Current Account Confusion

This came out about a month ago, but the subject is important enough that it’s worth revisiting (excerpt):

The Malaysian economic indicator that is raising red flags

OF all the statistics trotted out to show the health of the economy, one indicator is causing some concern among economists, who said it spells trouble for every Malaysian over the long term.

The current account balance is a gauge for the state of the economy and if it goes into a deficit for an extended period, it affects everything from wages to the price of vegetables.

Malaysia’s current account balance still shows a surplus but the bad news is that it has been declining steadily from 2014.

The Population Bubble

Came across this tweet this morning:

The mother of all bubbles. pic.twitter.com/2sQxLySwwX

— David Andolfatto (@dandolfa) October 4, 2016

How very true.

ICYMI: Growth and Ageing on BFM

I was on BFM this morning talking about growth in the long run:

Demand For Housing

My latest column in the Star (excerpt):

Danger of dip in demand lurks

RECENTLY, the Urban Wellbeing, Housing and Local Government Ministry proposed allowing housing developers to extend loans to homebuyers. One common refrain in support of this policy and for house buying in general is that “house prices only go up”.

In one sense, this is rational. Land is the biggest single input into house prices and land isn’t being made anymore (bar the occasional land reclamation or undersea volcano eruption). Global warming is raising sea levels, which reduces available land even further. But this is entirely a supply side argument.

Historically, there have been periods where house prices have not gone up or even gone into retreat. There is nothing inherently special about the housing market in that respect. The global financial crisis was partly triggered by a US housing bubble that burst, as house prices fell over 20% from their peak in 2007 and took eight years to recover.

Pension Adequacy in an Ageing World

[Disclaimer: Since I work for a pension fund, this blog post should be taken as biased and not wholly objective. You have been warned]

From Project Syndicate, Allianz Asset Management on pension adequacy (excerpt):

Rehearsals for Retirement

MUNICH – Over the rest of the twenty-first century, the global human population is expected to keep growing; more important, it will keep growing older. By the year 2100, the United Nations expects there to be more than ten billion of us, up from 7.3 billion today. In the meantime, the number of people older than 60 is expected to double by 2050 and more than triple by the end of the century.

As societies around the world prepare for swelling numbers of retirees, the policy challenge will be to ensure the financial sustainability of pension systems while guaranteeing adequate incomes for those no longer working. Today, according to recent research by Allianz, only four countries appear to have achieved this: Finland, Norway, the Netherlands, and New Zealand....

Low Interest Rates: It Isn’t Just QE

We’re nearing Fed “liftoff” with a better than 50% chance that the US Fed Funds Rate will rise above 0%-0.25% for the first time since 2008. But even taking into consideration the extraordinary monetary accommodation conducted by the major advanced economy central banks, interest rates globally have been in secular decline for very nearly 50 years, since the heyday of stagflation in the 1970s.

Money printing doesn’t half explain what’s going on.

A Ticking Time Bomb

I was at EPF’s International Seminar yesterday, and one of the presenters showcased this video:

Right Conclusion; Wrong Analysis

A commentator sent me this link (excerpt):

How our Winner Take-All Market Deepen Income Inequality while Decaying Our Education System?

Are we better off than we were 10 years ago? I am sure the majority of us will answer with a resounding ‘NO’. Why is this so? There are many reasons that contributed to this, among them are the following.

• Increased in income inequality
• Rising costs of living
• Income not catching up with inflation
• Longer working hours and less recreation
• More indebted than before
• Less opportunity for self-improvement due to time constraint
• Society is getting more competitive
• Crime on the rise

Wonder what caused the above? Listed above are the consequences or the price of economic development that are caused by forces that shaped our social economic fabric. We are living in a world where resources such as land, labor and natural resources are in limited supply or scarce. To maximize the usage we not only have to limit wastages but also need to efficiently allocate these scarce resources to the most important part of the economy.

