Tag: pandemic

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.

Categories
Personal

[2935] From BCG to Covid-19 vaccine

It is hard to remember it after all these years. I vaguely recall lining up along one of the corridors of my primary school building. The school had a mid-20th century architecture, with the present classrooms opened in 1964 in Kuala Lumpur. It had two symmetrical yellowish cream-colored long buildings running parallel and facing each other, with an open grass compound in the middle where little students would chase each other whenever the tropical sun was kind.

It was late morning I think, just after the 10AM recess. I may have made that up. But let us just say it was a bright sunny day because I do not remember it rained.

The school must have had 300-500 pupils aged from 7 to 12 years old. I do not know how old I was, but about a hundred were queuing up that day. My cohort was there to get our vaccination and health check-up. Was it BCG? I am unsure. Maybe.

What I remember best was the feeling I had while waiting. This line had no queue-jumper: everybody was scared. Some cried their hearts out and had to be consoled with an ice-cream cone or some candy. I did not cry despite my heart pounding, and I did not flee despite wanting to.

It did not help that the government of the day was running an anti-drugs campaign. The now-demolished old Pudu Jail had a long mural, purportedly the longest in the world along its walls for any would-be offender to see. The wall had images for drug abuses and its consequences painted in dark colors. Coloring contests were held about the evils of najis dadah. TV was telling us drugs were bad. Jangan hisap dadah. I want to hear that in Samy Vellu’s voice.

All that had the needle as a symbol of drug abuse and that symbol was strongly etched into my young mind.

On that day, I was confused. Why does my school want use a needle on me?

I was scared.

The queue had to end somewhere. It was not a wait forever. I did not look at it when the needle pierced through my skin, with a chemical concoction injected on my left arm. People told me it was like an ant bite. Either they were lying, or their ant was a huge killer-insect.

That is my memory when it come to injection. I may have grown up, but every time I have to face the needle for whatever reason, a little part of me shrinks in fear. “Please doctor, please, not the needle,” my little inner voice would shriek silently.

In this mismanaged pandemic, Malaysia is beginning to vaccinate our population seriously after a slow start. I had my first dose a week ago, and the line was a long one. My mind hovered around my old memory of vaccination and wondered if it still hurt while I was lining up.

I had several injections since that BCG vaccination. Funnily enough, I cannot recall any of them. My mind must have blotted them out. It must be traumatic.

As the line snaked into the main vaccination hall, I thought to myself, “antivax people are really antivax because they have a horrible injection experience. They have never grown out of it. ‘Never again,’ they said!”

I tried getting my mind off it by reading a book. But Hussin Mutalib’s Islam and Ethnicity in Malay Politics is not a titillating read. Interesting, but it is an academic work. Besides, it was hard to concentrate in the hall. Workers and volunteers were shouting out instruction, and people were talking to each other.

Eventually I found myself in a carrel where the vaccine would be administered. The vaccinator showed me the vaccine. There was a minor controversy just a day earlier where a person proved that he got less vaccine than he should. It should have been 0.5ml and no less.

The rumor machine went on an overdrive, suggesting somebody was purposefully giving less either to profit off it, or that supply was running out. Either way, for a program bedeviled by problems, the episode widened the trust deficit this government suffered, and this government suffers a deficit much bigger than the Najib administration.

I appreciated that the vaccinator showed me the volume, and I knew I should watch the whole procedure to ensure I got the whole 0.5ml.

But I did not.

I shut my eyes, trying not to think my BCG experience 20-30 years ago.

“All done. You’re good to go,” she said.

“Oh?”

Categories
Economics WDYT

[2932] Guess the 1Q21 Malaysian GDP growth

The 2021 first quarter GDP for Malaysia will be out next week. As usual, before we go into the details, let us play some games.

How fast do you think did the Malaysian economy expand in 1Q21 from a year ago?

  • Faster than 10.0% (0%, 0 Votes)
  • 7.6%-10.0% (0%, 0 Votes)
  • 5.1%-7.5% (0%, 0 Votes)
  • 2.6%-5.0% (36%, 5 Votes)
  • 0.1%-2.5% (50%, 7 Votes)
  • 0% or slower (14%, 2 Votes)

Total Voters: 14

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January, February and March industrial figures grew 1.2%, 1.5% and 9.3% year-on-year respectively. That is a 3.9% industrial expansion for the whole quarter. With industrial production representing  approximately a third of the 2020 economy, this is a good sign.

