Friday, December 30, 2011

This Is NOT How You Calculate Inflation (UPDATED)

I wrote about DS Anwar’s speech regarding the ETP a week ago, but my comments were based entirely on the coverage by the Malaysian Insider, and not the speech itself. I stumbled on that via JMD’s blog.

Just so you know, PEMANDU have issued a rebuttal (without naming names).

But what caught my eye in the original speech was this paragraph that wasn’t mentioned in the news coverage:

The average inflation between 2001 and 2005 is 4.8%, reflecting the first energy price shock of 2003 that saw average crude oil prices moving beyond the psychological US$30 per barrel mark. The average inflation between 2005 and 2009 is even higher at 6.6% as a result of the 2008 crude oil price rally that saw the energy prices sky-rocketing throughout the world.

Wednesday, December 21, 2011

November 2011 CPI: Prices Sticking

Some nice news for once – prices in November barely budged over October (log annual and monthly changes; 2000=100):


Increases in core prices remained uncomfortably high, both on annual and monthly measures, but overall increases in prices decelerated, mainly as aggregate food prices didn’t increase at all (log annual and monthly changes; 2000=100):02_food

Someone Talking Sense About Exchange Rates, For Once

Nobel Laureate Michael Spence on CNYUSD:

The Exchange-Rate Delusion

MILAN – If one looks at the trade patterns of the global economy’s two biggest players, two facts leap out. One is that, while the United States runs a trade deficit with almost everyone, including Canada, Mexico, China, Germany, France, Japan, South Korea, and Taiwan, not to mention the oil-exporting countries, the largest deficit is with China. If trade data were re-calculated to reflect the country of origin of various components of value-added, the general picture would not change, but the relative magnitudes would: higher US deficits with Germany, South Korea, Taiwan, and Japan, and a dramatically lower deficit with China.

October 2011 Employment

Maybe someone at DOS is reading this blog – this month’s report on October 2011 employment is much better written than the last.

In any case, the economy added another 53,400 jobs in October (‘000):


Illicit, Illegal, Not Quite Right

Ok, second speech, this time from Lim Guan Eng:

Pakatan blames BN for turning Malaysia into ‘king of black money’

KUALA LUMPUR, Dec 16 — Pakatan Rakyat (PR) leaders faulted the Barisan Nasional (BN) government today for bleeding the country’s coffers through corruption, saying its mismanagement of the economy had turned Malaysia into the “king of black money”.

Pointing to the Global Financial Integrity’s (GFI) findings that Malaysia had lost RM150 billion in 2009 through the siphoning of illicit money, the leaders warned of a bleak future for the country should the ruling pact be allowed to continue its reign.

The ETP And The Distribution Of Income

My apologies for the long silence over the past week – I’ve been on holiday, and haven’t checked my mail for a while, or been too bothered about blogging. The next couple of weeks won’t see much in the way of posting either, as I’m going through some major changes in my life. I might (or might not!) write about it, depending on how circumstances develop. In any case, I’ll be returning to a more regular blogging schedule in January, God willing.

In the meantime, I’ve been asked to comment on a couple of speeches made by the opposition Pakatan Rakyat over the past week.

First is a dinner talk given by Datuk Seri Anwar Ibrahim:

ETP will widen income gap by 2020, warns Anwar

KUALA LUMPUR, Dec 15 — Datuk Seri Anwar Ibrahim sounded warning bells today, saying the government’s Economic Transformation Programme (ETP) will worsen income disparity and force some 1.7 million Malaysians into poverty by 2020.

On the flip side, he said, corporate giants and government cronies would be enjoying a larger slice of the economic pie even as the common Malaysian struggle with hardship.

Monday, December 12, 2011

Malaysia’s European Sensitivity

What would be the impact on Malaysia of a recession in Europe? To look at this question, I’ve come up with a few equations.