Low Interest Rates ≠ Loose Monetary Policy

An interesting, but misleading, viewpoint from the Beeb (excerpt):

Lesson from Japan: Do low interest rates boost growth? By Mariko Oi BBC News, Tokyo

…In part to help small companies such as Hosobuchi, central bankers in Japan have been keeping interest rates low, in order to reduce their borrowing costs.

The truth is we don't have enough businesses or the need for investments to borrow the money”

Japanese interest rates have been close to zero since the mid-90s, but it has not offered a miracle cure.

China’s Demographic Shift

From Businessweek yesterday (excerpt):

Why China Is Suddenly Content with 7.5 Percent Growth

For years, there’s been one constant for people talking about the Chinese economy: GDP growth would exceed 8 percent. It didn’t much matter what happened in the rest of the world—the U.S. and other export markets might be thriving or might be struggling, but China would grow at least 8 percent, year in and year out. The country needed to create enough jobs for the millions of young people entering the workforce every year, and the Chinese leadership decided that anything below 8 percent would put job creation in jeopardy...

Getting More Women To Work

Malaysia’s female labour participation rate is quite frankly a disgrace. But getting more women into the workforce comes up against a host of factors, not least of which are cultural and religious. The effort however is well worth making – consider that more than half the women of working age are not in the work force. You could potentially increase the work force size by 25%, just by getting all the women into formal jobs, with the obvious impact on GDP/GNI. That’s a pipedream of course, but you can’t deny the potential impact involved.

And one effective way to do that is…paternity leave!

Demographics And Development

World Bank Chief Economist Justin Lifu Yin writes a concise article on the demographic transition and development policy (excerpt; emphasis added):

Youth Bulge: A Demographic Dividend or a Demographic Bomb in Developing Countries?

The youth bulge is a common phenomenon in many developing countries, and in particular, in the least developed countries. It is often due to a stage of development where a country achieves success in reducing infant mortality but mothers still have a high fertility rate. The result is that a large share of the population is comprised of children and young adults, and today’s children are tomorrow’s young adults...

The Determinants of Saving

In my inbox today, from the NBER (abstract):

The Determinants and Long-term Projections of Saving Rates in Developing Asia
Charles Yuji Horioka, Akiko Terada-Hagiwara

In this paper, we present data on trends over time in domestic saving rates in twelve economies in developing Asia during the 1966-2007 period and analyze the determinants of these trends. We find that domestic saving rates in developing Asia have, in general, been high and rising but that there have been substantial differences from economy to economy and that the main determinants of these trends appear to have been the age structure of the population (especially the aged dependency ratio), income levels, and the level of financial sector development. We then project future trends in domestic saving rates in developing Asia for the 2011-2030 period based on our estimation results and find that the domestic saving rate in developing Asia as a whole will remain roughly constant during the next two decades despite rapid population aging in some economies in developing Asia because population aging will occur much later in other economies and because the negative impact of population aging on the domestic saving rate will be largely offset by the positive impact of higher income levels.

The Chicken Is Coming Home To Roost: Healthcare Costs

This isn’t going to be part of the social consciousness for a good few years yet, but credit where its due, the government is already thinking about it:

A strain on the pocket

Healthcare cost is expected to escalate in line with the rising cost of living and the Health Ministry is taking steps to raise public awareness on non-communicable diseases.

OF late, the Health Ministry has been raising public awareness on non-communicable diseases (NCD) chronic respiratory diseases, heart diseases, cancer and diabetes…

…Recent statistics already show that 60% of premature deaths (below 60 years) in Malaysia were caused by NCD, he has said.

The focus is warranted not only because of the need to keep the population healthy and productive but also to keep healthcare cost, which is expected to escalate in line with the rising cost of living, manageable…

Why Demographics Matter: Japan’s Lost Decade Was An Illusion

Via Lars Christensen, Daniel Gros points out Japan’s performance over the past two decades hasn’t been as bad as it looks (excerpt):

The Japan Myth

…How should one compare growth records among a group of similar, developed countries? The best measure is not overall GDP growth, but the growth of income per head of the working-age population (not per capita). This last element is important because only the working-age population represents an economy’s productive potential. If two countries achieve the same growth in average WAP income, one should conclude that both have been equally efficient in using their potential, even if their overall GDP growth rates differ.

