Chart of the Week: Don’t Bet On Real Trade Growth

It was a good run, but Malaysia’s trade growth numbers will “normalise” within the next couple of months (RM millions):

However, this is partly a price phenomenon (index numbers; 2010=100):

On the import side, it’s food, fuel, and edible oils and fats; on the export side, fuel and electronics. Import volume, like imports overall, appear to have plateaued, but there’s still some export volume upside, which is still fairly broad-based.

Two conclusions: Despite the steady increase in export volume, I think this runup is at an end – there’s a lot of volatility in the sub-indices, which means that this increase is hiding a lot of movement underneath. The price trends are mostly oil & gas related. Trade volume in the rest of East Asia has also plateaued, so most of the double-digit growth we’re still seeing across the region is simply from the low base last year. That implies growth rates will gradually drop to “normal” levels, which means something in the low single digits again, as the base shifts to the higher numbers seen earlier this year.

Cognitive Dissonance: Singapore Fiscal Policy

I kept getting this promoted tweet on my Twitter feed over the last couple of days, from the Lee Kuan Yew School:

2 principles shape SG's fiscal policy: balancing the budget and keeping government small. #SG52 #SGpublicpolicy https://t.co/VLrH1Sg2Ud pic.twitter.com/mJzJRc0Uny

— Lee Kuan Yew School (@LKYSch) August 8, 2017

I usually don’t bother with promoted tweets, but curiosity eventually won over and I read the article. It’s a fair description of Singapore’s fiscal policy framework, although the part on the management of past reserves could have been expanded for clarity (there’s no mention of GIC or Temasek in there for example, or the endowment funds the government set up).

There is however, one part I’m in violent disagreement with (excerpt; emphasis added):

TPPA and Jomo: The Academic Debate

Recently, KS Jomo has been in the headlines on his criticisms about the TPPA (e.g. here), or more specifically, the models that showed that the TPPA would be a net benefit to Malaysia (however marginal).

Some of his concerns I consider absolutely legitimate – assuming full employment and ignoring the impact on labour utilisation, labour income and inequality undermines the net-benefit conclusion of the CGE models most have used to analyse the TPPA. I also think that his call for the ongoing debate on the TPPA to encompass more than trade and include the socio-economic aspects should be supported.

Having said that, the GPAM model used by Prof Jomo and his colleagues has significant weaknesses too. Not least because the claim that Malaysia would see job losses, a reduction in the labour share of income, and a negative impact on GDP growth don’t stand up to much scrutiny.

I haven’t as yet tracked down the details of the GPAM model, but the paper analysing the TPPA (link here) treats Malaysia as part of a bloc that includes Singapore, Vietnam and Brunei as a single entity. How you can make any definite conclusions on a single country based on aggregated regional data is beyond me, especially since the raw data in the paper shows the labour income share dropping (pg 16; for the bloc as a whole), whereas Malaysia over the past decade and a half has seen the labour share of income stable and then rising.

I’m also really surprised that Jomo neglects the huge, huge impact that the TPPA will have on Malaysia’s labour laws, particularly in terms of freedom of association. For decades, trade unions have been highly restricted in how they can operate and to what degree (MTUC for example is registered as an NGO, and cannot operate as a trade union). That will change with the TPPA, and the resulting increase in labour bargaining power should, ceteris paribus, act to increase the labour share of income. That’s an institutional change that few if any models, trade or otherwise, incorporate in their framework.

For a more thorough critique of the GPAM model, try here. Prof Jamal notes the same problem as I did, and then some.

On a larger note, and this isn’t confined to the current topic, I wish more people would bother to read the damn academic papers before taking their conclusions at face value. It saves embarrassment in the long run.

Seeing The Forest Through The Trees

Of all the mind-boggling things to suggest (excerpt):

Forex broker proposes raising Malaysia's interest rates

KUALA LUMPUR: Cutting interest rates is not an option for Bank Negara to prevent further weakness in the ringgit, said international forex broker FXTM.

A better option for the central bank would be to raise interest rates, said its chief market analyst Jameel Ahmad….

…He added that interest rates in Malaysia were relatively low, at 3.25%, compared to Indonesia at 7.5%.

“If you cut interest rates, people are not going to be encouraged to keep their capital in Malaysia.

“So, any reduced interest rates will not help the ringgit at all,” he said.

3Q 2015 GDP: Flip A Coin

Last week’s GDP report was a mixed bag. On the one hand it paints a picture of an economy slowing down, especially in terms of domestic demand. On the other hand, some of the indicators appear to have bottomed out.

The headline numbers aren’t appealing (log annual and SAAR quarterly changes; 2010=100):

Global Value Chains and Exchange Rates

From VoxEU.org (excerpt):

The age of global value chains

João Amador, Filippo di Mauro 09 September 2015

There is an urgent need for policymakers to fully acknowledge the extent to which conventional indicators related to gross trade are severely flawed as policy benchmarks because they fail to take into account the existence of global value chains and their increasing role in shaping the global economy. This column, which introduces a new Vox eBook, urges academics to start proposing workable indicators that are systematically produced and readily available.