First a single equation approach, taking just Malaysia and Europe. I’m using the annual GDP numbers from the IMF’s September 2011 World Economic Outlook database (available here), transformed into logs to translate the results into elasticities, with the following results:


The relationship is statistically significant, and suggests that a 1% increase (decrease) in Eurozone GDP would result in a 1.62% increase (decrease) in Malaysian GDP. Based on this, Malaysia has a high degree of sensitivity to European growth.

October 2011 External Trade

Friday’s trade numbers underscore the resilience of the economy as shown by industrial production. Not quite out of the forecast band, but about 1 standard deviation away from the predicted value (RM millions):


Friday, December 9, 2011

Reforming Education: It’s Not Just the Teachers Or The Schools

Interesting nugget from the World Bank blog (excerpt):

Should developing countries shift from focusing on improving schools to improving parents?

I travel to many developing countries in the context of my work for The World Bank. I visit schools that receive financial support and technical assistance from the Bank to improve the learning experiences and outcomes of students. Each time, I ask teachers in these schools what they think would make the biggest difference in the learning outcomes of their students. The most common answer is “better parents.” I often wonder if this response is, in some conscious or unconscious way, an excuse to help teachers explain the poor outcomes of their students (especially those from the poorest households) and their low expectations of what their students can achieve. However, both common sense and solid research indicate that parents matter.

October 2011 Industrial Production

Why is everyone so pessimistic? I understand the concern over Europe, but that’s primarily a financial problem and not yet a real economy problem. It hasn’t come to the point that we need to jump the gun and declare the Malaysian economy is going down the tubes (excerpt):

Slower IPI, export growth expected

PETALING JAYA: There will be further indications of a slowdown in factory output when the Statistics Department releases data on October's industrial production index (IPI) today while export growth is seen slowing when the data on external trade is out tomorrow.

Economists in a Bloomberg survey expect the IPI to grow a median 1.6% on a year-on-year basis versus the 2.5% expansion in September. This would mean manufacturing production would be expanding at the slowest pace since March.

They expect exports to grow by a median 7.3% in October from a year ago after the unexpected 16.6% jump in exports in September.

Luckily, the economy’s not listening to the analysts (log annual and monthly changes; seasonally adjusted; 2000=100):


Thursday, December 8, 2011

3Q 2011 Government Debt Update

Net government borrowing in 3Q 2011 fell to its lowest level in 3 years (RM millions):


3Q 2011 Federal Government Budget

After last quarter’s uncharacteristic surplus, things are now a bit more normal (RM millions):


Tuesday, December 6, 2011

Selling Gold

The price of gold has been defying gravity for years now. There’s no doubt that some of it is due to fundamental factors, as before this run-up, it had been stuck in a 20 year bear market and was probably undervalued: new supply has been declining for years, and the rapid economic development of India and China brought millions of new buyers. It also helped to have a massive financial crisis, which bolsters gold’s attraction as a safe haven.

But what shouldn’t be lost is the role and activities of the World Gold Council, which played a key role in making gold easier to invest in and has been unceasingly promoting gold as an alternative investment.

October 2011 Monetary Conditions

Money supply in October was a little schizophrenic – M1 growth rose sharply from higher demand deposits, but M2 growth dropped from lower FDs (log annual and monthly changes; seasonally adjusted):


Friday, December 2, 2011

The Pros And Cons Of Privitisation

In the latest issue of the IMF’s Finance and Development magazine, John Quiggan (author of Zombie Economics) takes through the arguments for and against privitisation (excerpt):

To Sell or Not

...Although the push for privatization took different forms in different parts of the world, it was part of a broader movement aimed at reducing the role of government in the economy and at increasing reliance on markets and prices. In particular, the movement toward privatization reflected the presumed superiority of financial markets over governments in allocating capital...

Taxing The 1%

One of the stylised facts of the past quarter of a century is that there has been a general increase in the share of the income going to the top 1% of the population globally. Part of that has been blamed on a move towards lower top marginal income tax rates. The political rationale, exemplified by the Laffer curve, has been that lower tax rates stimulates economic activity and investment, thus raising economic growth and tax revenues.

That this didn’t quite happen should be quite evident.