When one looks at GDP/WAP (defined as population aged 20-60), one gets a surprising result: Japan has actually done better than the US or most European countries over the last decade. The reason is simple: Japan’s overall growth rates have been quite low, but growth was achieved despite a rapidly shrinking working-age population.

Making The Most Of The Demographic Dividend

From the World Bank blog:

Family planning, healthier economies

Countries like South Korea and Thailand have seen similar demographic formulas work to their advantage in recent decades: falling fertility rates lead to burgeoning adult working populations lead to greater economic productivity.

Malaysia’s Population Pyramid

I don’t know how long its been there, but the Department of Statistics now has graphical representations of Malaysia’s population pyramid. The data is from 1970 onwards, and includes estimates up to 2030.

Interesting things to note:  total population should reach 41.2 million by 2030, but the total dependency ratio will still be very high at 59.5% (youth dependency ratio at 46.6%). The sex ratio will also be fairly high at 103 males to 100 females – combine that with a high proportion of the population still in the 20-30 age bracket, we should expect the absolute level of crime to continue to climb, the crime NKRA notwithstanding.

You can access the DOS data here.

Economic Growth And The Demographic Dividend

I’ve been sold on the idea of a “demographic dividend” for well over a year now, and here’s some more evidence from a new IMF paper (abstract):

The Demographic Dividend: Evidence from the Indian States
Aiyar, Shekhar & Ashoka Mody

Large cohorts of young adults are poised to add to the working-age population of developing economies. Despite much interest in the consequent growth dividend, the size and circumstances of the potential gains remain under-explored. This study makes progress by focusing on India, which will be the largest individual contributor to the global demographic transition ahead. It exploits the variation in the age structure of the population across Indian states to identify the demographic dividend. The main finding is that there is a large and significant growth impact of both the level and growth rate of the working age ratio. This result is robust to a variety of empirical strategies, including a correction for inter-state migration. The results imply that a substantial fraction of the growth acceleration that India has experienced since the 1980s - sometimes ascribed exclusively to economic reforms - is attributable to changes in the country’s age structure. Moreover, the demographic dividend could add about 2 percentage points per annum to India’s per capita GDP growth over the next two decades. With the future expansion of the working age ratio concentrated in some of India’s poorest states, income convergence may well speed up, a theme likely to recur on the global stage.

X Marks The Spot: Demographics and the Middle East

I think William Pesek has this pegged just right (excerpt):

Sex Ratio Does Magic in China Amid Egypt Effect: William Pesek

Feb. 24 (Bloomberg) -- The world abhors China’s one-child policy. Officials in Beijing must be quietly toasting its very existence as the Middle East burns.

A common thread linking events in Egypt, Bahrain, Tunisia, Libya and elsewhere is big populations of disaffected youth. They’re angry about greed, corruption, the rich-poor divide and unaccountable leaders. Many Chinese harbor similar gripes, yet demographics works in the Communist Party’s favor.

Had China not instituted population control in 1979, there would be tens of millions more underemployed and aggrieved young men milling about in China’s cities. Just the type to foment revolution -- a Tiananmen Square 2.0. Only, they were never born. Turns out, the policy is a boon for Chinese regime control.

The longer-term implications are far less advantageous. China’s working-age population will start shrinking in 2020, denting growth. For now, though, demographics is a key reason China isn’t Egypt. It also could mean slower yuan gains amid fear that less growth will fan unrest…

Visualising Demographic Transitions

This site is gorgeous – you can actually see how the age profile of a population evolves over time.

To use, click on the alphabet to expand the country list, then click on the country and a date. The site generates the population tree automatically (works with non-Flash browsers, too) – successive clicking on dates causes the population tree image to transition smoothly (click on link for bigger pic):