Wednesday, September 28, 2016

ICYMI: Growth and Ageing on BFM

I was on BFM this morning talking about growth in the long run:


Monday, September 26, 2016

Demand For Housing

My latest column in the Star (excerpt):

Danger of dip in demand lurks

RECENTLY, the Urban Wellbeing, Housing and Local Government Ministry proposed allowing housing developers to extend loans to homebuyers. One common refrain in support of this policy and for house buying in general is that “house prices only go up”.

In one sense, this is rational. Land is the biggest single input into house prices and land isn’t being made anymore (bar the occasional land reclamation or undersea volcano eruption). Global warming is raising sea levels, which reduces available land even further. But this is entirely a supply side argument.

Historically, there have been periods where house prices have not gone up or even gone into retreat. There is nothing inherently special about the housing market in that respect. The global financial crisis was partly triggered by a US housing bubble that burst, as house prices fell over 20% from their peak in 2007 and took eight years to recover.

Wednesday, September 21, 2016

ICYMI: Economic Growth Over The Very Long Run

I keep meaning to post on this topic, but what with work and all, it’s been on the back burner. In any case, I wrote an article published in the Star last week that covers the main points (excerpt):

Economic growth in an ageing world

MOST people take growth for granted. We expect living standards to increase over time and that our children will enjoy a better quality of life than us.

But growth is not a given and it is driven by economic processes that can and do change. There has been a gradual slowing in global growth over the past couple of decades, and some of this can be pinned on structural factors that form the very foundation of growth itself....

It’s partly secular stagnation, but more in the Hansen sense than in Summers new formulation, and over a larger scope than just what’s going on in developed economies.

Have a read and let me know what you think in the comments.

Dear God, I dearly hope I’m wrong on this.

Affordable Homes: Finance Is Not The Problem

In a rather unusual move, BNM issued a statement yesterday on the current hot topic of housing (in full, emphasis added):

Responsible lending guidelines ensures borrowers' affordability

This is with reference to a media report on requests for Bank Negara Malaysia to review the lending guidelines in relation to the extension of the loan repayment period from 35 to 40 years.

Bank Negara Malaysia wishes to state that financial institutions will continue to lend to individuals who can afford to take on a housing loan, including for the purchases of their first homes. In July 2016, outstanding housing loans extended by financial institutions continue to grow at 10.1%y-y and totalled RM460.2 billion. About 75 per cent of borrowers (approximately 1.5 million borrowers) with housing loans are first time house buyers.

Access to financing is not the main problem confronting potential buyers of affordable houses. The fundamental issues that require resolution are affordability and the shortage of supply of reasonably priced houses.

Tuesday, September 13, 2016

Wages, Productivity and Growth

I’ve been meaning to write about this, but life and work kept getting in the way. Makes for a good story, except its almost totally wrong (excerpt):

High wages flash recession warnings in Singapore

...Indeed, while the city state's economy is expected to grow between 1-2 percent for the year, analysts say the wage-cost pressures are flashing warnings of a recession.

At roughly 43 percent of gross domestic product - though below the 55 percent world average - wage costs in Singapore are now at levels which historically had preceded recessions in 1985, 1997 and 2001.

The trouble is that the higher wages are raising business costs at a time when export-oriented Singapore has been hard hit by a cooling China, subdued domestic consumption, a downturn in commodities and global uncertainty due to Britain's vote to leave the European Union....

How To Make Housing Affordable In Malaysia

Read this.

This Is NOT How To Finance Affordable Housing

Coming late to this particular party, but better late than never (excerpt):

Putrajaya allows developers to give housing loans

PETALING JAYA, Sept 8 — The Urban Wellbeing, Housing and Local Government Ministry today announced the introduction of an initiative that enables property developers to give out loans to buyers at an interest rate of between 12 and 18 per cent.

Minister Tan Sri Noh Omar said that the move is intended to assist Malaysians who are unable to get a full housing loan from banks or those who may only be given a partial housing loan….

Thursday, September 8, 2016

BNM On Hold (Again)

As promised, the MPC didn’t make a move yesterday (excerpt; emphasis added):

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 economy continues to expand at a moderate pace…Going forward, downside risks to global growth remain high following uncertainty over the growth momentum and policy shifts in major economies, and unresolved issues post the EU referendum in the United Kingdom.

For Malaysia, growth moderated slightly in the second quarter of the year, following weaker net exports and a drawdown in stocks…Going forward, private consumption will remain supported by wage and employment growth, with additional impetus coming from announced Government measures to increase disposable income. Investment activity will continue to be anchored by the on-going implementation of infrastructure projects and capital spending in the manufacturing and services sectors. On the external front, export growth is expected to remain weak following subdued demand from Malaysia’s key trading partners. Overall, the economy is projected to expand within expectations in 2016, and to remain on a steady growth path in 2017….

…At the current level of the OPR, the degree of monetary accommodativeness is consistent with the policy stance to ensure that the domestic economy continues on a steady growth path amid stable inflation, supported by continued healthy financial intermediation in the economy. The MPC will continue to monitor and assess the balance of risks surrounding the outlook for domestic growth and inflation.

Translation: That’s all…for now.

Having said that, I’m looking for another cut before the end of the year. My base case this year has always been for stronger second half, due to the minimum wage revision, civil service pay hike, EPF contribution cut, and now, from the last OPR cut. Private consumption is likely to be strong this year, especially as we get past the base effects from GST implementation last year.

However, the numbers coming out from the government suggests a much stronger pullback of government spending than I expected to happen. Revenue for the first half of the year was much weaker than I thought it would be, which makes things in the second half even dicier, what with the full impact of the crash in oil and gas prices earlier only now hitting revenues. There’s a lot of pressure on MOF to pull a rabbit out of its hat to hit the 3.1% deficit target, and while they can perform seeming miracles (e.g. the spectrum auction), there’s always a tradeoff involved.

That, and the budget speech next month, will bear watching.

In any case, weaker public consumption and investment could force the MPC into action. Not deliberately mind, just that the downdraft from lower government spending would turn up as weaker than expected economic growth, which should start showing up in the numbers when the MPC meets for the last time this year, in November.

Effective Exchange Rate Indexes: August 2016 Update

The NEER and REER page has been updated.


The last three months have seen some stability for the Ringgit, with the strong bounce up from April eventually losing steam. Over August, both the nominal and real broad indexes are roughly 3 points down from the April peak, and a point down from July. Relative to April, the Ringgit weakened against the currencies of all maor trade partners, with the understandable exception of the GBP.



  1. Indexes have been updated to August 2016
  2. CPI deflators and forecasts have been updated for July/August 2016
  3. Change of CPI deflator for Japan (from 2010=100 to 2015=100). This caused some revisions to the entire time series for both Broad and Narrow indexes