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.

Here’s the puzzler, though, at least from the growth perspective (log annual changes):


Growth in every demand category actually fell, except for exports where the rate of decrease slowed. Talk about irony! As Hafiz points out, faster growth in 4Q2012 came not from stronger growth overall, but but because the trade numbers were less bad.

This is really a numbers game however, and a little closer inspection suggests demand strength is still there, though not quite so obvious. 4Q2012 growth on the domestic demand side suffers less because there was less growth, but because growth in 3Q2012 (or 2Q2012 for that matter) was that much stronger but was offset by much worse trade numbers. This is particularly true in imports, which in 4Q dropped in real terms for the first time since the 2009 recession.

Funnily enough, that part actually worries me because of the importance of imported inputs for future production. Checking the breakdown of imports confirms the notion – intermediate goods imports growth fell off a cliff at the end of the year (-17.4% in December). We could be seeing the impact of CNY here, though the scale of the drop is highly unusual. As such, I’m not too sanguine on growth in 1Q this year.

Getting back to the 4Q numbers, the supply side of the economy is a lot less ambiguous (log annual changes):


Here, apart from a slowdown in services, there’s hardly looks to be anything to be concerned over. I don’t count the slowdown in construction here, because it’s a really small sector and growth is really coming off the stratosphere.

Mining and manufacturing both posted growth  surprises – the former in fact posted its fastest growth since early 2007. That suggests oil & gas might have finally overcome the production constraints that bedevilled the sector over the past five years.

Manufacturing too showed faster growth, somewhat surprising given the weakness of the external sector. To be fair, much of the growth is coming from production for domestic use like non-metallic minerals, but also includes transport machinery (AKA cars). Higher mining output also helped, because of greater supply for oil refining, and for chemical and plastics production. The only area that actually regressed was in textiles.

I don’t think at this stage that the case for higher interest rates has been bolstered however. While real GDP growth has accelerated, nominal GDP has not (log annual changes):


That suggests that the GDP deflator (i.e. overall inflation) is either flat or also slowing – the DOS report shows a sharp drop in agriculture prices in 2H2012, and effective price stability in all other sectors. For the year, growth in the Deflator was actually flat compared to 2011. That may be one reason why people aren’t perceiving the higher real output (and incomes) on the ground.

Overall however, this was a nice send-off for 2012.

Technical Notes:

4Q2012 National Accounts report from the Department of Statistics


  1. If you did the percentage point contribution, it's actually inventory change that contributed to growth but again it's still a statistical quirk (because it's a reduction of a negative value that sparked the growth!)

    ...and probably explains the robust growth along the supply side indicators.

    ...and is similar to the percentage point contribution distribution back during the recovery stage in 2010 (well, more or less anyway)

    Also as a side note, I do like the fact that domestic demand is moderating somewhat (come on, investment chugging along at 20% is long-run unsustainable anyway). Think the challenge at the moment is to moderate without hurting confidence.

  2. Jason,

    On the ppt contribution point, that depends on how you measure it. Investment change was minor if you compared it from a year earlier. If you did it y-o-y, even government expenditure change would be larger than inventory change.

    My guts do agree that >20% investment is unsustainable. Still, I really don't know enough to say much investment there are out there planned. Another thing is that, interest rates appear way too low to say investment rate is too high. Maybe the system is just flushed with money (looking at M3, I really don't know from where though. QE? From the BOP, lots of portfolio money coming in).

    Another I find worrying is private consumption. This is because I believe Q2 and Q3 high growth of consumption was due to BR1M and other cash transfer programs/public bonuses. I know Hisham disagrees about BR1M but if my narrative is right, without more BR1M/bonus, having low 6s% consumption growth (which might be the non-BR1M equilibrium growth) might be a barrier to high growth for Malaysia.

    This is particularly worrying because the government plans to cut expenditure next year.