Wednesday, February 27, 2013

Productivity Is Very Important; Except When It Isn’t

Paul Krugman once said,

“Productivity isn’t everything, but in the long run it is almost everything.”

From a theoretical perspective, this is absolutely true. Every widely accepted model of economic growth from Solow onwards, has at its heart the concept of productivity. While you can get away with just adding inputs like capital or labour to increase output, sooner or later you run into diminishing marginal returns. In the long run then, the only source of real growth is productivity.

Intuitively, productivity is hardly controversial either – the more you make and sell from the same set of inputs, the more profits and wages and earnings you can make. Common sense, right?

Monday, February 25, 2013

December 2012 Employment

A day after the GDP data came out last week, a more sobering report on employment in December 2012 was issued (‘000):


The economy officially lost about 38.8k jobs in December – the seasonal adjusted number is about 5 times larger, i.e. under normal circumstances, employment should have increased.

Friday, February 22, 2013

The Economic Competence Of Politicians

Is it advantageous to have leaders and policymakers who are technically competent? As in having formal education in their area of responsibility? Would you expect a doctor to be Minister of Health and a public finance graduate in charge of the Treasury?

You’d think that this is a pretty dumb question – of course they should be. The funny thing is however is that most are not, and voters are quite happy to put them there.

January 2012 Consumer Inflation: Watch Out

Released along with the national accounts data on Wednesday, consumer inflation barely merited much mention. Not that the headline numbers are terribly out of line with recent history (log annual and monthly changes):


Headline inflation ticked up to 1.3% and the CPI recorded the first increase in the overall price level in three months.

Thursday, February 21, 2013

4Q2012 National Accounts

This post is a little late because…for once…I had to actually write a report about it. Be that as it may, the numbers were, to put it mildly, rather shocking (log annual change; log quarterly change seasonally adjusted and annualised):


Real GDP hit 6.4% in percentage terms on the year, but zoomed 8.5% SAAR from the previous quarter – that’s the fastest expansion since 4Q2009. That’s way, way above the estimates generated by my preferred forecast model (about 5.4%), and even almost past the 95% confidence interval range forecast. The only model I track that came really close was – of all things – a naive trend model with seasonal factors, which predicted 6.5%. Sometimes simple is best.

Monday, February 18, 2013

The Economist On Tax Avoidance: Corporate Transfer Pricing Hits The Mainstream

From the Special Report in last week’s issue (excerpt):

The missing $20 trillion
How to stop companies and people dodging tax, in Delaware as well as Grand Cayman

CIVILISATION works only if those who enjoy its benefits are also prepared to pay their share of the costs. People and companies that avoid tax are therefore unpopular at the best of times, so it is not surprising that when governments and individuals everywhere are scrimping to pay their bills, attacks are mounting on tax havens and those that use them.

Friday, February 15, 2013

Ethnicity and Inequality

I imagine people can interpret this in any number of ways, but its interesting research nonetheless (excerpt; emphasis added):

Ethnic inequality
Alberto Alesina, Stelios Michalopoulos, Elias Papaioannou

A large body of research has shown ethnic diversity to have a negative impact on development. This column suggests that it is the unequal concentration of wealth across ethnic lines that is detrimental for development rather than diversity per se. It shows that ethnic inequality, measured using ethno-linguistic maps and satellite images of light density at night, is associated with lower GDP per capita, worse living conditions, and lower levels of education…

Thursday, February 14, 2013

December 2012 Industrial Production

Next up from last week’s data releases, is December’s industrial production numbers. It’s only slightly better than the external trade data (log annual and monthly changes; seasonally adjusted):


Wednesday, February 13, 2013

December 2012 External Trade

I’m back from my CNY break, and have the aching feet to prove it.

Last week saw a slew of data releases, with three issues from DOS alone on Friday. I’ll get to the IPI numbers later, but this post will cover the latest developments on the external trade front.

Unfortunately, it’s hardly good news (log annual and monthly changes; seasonally adjusted):


Saturday, February 9, 2013

Gong Xi Fa Chai

Happy holidays!

If you’re driving, stay patient and stay safe. May the year ahead be blessed and prosperous.

