. So, do not be taken by it and read it with extra context.

It is important to remember what happened a year ago: the third quarter 2021 real GDP dropped by 4.5%, as shown in the chart below (in the same chart, you could see another instance of massive base effect in the second quarter of 2021, responding to the drop the year before).

One simple way to avoid the problem of base effect altogether is to look at quarter-on-quarter growth, and compare it with historical numbers.

For 2015-2019, quarter-on-quarter growth for the third quarter averaged around 3.5% (range: 3.1%-3.9%). Let us ignore 2020 and 2021 due to the usual circumstances those years represent. Since 2022 appears to be a more normal year (as far as normality is concerned, we could probably take the first quarter of this year as the beginning), 2015-2019 appear like a reasonable for casual comparison.

Now, if third quarter growth is indeed 12.1% year-on-year, then quarter-on-quarter growth would be 2.9%.

That 2.9% is below the quarter-on-quarter average of 3.5%, and misses the lower bound of 3.1% (see the second chart above). This also means, if the year-on-year growth figures is to be truly impressive, third quarter growth will have to be significantly higher than 12.1%. Maybe 13% or 14%. Else, it would be either bad, or normal at best.

The quarter-on-quarter growth is something to watch out for, especially at a time when the global economic outlook points toward recession in Europe and the US, along with a weak China. Ignore the year-on-year one for the time being.

Categories
Economics WDYT

[2946] Guess the 3Q21 Malaysian GDP growth

Let us go straight to it:

How fast do you think did the Malaysian economy expand in 3Q21 from a year ago?

  • Faster than 5.0% (0%, 0 Votes)
  • 2.5%-5.0% (29%, 2 Votes)
  • 0.1%-2.5% (29%, 2 Votes)
  • -2.5 to 0.0% (29%, 2 Votes)
  • Slower than -2.5% (14%, 1 Votes)

Total Voters: 7

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With lockdown imposed throughout the third quarter and more—done to address the government’s mismanagement of the pandemic—economic growth is unlikely to be strong, if there is growth at all. Reuters’s poll has GDP falling 1.3% year-on-year. Bloomberg’s panel is more pessimistic by putting it at 1.9% contraction.

Supporting statistics are out there. Industrial production contracted in the quarter. Unemploment is still significantly high versus prior to the pandemic. More people are joining the job market and getting employed, but the rate that is happening is just not fast enough.

I do not know what to read from the inflation data anymore. It is mixed with supply-driven issues. Along with massive base effect, it makes the whole measurement less useful for assessing demand. There is core yes, but I don’t know.

One good news is the import growth, particularly retained imports were okay, signalling recovery momentum for private consumption during the quarter and going forward. In contrast, exports did not grow as fast, don’t expect much support from the trade front. Still trade issues with all its supply chain complication might not reflect the health of demand in the first place. That is yet another complication in assessing demand.

But the more important thing is, most relevant to people on the streets, the worst is probably behind us. Vaccination rates are high and further lockdown seems unlikely, unless somehow the vaccines suddenly stop working, or the Malacca election gets mismanaged like how Sabah was. That means, the fourth quarter would likely be much stronger (fingers crossed).

Yet another important point is that, we are very unlikely to return to pre-pandemic peak of 2019 this year. 2022, almost certainly but we are definitely behind the pre-pandemic growth trend. I blame Budget 2021 for that, due to the government’s misplaced priorities.