Friday, February 18, 2011

4Q 2010 GDP: Bigger Bounce Than Expected

You’ll hear and read tomorrow that economic growth moderated further in 4Q 2010, reaching 4.8% after 3Q’s 5.3%. And so it appears from a year-on-year basis (log annual changes):


Trade growth dropped into low single digit territory, while public consumption was flat. Impetus for growth came from private consumption and investment – both welcome news, as the transformation of the economy to high income status requires just that. Full year growth reached 7.2%, quite a bit better than my forecast and the consensus estimate of 7.0%.

On the supply side, growth came from sustained manufacturing activities and higher services growth (log annual changes):


Neither agriculture nor mining did particularly well, though there was an uptick in construction.

Of course a sequential view, which is the way just about everybody else records growth, shows a slightly different picture (log quarterly changes, seasonally adjusted, annualised):


Instead of overall growth slowing, 4Q marked the highest growth for the year at 8.1% in log terms, bettering 1Q’s growth number by half a percent. Instead of private consumption growth, which in this methodology was almost flat, it’s public consumption that zoomed by 30.5% in log terms – though this is more a reflection of the sharp pullback in 3Q of –35.9%. Gross fixed capital formation also rebounded to 16.3% while both exports and imports recovered.

On the supply side however, the general sense of things remained much the same (log quarterly changes; seasonally adjusted; annualised):


If anything, a quarterly view exacerbates the volatility of growth.

My sense of things is that at this point in time, the sequential view is probably a better reflection of the state of affairs. There was definitely a slowdown in economic activity in 3Q 2010, as the US economy weakened and uncertainty bedevilled Europe. That would justify the bounce in 4Q as conditions improved (QE anyone?), and provides some grounds for optimism for 1Q 2011 GDP growth.

When in doubt though, look at the levels (RM millions; seasonally adjusted):


Note that trade hasn’t really fully recovered yet even in real terms, and despite noises about fiscal stimulus and government investment neither has public consumption – my thesis that this signals a genuine pullback in direct government support for the economy remains intact (see this post). Private consumption is back on trend, though it looks like growth there is slowing, too.

The chart that really stands out to me is the strong upswing in investment. Hopefully that’s a sign of better things to come. More on this subject next week.

Technical Notes:

National Product and Expenditure Accounts 4Q 2010 from the Department of Statistics

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