Thursday, February 7, 2013

The Power Of Prediction

Not so much about economics, but the following shows mathematics – and statistics – are sexier than ever (excerpt):

How Companies Learn Your Secrets

Andrew Pole had just started working as a statistician for Target in 2002, when two colleagues from the marketing department stopped by his desk to ask an odd question: “If we wanted to figure out if a customer is pregnant, even if she didn’t want us to know, can you do that? ”...

Transfer Pricing: A Global Problem

From the December issue of Third World Resurgence comes this accessible, and potentially explosive, article (excerpt; warning: pdf link):

Transfer Pricing and Tax Evasion: Beyond the trans-Atlantic furore
Smitha Francis

...The charge facing US TNCs [sic] like Google, Amazon and Starbucks is that despite generating billions of dollars in revenue in the EU, they get away with paying little or no corporate income taxes in Europe by distributing their income between different tax jurisdictions. They use complex tax accounting strategies to exploit tax loopholes and differences in national corporate tax rates across Europe, which range from less than 10% to more than 30%...

Wednesday, February 6, 2013

News Flash: KL To Suffer Recession Next Week

Hafiz Noor Shams manages to send up the entire economics profession and tells us not to take ourselves so seriously (excerpt):

Chinese New Year to cause a recession in Kuala Lumpur

With the Chinese New Year being just around the corner, many are expected to leave Kuala Lumpur behind to visit families and relatives leaving outside of the city for a week or so. Many of those living or working in the city have left the city.

With the Chinese forming more than 40% of the population of Kuala Lumpur, and possibly with others who may just take the opportunity to travel out, the city is poised to suffer from a massive demand and supply shocks. Without any intervention from the relevant authority, the economy of Kuala Lumpur is expected to go into a recession this week and the next…

The insider jokes are absolutely priceless.

Since we’re on the subject, you might also enjoy this tongue-in-cheek discussion of the impact of dragons on macroeconomic policy.

December 2012 Monetary Conditions

The other day, I characterised monetary conditions as boring – seems I might have spoken too soon. What is going on in the interbank and money markets? (RM millions)


Trading volume on the money market for 2012 (which covers MGS, T-Bills, BNM Bills, NIDs and BAs – I know, that’s a lot of acronyms) is a quarter below the average of 2011. December 2012 trading volume was just RM21.5 billion, which is less than half the average for 2012 – much of the drop has occurred in the last two months of the year.

Monday, February 4, 2013

BNM Watch: OPR At 3.00%

I’ve been playing single parent this past week while my wife is overseas, hence the late commentary on Bank Negara’s first monetary policy statement for the year. Not that there’s much to comment on, given the relative boringness of current monetary conditions (excerpt):

Monetary Policy Statement

At the Monetary Policy Committee (MPC) meeting today, Bank Negara Malaysia decided to maintain the Overnight Policy Rate (OPR) at 3.00 percent.

The global economic activity is showing signs of improvement, albeit at an uneven pace. Growth in the major advanced economies remains constrained by ongoing fiscal consolidation and weak labour market conditions. In Asia, growth is supported by sustained domestic demand and a gradual recovery in external demand. Stress in the international financial markets has also receded. Notwithstanding these improvements, downside risks to the prospects for global growth still remain.

In the domestic economy, a broad set of indicators suggests robust expansion in the fourth quarter of 2012...Looking ahead, domestic demand is expected to continue to expand, underpinned by firm private sector activity...while investment will be led by capital spending in the domestic-oriented sectors, the oil and gas industry and the on-going implementation of infrastructure projects...

...In 2013, inflation is expected to be higher but to remain modest. Selected global food prices and domestic factors are expected to increase costs and contribute to higher prices. Nevertheless, given modest global growth prospects, pressures from global commodity prices is expected to be contained.

I don’t see any potential move any time in this first half of the year, and I hardly think anybody else thinks so either. The second half might be different – given the wave of infrastructure and property projects coming into play this year, we might be dealing with accelerating inflation in the second half, and certainly a deteriorating current account.

But looking more than six months ahead has always been a bit dicey, though I’d be more comfortable if we had longer gaps between major investment projects.

I’m reminded in this case of what happened in the mid-to-late 1990s, when Malaysia had a number of mega-projects taking off all at once. That had positive feedback loops into the economy, and Malaysia’s property sector ended up overheating, with you-know-what effects. I’m not seeing the same thing this time, mainly because the Ringgit isn’t overvalued as it was back then. But this is still something to be concerned about – and to watch for – in the months to come.