Thursday, May 24, 2012

Quick Note On The GDP Numbers

I had a feeling this would happen, when I saw that DOS had published the second volume of the 2005 Input-Output Tables a couple of months back. The IO tables form the basis for the national accounts, so when the IO table changes, you’re looking at a possible change in the base year.

So indeed, that’s what happened – starting with yesterday’s GDP release, real GDP will now be computed based on 2005 prices, as compared to the 2000 prices used since 2007. More complicated still, the national accounts will be a mix of the 1993 SNA and 2008 SNA methodologies. In fact, DOS will be conducting a briefing today to go over the changes in the accounts.

In any case, the change in the base year means a lot of extra work looking at the data, especially maintaining the integrity of the back series, so I’m not hoping to have a good sense of the data until later this evening (or maybe even not until next week). DOS has only thus far provided data going back to 2009 under this new base year, so it’s going to take a bit of work to splice the two base year series together.

It’s not a trivial problem, as the change in base year also involves not just changes in prices, but also accounts for changes in the structure of the economy. In other words, both current price and constant price GDP and GNI series will have changed completely.

For those who have been harping on the ETP’s and NEM’s inconsistent numbers, this is one of the reasons why I’ve been happy to let that particular problem slide – every five years, the whole basis of the growth and income calculations will get thrown out of the window. Completely.

For example, last quarter’s GDP report shows total 2011 GDP at RM852 billion at current prices. This quarter’s report under the new base year has 2011 GDP at RM881 billion – about a 3.4% increase. And these types and magnitudes of revisions will apply to past year data as well.

So it’s not just a case of moving goalposts, we’ve been shifted to a completely different field, something that will happen again in 2017 when we’ll be due to shift to the 2010 base year (though I suspect it’s possible 2011 will be chosen instead, as 2010 was a little unusual as a recovery-from-recession year).


  1. alamak, confused.

    So, does it mean Q1 GDP may not be growing 4.7 had we used 2000 base year? & We did not grow 5.1 in Q1 and 5.2 in Q4 2011 is we use 2005 base year?

  2. Based on the data DOS presented just now at the briefing, the growth rates haven't been changed much, but as I wrote above, the economy is 3.4% bigger in 2011 than it would be under the 2000 base year.

    For 2011 under the 2005 base year, the growth rates are Q1:5.1%, Q2:4.3%, Q3:5.7% and Q4:5.2%, i.e. not much difference. Annual growth rates haven't changed much either.

    The biggest changes are the changes in structure: investment's much higher under 2005, and consumption is smaller. The size of manufacturing and services sector have been downgraded, and mining and agriculture increased. Lots of changes in subsector shares as well.

  3. What is the point to refer our output in 2005 money, or 2000 money, or 1990 money? They're all fiat money, as good as toilet rolls.

    Does anyone bother to convert all those current GDP figures into gold price equivalent?

    If gold is to elitist for some, why not use red bricks? Red bricks are important commodity, you need them to build houses and buildings.

    How much Malaysia's GDP have grown in terms of red bricks prices? I'd love to know. Also, can we compare our GDP versus China, Germany using the same red bricks currency?

  4. Rather than red bricks, can we translate the GDP figures to Bonus Link points?

    I just wonder how much is our GDP in terms of Bonus Link points. If I have a billion of Bonus Link points, can I redeem those points in exchange of owning the entire country?

  5. From a practical standpoint, the price of products and services in gold terms is three times more volatile than they are in currency terms over the last 50-60 years.

    Worse, gold exhibits both long-term deflationary and inflationary tendencies. That makes a constant price calculation more necessary, not less.

    Also, given the evils that a gold based currency system engenders, why would anyone consider using it as such anymore?

  6. Anon,
    I'd like to add more to Hisham's point.
    Think red bricks are unpractical as a medium of exchange for various reasons - least of which is the fact that the same over-production that you ascribe to fiat money can also happen to these bricks (or bonus link points), the impracticality of transport and divisibility (imagine paying small divisions of a red brick for a phone call at a pay phone)

    Hypothetically, bonus link points could probably get around most problems but the natural increase of transactions in a growing economy would dilute its valuation at the same rate as fiat money. Worse yet, this form of currency may not be accepted as legal tender outside urban centers (I think).

    I guess to denominate the size of an economy, the simple currency value is generally the most practical way to do it.