Revisiting Vision 2020 (Updated)

This morning I attended a speech by Tun Mahathir on the Vision 2020 that he introduced way back in 1991. The event was organised by the Institute of Marketing Malaysia (freebie plug here) on the subject of Vision 2020 and what progress we’ve made in achieving its goals.

The grand old man of Malaysian politics was in fine fettle, cracking jokes, most of which were at his own expense (like, having to reread the Vision 2020 document because he couldn’t remember what was in it, and making constant references to mega projects).

I want to touch on a few things he mentioned in his speech, some good, some not so much.

October 2010 CPI: The Price Of Sin

Last week’s report on consumer prices showed inflation jumping 1.9% in log terms (log annual and monthly changes; 2000=100):

In a reversal of the usual case, core prices (ex. food and transport) rose faster than the pain index (food and transport prices).

Malaysian Property: Bubbles AND Gluts?

Via the Malaysian Insider, Dr Dzulkefly Ahmad of opposition PAS talks about the property bubble (emphasis added):

Of Property Overhang and Mounting Household Debt

Property Overhang as reported by Napic (National Property Informational Centre) for the third quarter of last year was supposedly a cause for alarm. Then there was an overhang of 20,286 residential, 5,450 shop and 619 industrial units worth a whopping RM5.3 billion.

Of the 6,401 new residential units launched during the third quarter, which was a far cry from the 14,588 units launched in the previous corresponding quarter, only 20.2% found buyers…

Monetary Policy Explained For The Layman

Courtesy of the Federal Reserve (click on pic for the link):

Capital Controls For Malaysia? Not Yet

Charles Santiago of the DAP is calling for capital controls:

Govt urged to consider capital controls

KUALA LUMPUR: An Opposition MP has urged the Government to view capital controls as a protective policy to insulate the local economy from destabilisation.

Charles Santiago (DAP-Klang) said China, Indonesia, Thailand, Brazil, South Korea and other developing countries had recently adopted such a policy.

"Capital controls should be viewed as a policy response to regulate speculative capital, in order to protect the domestic economy from volatile capital flows.

3Q 2010 GDP: Disappointing

So much for optimism. Yesterday’s report from DOS had 3Q real GDP (RM141.9b) right on the number predicted by the IPI (RM141.8b), which means the economy actually shrank. Not as bad as Singapore’s, but still…

The growth numbers weren’t quite as bad as I forecasted (though still way below the consensus estimate of 5.7%) with the GDP up 5.3% on the year and –2.6% on the quarter, but that’s because of something negative not positive, as 2Q 2010 real GDP was also revised downwards by RM30 million.

So, what happened? Softening external demand is of course part of the story, but believe it or not, on the demand side the second biggest marginal contributor to the drop in GDP is…public spending!

Can You Borrow Your Way Out Of A Recession?

As a matter of fact, it’s the economic orthodoxy. The insight that eludes critics of debt-financed government spending as a policy tool, is that they fall into the trap of the fallacy of composition – just because saving is good for an individual in times of uncertainty, doesn’t mean it’s good for society in aggregate.

Similarly, if individuals and companies are averse to spending, doesn’t mean it’s good for the economy if the government doesn’t do it too. Of course, making sure that government spending is effective and supports nominal spending and economic recovery remains a thorny issue, as is the level of sustainable debt that a country can bear over the long term. On that basis, a reliance on monetary policy is generally preferred – but that’s hard to do near the zero interest rate boundary.

But often, the debate shouldn’t even have to go that far – I’ve always been of the opinion that it’s relative debt (relative to income and wealth), and not absolute debt that matters. And you really shouldn’t talk about debt without talking about its inverse, wealth and income.

So this article just about pushes all the wrong buttons for me:

All those IOUs stashed under America’s carpet
Andy Mukherjee

NOV 22 — The most accurate depiction of the way United States policy makers have dealt with the unsustainable, unserviceable debt that caused the financial crisis of 2008 has to be this: “Bury that putrid stuff under a carpet of cash and hope that no one notices.” …

Sept 2010 Economic Indicators

I’m still waiting on the GDP announcement that’s supposed to be due today, but the economic indicators report from DOS this morning underlines the case that economic growth will be marginal (at least on a q-o-q basis):

Sept 2010 Employment Report

Just as I thought might happen, the Census’ effect on employment (from temporary employment caused by Census 2010) has finally died away in September, though you won’t really see it in the unemployment rate:

3Q GDP Estimates: All Over The Place

Apparently the consensus is that there is no consensus:

Economists’ M'sia Q3 GDP growth estimates vary widely

KUALA LUMPUR: Uncertainty over how the economy performed in the third quarter has resulted in a wide disparity in economists' estimates ahead of the official announcement on Monday.

Economists have projected that the gross domestic product (GDP) for the third quarter could come in at between 3.5% and 7.8%, while the forecast in a poll of 11 economists by Bloomberg averaged 5.7%…

The announcement is due on Monday.

I did a simple regression model to forecast 3Q 2010 GDP based on the Aug-Sept IPI, which yielded a point forecast of RM141.7 billion, which amounts to 5.2% growth y-o-y and –3.1% growth q-o-q (saar). Note that anything under about 5.7% (ironically, the average forecast) implies that the economy actually shrank in 3Q 2010 on a seasonally adjusted basis.

I’m thinking (hoping rather), that BNM’s confidence that domestic demand is holding up might push growth beyond that implied by manufacturing alone. If that’s the case, I’ll need a better specified forecast model – but that would be a nice problem to have.

Selamat Hari Raya Eid-al Adha

Wishing all a safe and happy day, and a prayer for the safe return of pilgrims from the Holy land.

Currency Wars Part VIII: The Currency Rap

Ryan Avent sends us to Next Media Animation, to explain global trade and currency imbalances:

 

If you didn’t understand the Econbrowser post, this is the hip-hop version!