Thursday, May 28, 2009

1Q2009 GDP Growth Worse Than Expected

I've been trying to digest the numbers, but whichever way you look at it, the GDP numbers are bad (log annual change):

One saving grace is that the revised 4Q2008 figures are stll positive, but just by a hair's breadth. What really surprised me though was the extent of the revisions, with DOS revising GDP data all the way back to 2006. In any case, both demand side and supply side numbers are horrible:

Are we then in a technical recession? Not "officially", but that's due to our singular way of calculating growth figures. I outlined the difference in an early post in my blog. To recap, Malaysia uses quarter on last year's quarter to arrive at the growth figure, while most advanced economies use seasonally adjusted quarter on previous quarter, annualised. The former method yields a less volatile growth measure, while the latter better captures momentum.

If we use the seasonally adjusted method, it does show a technical recession (log quarterly changes, seasonally adjusted and annualised):

The depth of the pullback though is startling - that's a 17.4% drop in 1Q2009 after an already steep 9.1% fall in 4Q2008. On that basis, we are definitely in a technical recession, though I've little doubt that 2Q GDP numbers will confirm it "officially".

I've also been looking at some of the structural aspects of the economy, now that there's a lot of talk about a "new economic model". While I'll save my thoughts on that for another day, one thing that I think is going on is that like it or not, we ended up with a new economic model anyway without anyone looking. Or to be more precise, the export-growth model had already hit a dead end in my view a couple of years back.

I really don't have any firm convictions on what should replace it though. A structuralist approach to development would imply a shift towards higher services output on the supply side, and consumption on the demand side, but that's already occured and hasn't fully displaced export-led manufacturing. Or it could just be that I'm expecting too much too soon, and the results would be more evident a few more years down the road. Or we could end up a unique amalgam, with a highly diversified economy that's neither weighted to the external sector nor the domestic sector.

Interesting times.

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