2Q 2011 GDP: Better Than Expected

While disappointing, the results weren’t totally unexpected. In fact, the y-o-y number of 4.0% came in somewhat higher than the consensus estimate of around 3.6% (and well above that implied by net trade or industrial production output).

In point of fact, apart from the external side, the numbers don’t look half bad (log quarterly changes; seasonally adjusted; annualised):

Trade was slightly positive, if only because import growth fell more than exports. Public consumption growth went flat – not unusual in the 2nd quarter as annual income tax collection usually only begins around the same time. Private consumption growth held steady at nearly 10%, and investment picked up. I’d feared based on the monthly data that we would see another sharp dip as in 3Q 2010, when the economy actually shrank, but that hasn’t been the case here.

On the supply side, there was a surprise jump in agriculture output, while the services sector showed steady growth and manufacturing was flat – mining and construction both showed considerable contractions (log quarterly changes; seasonally adjusted; annualised):

Of course, what matters to most people is: where do we go from here? I’m struck by the similarities between this quarter and the third quarter of 2010. We had a global growth slowdown and talk of a double dip recession, markets were volatile, and uncertainty high. On the plus side, growth hasn’t slowed as much this time; but on the negative side, there’s no sign of a QE3 and support from an expansionary China is conspicuously missing.

So at the outset, we probably can forget about a quick recovery in 3Q 2011. On the other hand, the scales aren’t quite tipped over into a global recession scenario just yet. Just remember that in the aftermath of a financial crisis, economic growth tends to be stop-go. Even if Malaysia was never directly involved, our high external exposure ensures that we’ll bear some of the consequences. So the risks are accumulating that the Malaysian economy will miss the government’s target of 5.0%-6.0% growth this year, though I wouldn’t dismiss it as outside the realm of possibility just yet. Stranger things have happened.

Technical Notes:

2Q 2011 National Product and Expenditure Accounts from the Department of Statistics