Categories
Economics

[2688] Quick reaction to 1Q2013 GDP figures: bad but not that bad

The GDP growth for the first quarter in 2013 is bad. The economy in the period grew by only 4.1% from a year ago, which is a marked slowdown from 6.5% year-on-year growth in the fourth quarter. Despite the high 6.5% growth, the fourth quarter GDP figures were problematic. An anomaly pushed the growth in that quarter up.

The latest quarter has no such anomaly and so, the headline number does a better job in describing the economy this time around. Just to give context how bad the number is, the market had expected growth to be above 5.0% year-on-year with the median as compiled by Bloomberg being 5.5% year-on-year. You can compare the latest growth rate to previous rates in the chart below; 1Q growth is the lowest since the fourth quarter of 2009 which was right at the tail end of the 2009 global financial crisis.

1Q2013 real GDP

Just earlier, France officially went back into recession with Germany barely grew after having its economy contracted in the last quarter.

Indeed, the reason for the slow growth was net exports. It was down by 36.6% y-o-y in real terms:

1Q2013 net exports RGDP

Of course, this is not the first time net exports dropped like a rock from the 7th floor. With Europe and China in trouble, exports have trouble growing. If it was not for strong growing demand from Southeast Asia and the United States, it would have been far worse.

But there is some good news. Private consumption growth accelerated to 7.5% year-on-year from a low 6.2% year-on-year. Domestic consumption growth was very much supported by consumption growth; domestic consumption growth accelerated to 8.2% year-on-year from 7.8% year-on-year.

The fact that consumption has been strong is partly the reason why net exports dropped. Consumption growth means import growth and boy, did imports grow.

I am not sure why consumption grew as it had grown. The way I looked at it, imports of consumption goods and industrial production were bad. I had expected consumption to not perform as well as it had. What was it? Minimum wage? Cash transfer? I did see MIER’s consumer sentiment spiked up but that does not explain much. I hope somebody else would be able to enlighten me on this.

Another thing that came as a surprise to me is the practically non-growth of government expenditure. I had expected all those heavy electioneering to boost government spending but it did not. In fact, government spending dropped in nominal terms! It may appear that the government may be on target to reduce the deficit ratio after all. Hurrah!

It will be interesting to see the actual federal government expenditure number later on, which is different from the GDP component.

As for investment, it was high and that made it hard for it to grow any faster. There was a one-time jump and that was it:

1Q2013 GFCF RGDP

That one time jumped led to the 26.6% year-on-year jump in 2Q2012. Investment growth has been stuck at that level ever since. The next quarter… or rather this quarter, faces the risk of investment contracting, unless there is something big coming in our way. I do not see anything big coming in the second quarter, yet.

So, after all that has been said and done, the 4.1% is bad, but it is not as bad as it looks.

I mean what is not to like?

Consumption grew well and government expenditure was stable. I like this 4.1% growth better than the “fake” 6.5% growth in 4Q2012.

Mohd Hafiz Noor Shams. Some rights reserved Mohd Hafiz Noor Shams. Some rights reserved Mohd Hafiz Noor Shams. Some rights reserved
p/s — federal government expenditure actually grew by 9.3% y-o-y in 1Q2013 and revenue was down 8.6% y-o-y. Fiscal deficit ratio for the quarter was 6.4%. It is an improvement from 8.7% deficit in 4Q but I am unsure about the government lowering its deficit now.

Categories
Economics WDYT

[2687] Guess the 1Q2013 GDP growth!

So, trade surplus in the first quarter of 2013 very much contracted. Net exports in current prices were down by 44%. Although imports fared considerably better than exports in the quarter (hence the big drop in trade surplus), imports of consumption goods were weak, which may suggest that consumption itself slowed. Another bad news is that industrial production also did not grow. I do not think it was mostly due to the fact that 2012 was a leap year since March y-o-y figures were weak.

I am unsure about the investment figures but those investment figures are already high, thus making faster growth unrealistic.

On the plus side, government expenditure was likely up due to electioneering. But that part of the economy is the smallest among all of the components.

Whatever it is, that quarter growth will be significantly slower than the surprising 6.4% y-o-y achieved in 4Q2012. Consensus has it at 5.4% y-o-y according to Bloomberg. I have a feeling it will be lower.