4Q2014 National Accounts: Smokin’ Hot

From last week’s 4Q2014 GDP report, it looks like the IPI was more than just a harbinger, it was spot on (log annual and quarterly SAAR changes; 2005=100):

Nov 2014 External Trade

Wednesday’s external trade report seems to defy the gloom that seems to pervade all things Malaysian these days (log annual and monthly changes; seasonally adjusted):

2Q2014 GDP: Into Orbit

My, oh my, how things have changed (log annual and quarterly SAAR changes; 2005=100):

We ain’t talkin’ bout no base effect no more. T’ain’t bout prices neither. At 6.4% in percentage terms, the economy has put up a pretty solid growth number. If the low level of output in 1Q2013 influenced growth this year, that’s less of a consideration for 2Q2014. And if export and commodity prices trended up in 1Q2014, they’ve been flat or trending down in 2Q2014 (log annual and quarterly SAAR changes; 2005=100):

June 2014 External Trade

The base effect is starting to wear off (log annual and monthly changes; seasonally adjusted):

May 2014 External Trade: Defying Gravity

When is the trade engine going to lose steam? I honestly don’t know (log annual and monthly changes; seasonally adjusted):

April 2014 External Trade: Up, Up and Away

I’m not going to tire of saying this – the first few months of last year were so awful that all the numbers coming in this year look great by comparison (log annual and monthly changes; seasonally adjusted):

To be fair, part of the reason is that we are indeed seeing real growth, it’s just that it’s not as strong as the yearly growth numbers seem to imply.

March 2014 External Trade

Yesterday’s trade report was a mix of good and bad (log annual and monthly changes; seasonally adjusted):

Export growth was pretty good, at 8.4% in log terms on an annual basis. On a monthly comparison however, exports dropped 4.7%. Import growth was near zero on a yearly basis, and contracted on a monthly basis.

December 2013 External Trade

Things are seriously picking up (log annual and monthly changes; seasonally adjusted):

In log terms, seasonally adjusted exports are up 13.9%, while imports rose 13.5%. The monthly growth figures aren’t quite so positive, but the fact that December would be the sixth straight month of expansion says something.

November 2013 External Trade

If trade growth keeps at this pace, I’d be pretty happy (log annual and monthly changes; seasonally adjusted):

October 2013 External Trade

Recovery on the trade front seems firmly entrenched, based on the latest numbers (log annual and monthly changes; seasonally adjusted):

September 2013 External Trade

The momentum established from August has so far been kept up, which I hadn’t expected. There’s usually a lull after major holidays, so count this one as another pleasant surprise (log annual and monthly changes; seasonally adjusted):

Beating out August’s sharply higher numbers was never on the cards, so a pullback in growth was more or less what I thought might happen. But 4.7% in log terms was more than I hoped for.

Breaking it down:

Electrical and electronics shipments continued to grow, while there was a slight fall back in other exports, largely due to weaker refined petroleum products and metal manufactures. Crude oil jumped by nearly RM1 billion though.

Imports stayed – in my eyes anyway – more or less flat (RM millions):

October’s usually the boom month, where shipments go up to cater for the year end holidays in advanced economies, so if we’re seeing a true recovery in global trade, I’d expect to see even better growth for October.

Technical Notes:

September 2013 External Trade report from MATRADE

An FTA Is Always Good For Trade

Hafiz Noor Shams on FTAs, external trade, and the TPPA (excerpt):

[2713] Is Bantah TPPA right about FTA causing trade balance to deteriorate?

One claim made by Bantah belong to the latter categories is that free trade agreements will hurt a country’s trade balance. This is based on their assumption that free traders claim that FTA will increase trade balance.

But, “free trade” itself says nothing about trade balance. “Free trade” has an agnostic a priori assumption on trade balance. In fact, if one trades, somebody has to have a surplus and somebody has to have deficit at any particular point of time. To say free trade/FTA increases trade balance ignores the fact there are at least two sides trading. “Free trade” does not make that argument that Bantah opposes. Bantah is opposing a straw man here.

The traditional argument is that free trade increases total trade (not trade balance). That means the sum of exports and imports for a country increases (not the net of the two, which is net exports). Bantah misunderstands this.

My thots? What he said…

I have no qualms over TPPA with respect to trade. The whole issue in my mind revolves around the non-trade provisions. Even for many of those, I can find economic or cost-benefit justifications that make sense for all parties.

Some however, are indefensible, and those are the real stumbling blocks.  But trade isn’t one of them.

August 2013 External Trade

Well, well, well…(log annual and monthly changes; seasonally adjusted):

For what’s seems like the first time in the longest time, the external trade picture looks bullish. Exports climbed 11.7% in log terms for August, while imports 13.6%. Just as significantly, monthly growth stayed positive as well.

July 2013 External Trade

Friday’s trade report was a pleasant surprise (log annual and monthly changes; seasonally adjusted):

[Note: I’m still using my old seasonally adjusted figures, even though DOS now issues there own. I’ll be shifting over to the official figures as and when I manage to find time to transfer the data in. The differences between the adjusted series does not substantively change the following analysis]