Tuesday, July 25, 2017

Growth in Context

Just a quick note:

Growth forecasts for the Malaysian economy have been undergoing upward revisions, given the strong 1Q2017 GDP numbers and the continuing strength of trade growth and retail sales. For example, the IMF has just upgraded their 2017 forecast for Malaysian GDP growth from 4.5% to 4.8%. The official government forecast of 4.3%-4.8% will also likely follow suit in the next month or so, probably around the ballpark of 5%.

One common refrain I’m hearing in all this is: the man on the street and the businessman in his office aren’t feeling it.

But really, this is simply expecting too much. On a whole economy level, the revisions can be significant – the change in the IMF forecast implies the economy will be an extra RM3.5 billion larger than originally thought.

But at the micro level, this doesn’t actually amount to much. If you’re earning RM1,000, that same 0.03% change means an extra RM3. Even at that very low level of income, a RM3 change in income is nice, but it isn’t material. For someone earning RM10,000, it means an extra RM30. You ain’t going to “feel” that.

Even a full 1% change in growth (a distinct possibility this year, given the low base last year) won’t be very big. That means an extra RM10 for someone earning RM1k and RM100 for someone earning RM10k. You ain’t going to “feel” that either. Put another way, can you detect a 0.3° change in temperature, say from 28°C to 28.3°C? Neither can I.

Bear in mind also, that growth has been and will continue to be felt differently depending on which sector you’re in. Oil & gas guys are still feeling the strain of lower revenues and poor prospects, but those in manufacturing are mostly making hay – but there are only about 2 million workers in the entire manufacturing sector, relative to a work force of nearly 15 million. We should also consider that with house price inflation on the wane, home owners aren’t getting an optimism boost from rising unearned wealth like they did from 2010-2014, which truth be told is a good thing.

Now, over a longer horizon, a higher growth rate is important as income and spending compound, and gains stack over time. But on any given year to year basis, a slightly faster (or slightly slower) growth rate isn’t a big enough change for it to register in people’s consciousness. Economic growth and development is a marathon, not a sprint.


  1. On Unearned wealth, property income = unearned wealth?

    1. You buy a house in a development with 100 houses, at RM300 per sq ft. One of the homeowners then sells his place for RM330 per sq ft. Because house prices are benchmarked based on recent transactions, the valuation of all the homes in that area are marked up 10%. For no other reason than this, every other homeowner in that development is now 10% richer.

  2. Spot on. The Edge publication should read on this. Love their works but sometimes context and hard numbers matter.


  3. I always love your posts when you give real life examples instead of textbook theories :)