How fast do you think did the Malaysian economy grow in 1Q2013?

  • Above 6.0% (6%, 1 Votes)
  • 5.5% - 6.0% (6%, 1 Votes)
  • 5.0% - 5.4% (17%, 3 Votes)
  • 4.5% - 4.9% (33%, 6 Votes)
  • Below 4.5% (39%, 7 Votes)

Total Voters: 18

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The official GDP estimates will be released by the Department of Statistics on Wednesday’s evening.

Categories
Books, essays and others Society

[2686] Stark’s system of government was based on mistrust

Stark’s system of government was based on mistrust. He looked for laziness, insubordination, drunkenness, and strife; he pretended to suppress them, and only succeeded in creating the further vices of cunning, deceit, and ill-will. Too many laws and regulations stifle the sense of good and evil. No one looks beyond his own personal interest; and nothing matters except the evasion of punishment: The plantation was an overgoverned state, as are all the European States of today; and the men were an army of demoralised by discipline. [Henri Fauconnier. The Soul of Malaya. Chapter 1. 1931]

Categories
Economics

[2685] Austrian alert!

Managing imbalances and rising indebtedness under a low interest rate environment

Very low interest rates have now prevailed for a number of years and appear to be likely to continue for the foreseeable future. Given the duration of the easing period, a key question is whether monetary policy can still be considered as being counter-cyclical or has there been a stuctural change in the monetary environment. It also gives rise to the potential unintended consequences of the prolonged low interest rate environment in terms of the mis-pricing of risks, overleveraging and rising household indebtedness, disintermediation of savings away from the banking system, excessive speculation, and the formation of asset price bubbles. Such developments could create financial and macroeconomic vulnerabilities that could harm the long term growth potential of the economy.

Papers on this topic could touch on potential policy issues arising from the prolonged period of low interest rates, and explore possible measures to address financial imbalances. Studies on the effectiveness of alternative monetary tools and instruments in managing risks of imbalances are also welcomed. [Bank Negara Malaysia’s Conference on “Monetary Policy in the New Normal”. Bank Negara Malaysia. Accessed May 8 2013]

Categories
Politics & government

[2684] For reconciliation, Najib needs to address UMNO first

It was a Pyrrhic victory for Barisan Nasional and Najib Razak’s post-election speech called for national reconciliation. That is perhaps admittance that his 1Malaysia policy has not been as successful as he had hoped. It is all a nice, humble speech but his call for national reconciliation suffers from credibility crisis.

Soon after, various UMNO leaders made it clear that they did not plan to take up the reconciliation tone. They immediately took up their racialist perspective and blame the Chinese for their loss. The bitter former Chief Minister of Malacca Ali Rustam who lost his election went as far as accusing the Chinese as being ungrateful. Only the heaven knows what Utusan Malaysia will spew out today and the days after.

Najib may be sincere about reconciliation but the party is always bigger than him even as Najib is proving to be more popular than everybody else in his party. The truth is that the majority in his party does not believe in an inclusive Malaysia. If Najib is honest in reconciliation, he has to address his party, not the wider Malaysians, about his reconciliation agenda. He needs to convince his party of reconciliation and not the wider Malaysians. The wider Malaysians hear both Najib and his parties and there are stark diverging themes going on there.

Besides, it was UMNO — the primate party of BN by far — who pushed the Chinese aside. Can you really blame the Chinese for rejecting UMNO and BN?

And the suggestion that BN lost because of a “Chinese tsunami” is not entirely true. BN lost the popular votes for the first time in a long time. That would not have been possible if it were all Chinese votes. There are just not enough Chinese voters to go around making that kind of shift. And the Chinese have been hostile to BN for quite some time now. Does the death of MCA, Gerakan and SUPP not tell you something?

Maybe it was something else. Maybe, it was the urban-rural divide. The urban-rural factor has more explanatory power to describe BN’s loss of popular votes.

Maybe BN believed in its lying media too much that they thought they would have performed better. Maybe, the lesson of 2008 of the importance of credible media has not been learned by BN. They ate their own propaganda and then when it tastes bitter, they begin to blame for someone else.

For reconciliation to happen, BN needs to look at the urban-rural factors. Looking through the racialist view and then talking about reconciliation just will not fly.