This is especially so when services (60% of the 2020 economy) contracted slightly in the first quarter, falling 0.3% from a year ago.[1] This is likely caused by the second lockdown imposed by the government in January and February 2021. But I do not think that small contraction should not bring down the overall growth (and I do not think agricultural output will be too bad that it would bring the whole GDP growth down).

But we are in danger of getting distracted by growth number. We have been distracted earlier and the belief in V-shape recovery is a proof of that. Now, we are paying the price in the form of bad government response, and bad planning.

Instead of whether the first quarter (or the second quarter for that matter) would grow, there are two benchmarks we should focus on as far as the top line recovery is concerned:

  1. When will the GDP level (not growth) return to pre-pandemic level? This level should be the fourth quarter of 2019, and the answer will determine whether we have somewhat recovered.
  2. When will the GDP level (not growth) match the level it would have been if the 2020 recession did not happen? The answer to this question will tell us the long-term damage the economy has suffered.

Additionally, the real bad news is that, recovery has been uneven and its pace is flagging. March 2021 unemployment rate is stuck at 4.7%, after spiking to 5.3% back in May last year. The reason for the stubbornly high unemployment rate is that people are returning to the labor market, except that the economy is not creating jobs fast enough. Definitely, some jobs have been eliminated permanently.

Bottom line is, even if there is growth in the first quarter, I would not label it recovery just yet. In this situation, I rather not pay Genting Casino a visit. I prefer to err on the side of caution.

Hafiz Noor Shams. Some rights reserved

[1] — I made a noobish careless mistake here. I mistook quarter-on-quarter number for year-on-year. The year-on-year was much worse, and if I had realized it, I would have expected a contraction for the first quarter. Apologies.

Categories
Economics

[2924] Would a rule-based progressive corporate income tax be better than an arbitary windfall tax?

I would think yes. A long answer follows:

Malaysian glovemakers have reaped quite a fortune from the Covid-19 pandemic. Top Glove’s 2020 financial year net profit soared to nearly RM2 billion from RM400 million the year before (approximately 5 times higher). It is not the only one striking gold. Another large glovemaker Hartalega had its half-year net profit for 2020 rising close to RM800 million compared to slightly below RM200 million in the same period last year (about 4 times higher).

The extraordinary profit has made windfall tax a popular notion among some crowd. Member of Parliament Syed Saddiq Syed Abdul Rahman and his party MUDA are lobbying the government to impose windfall tax on Top Glove and other glovemakers.

Top Glove paid nearly RM400 million worth of tax in the 2020 full financial year. For Hartalega, they paid almost RM200 million out of their half-year revenue. A proper windfall tax could easily double that. That is a lot of JASAs that could be funded.

Windfall tax is arbitary and carries corruption risk

I am not all too comfortable with windfall tax. The problem is its arbitrariness and with arbitariness, corruption risk. At the very least, its arbitrary nature creates room for negotiation between businesses under the microscope and the authority exerting the tax. The bigger the business, the stronger the concern for corruption is.

Rule-based approach addresses corruption risk

Assuming we are merely interested in getting that additional revenue only, I think there is a better way to do so. We can possibly design a rule-based approach mimicking windfall tax. That is progressive corporate income tax.

In search of a mimic

Currently, the Malaysian corporate income tax is flat, with rate imposed at 24%. (Well, it is not that simple. Our corporate income tax is somewhat progressive, but only for SMEs. SMEs pay 17% income tax on the first half a million of net income, and then 24% for any profit above that. Yes, two brackets.)

There are some debates on why corporate income tax is flat and not progressive. I will not be going there and it is a whole other debate to be had.

But strictly from tax collection perspective and for the purpose of finding a mirror policy, I would think progressive corporate income tax would be better than an arbitrary windfall tax. Better in the sense that it mirrors windfall tax collection while minimizing corruption risk.

The challenge is to finding such a mimic is this: how could we generalize the brackets and the tax rates so that it could capture supernormal profit across industries fairly, while not punishing the others?

