Thursday, May 16, 2013

1Q 2013 National Accounts: Braking Hard

Growth in the last quarter of 2012 was shockingly fast. But for every action, etc. etc. Growth in 1Q2013 was shocking too, but in the opposite direction (log annual changes; log quarterly changes, SAAR):


The annual growth number fell from a revised 6.5% in 4Q2012 to 4.1% in 1Q2013 (4.0% in log terms). This was actually a little lower than forecast by my IPI based model – for once, it wasn’t being overly pessimistic – but is still respectable growth, and not bad compared to our regional peers.

But the quarterly number crashed into negative territory, sinking 2.5% from 4Q2012’s 8.3%. Mind you, this is real, inflation adjusted figures. The nominal GDP numbers are even worse (log annual changes; log quarterly changes, SAAR):


Nominal GDP growth has been trending down for a while now, and fell below real GDP growth in 4Q2012 for the first time since the end of the recession in 2009. For 1Q2013, that trend accelerated, with the gap nearly doubling from 0.8% to 1.7%. The quarterly SAAR growth fell an even steeper 3.0%.

So, what’s up?

On the demand side, net exports is obviously dampening growth (log annual changes):


While both consumption and investment growth have stayed strong, they’re are coming off growth peaks. Public consumption has been a complete no-show this year.

On the supply side, the two-speed economy that started appearing last year is now very, very obvious (log annual changes):


The manufacturing and mining sectors are showing negative growth, even as services and construction continued to expand. Even in services however, growth has been uneven, with most of it driven by retail sales, insurance and real estate services. Restaurants are doing very well too, but given the Malaysian proclivity for eating out, that’s no surprise.

Agriculture looks alright, but only in real terms – in nominal terms, the only subsectors really expanding are fisheries and livestock. Oil palm, rubber, forestry are all deeply in the red, as global prices of Malaysia’s commodity exports have trended down over the past year:


Only oil has held up well, but petroleum output has only just recently started increasing again. Most of Malaysia’s oil & gas revenue also actually comes from natural gas sales, where prices have been relatively stable or increasing.

To add to all the misery, inventory accumulation in 1Q2013 was at its highest level in three years, indicating reduced sales.

So a little over half the economy is doing ok, but the other half probably feels like there’s no growth at all. People in export oriented manufacturing probably feel like we’re actually in a depression.

Hence the sense of the average man on the street that the economy isn’t doing as well as the real GDP numbers indicate. That’s because nominal (current dollar) income growth is well below real (inflation adjusted) output. As I think I said somewhere before, we’re making more things, but earning less for them.

Going forward, I think 2Q growth numbers are likely to rebound a little – imports of intermediates are up, as are imports of capital goods. Commodity prices have stabilised, which at least won’t deliver lower actual returns to commodity producers over this quarter, even if the base effect will continue to dominate the growth numbers until 3Q-4Q this year.

The fillip from reduced political uncertainty from the conclusion of GE13 should also release some spending into the economy – it’s certainly gotten foreign investors to return.

As against that, Europe is turning into a long-drawn out, slow motion train wreck, while both China and India are continuing to slow.

The bottom line is that 2013 is shaping up to be a more challenging year than expected.

First digression: Lesson for incumbent governments – don’t call an election when nominal income growth is negative. Lesson for opposition parties – press for elections when the GDP Deflator turns negative.

Second digression: DOS has revised all the GDP numbers going back to 2010, based on the latest (2011) industry surveys. As a result, for example, 2010 GDP was 0.25% larger than originally estimated while 4Q2012 GDP was revised upwards to 6.5% from 6.4%. This has ramifications, for instance, on the ETP target, which is now that little bit closer than we thought it was.

Third digression: Whoever thinks that the GDP deflator is a better measure of consumer inflation really needs to look at the chart below. Does anyone seriously think that Malaysia is actually experiencing consumer deflation? (log annual changes):


Fourth Digression: With nominal GDP growth dropping so sharply, keeping total government debt below the administrative 55% ceiling is going to be pretty challenging this year. Personally, I don’t think that matters much as i) it’s hardly significant, and ii) debt is nowhere close to the current statutory limits; though I can imagine quite a few people will make hay over this issue.

Technical Notes:

1Q2013 National Accounts report from the Department of Statistics


  1. Hisham,

    I'm still tearing through the numbers myself, but the GDP results were pretty much in line with the slowdowns of regional export-oriented economies.

    Regarding digression number 4:

    Last table says Gov't gross debt to GDP: 50.8% of GDP! You've still got a little bit more ammunition for your commentators who are die-hard fiscal hawks.

    1. Jason,

      It's a fudge - they used the "estimated 2013 GDP" as the denominator, which explains the sudden drop.

    2. Huh. Who would have guessed that.

      Yeah I'm getting 53.8% as the new ratio.