That is a difficult question to answer because each company or sector has its own typical profit level. For instance, a supernormal profit level as currently enjoyed by glovemakers are terrible figures for giants like Petronas during normal times.

In any case, theoretically, a progressive corporate income tax mimicking windfall tax would have a J-curve (or even an L-curve): mostly flat rates for most income brackets, but rises dramatically for supernormal bracket.

Hybrid?

Alternatively, we could add an if-then function to the corporate income tax code: if your yearly net profit is above a certain level and it grows by more than 400% (or some superprofit benchmark) compared to the previous year, then you would face a tax rate higher than 24%. This would be a hybrid between progressive corporate income tax and a windfall tax, and it would still be rule-based.

Categories
Economics Science & technology Society

[2917] Urban life will not go away with WFH and digital technology

Last week, I participated in a discussion panel on urban poverty and urbanization. Over the course of the session, a fellow discussant highlighted the potential of working-from-home phenomenon in reducing the need for urban centers.

I am unsure if I could agree with the suggestion.

First off, such decentralization is possible. It is not out of this world. The COVID-19 pandemic has prompted discussions on living away from cities. We could work from everywhere now. Some have even thought perhaps it is time to go rural altogether. There is a logic behind it.

Beyond the panel, there is a rethinking about high-density area. As it goes, maybe we should spread it out a little to make our society more resilient against future outbreaks. WFH is one of the ways that could be achieved. We can work remotely, and therefore we do not need a place in the city. Ditch the city, the slogan might sound.

If pandemic is the only thing to worry about, sure. Decentralizing the population into many smaller low-density towns would be the way forward.

But cities are not just about working culture, and pandemic is not the only thing that concerns us.

If I remember my lesson back in university, there is such a thing as agglomeration. If enough companies—and indeed people—gathered together, they would enjoy some kind of economies of scale in more than one way.

In terms of services, the more people there are in a place, the cheaper it is to deliver those services. This is relevant to both public and private services. Think of mass transit, or better city trains. Super-expensive to build and operate. Having it in Kuala Lumpur might make sense with its 2 million-4 million people depending on the definition used to define the city along with its satellites. Less so in smaller cities such as Kuantan that does not even hit one million population mark. Malacca Town with its low population city has a monorail, but we all know it is a bad, expensive joke.

And it is not just mass transit. Think about utilities. Think of roads or better in these days of interconnectivity, fiber optics network. It is cheaper to lay the cable for city use, like in Kuching, than in the interior of Sarawak. Indeed, communication tower is generally the preferred cheaper method of expanding internet services into rural areas.

There are plenty of examples across many sectors. Cost consideration alone make cities capable of providing services rural areas struggle to provide.

Large population is also a theme central to growth theory. As one growth theory puts it, beyond capital accumulation and technological progress, population growth is really the ultimate driver of growth. With population, comes new ideas. Edmund Phelps long ago wrote the following that pretty much summarizes mainstream growth theory:

One can hardly imagine, I think, how poor we would be today were it not for the rapid population growth of the past to which we owe the enormous number of technological advances enjoyed today… If I could re-do the history of the world, halving population size each year from the beginning of time on some random basis, I would not do it for fear of losing Mozart in the process. [Edmund Phelps. Population Increase. Canadian Journal of Economics. August 1968. Page 511-512]

To put it simply, technological progress itself is a function of population growth.

Good stuff tend to be created when people congregate in a place. New observation, innovation, idea exchange and all that happen more often among large population located in a dense area than in a sparsely populated space. The residents of large cities also make sophisticated demands arising from urban life. Without these demands, nobody would think of the solution and no progress would be made.

There might be an optimal population size. But for Malaysian cities, I think we could make it denser. I prefer denser cities not just because of the factors mentioned above and more, but also because the toll sprawls exert on the environment. Big cities tend to share resources better.

Finally, it is true that the pandemic lockdown has proven that we have the technology to work from home.

But it also proves we do not enjoy being stuck at home.

We do not just live within the space of our four walls. It is the culture, the connections and the values that matter as well. We yearn society. I yearn the city.

Many options available in the cities are available on the internet not because online services are taking over those services previously provided physically. Rather, the internet accommodates the provision of those services. It does not make cities irrelevant. Ultimately, those very services are made possible by cities.