Wednesday, July 26, 2017

How Sustainable Is This?

I don’t really know, but I’m going to enjoy it while it lasts – I’ve been re-examining global trade data for the last month or so. This is Malaysia’s (log annual and monthly changes; seasonally adjusted):

You don’t often see 30%+ growth from many economic indicators. What’s been unusual is that we’re seeing this across many different countries and different product categories. It’s not all about currency competitiveness either (2010=100):

Prices have come up for sure – for both imports AND exports – but so has volume. Interestingly enough, price increases have been stronger for exports, and the increase in both prices and volume more or less started simulatneously.

Global trade has come back with a vengeance. Or maybe not.

The growth numbers flatter to deceive. Much of it is simply from the low base caused by the retreat of global trade over the past two years, as well as weak commodity prices (I’m speaking of the global situation here, not specifically Malaysia). For many countries, trade has only recovered to the heights achieved in 2014-2015, and no further. Taiwan is fairly typical (NTD ‘000; log annual growth):

We’ve got some pretty strong growth numbers (the bottom two charts), but it’s really a function of coming off outright trade declines since 2015. Singapore is somewhat similar, as are Japan, Hong Kong and China.

Malaysia is an outlier. Among the other countries I look at, I think only Vietnam, Korea and Germany are seeing real growth over and above 2013-2014 levels. Most of the other major trading nations are at status quo ante.

So the bad news is that the global economy and global trade aren’t really out of the woods yet. The evidence to my mind shows that the proliferation of global value chains has plateaued, and that sustaining the path of trade growth will continue to remain challenging.

The good news is that Malaysia appears to be one of the exceptional few countries where that isn’t true and we’re seeing real growth in volume. More unusually, one of the curiousities I’ve come across is that Malaysian trade is becoming ever more diversified. There are categories of export products that are simply rocketing in terms of growth (my personal favourite: musical instruments) over the past year or so. At this stage, I’m still lacking any concrete explanation as to why, and given the diversity of product categories involved, there’s unlikely to be one single factor.

In the meantime, hold on to your hats. All my models say 2Q2017 GDP growth will be a humdinger. I think only one foreign research house has adjusted their forecast high enough, but there’s a distinct possibility that GDP growth will hit above 6.0% for the quarter. I’d think that anything below 5.5% will be probably count as a disappointment. Growth over the second half of the year should slow, but unless it really tanks, we’re still looking at full year growth above 5.0% for 2017.

We’ll find out in 3 weeks time when the official numbers come out. I’m also told the official government forecast will be revised at the same time, which is a break with previous practice, as it’s usually announced with the Budget.

Technical Notes:
  1. Malaysian trade data from the Department of Statistics Malaysia
  2. Taiwan trade data from Customs Administration, Republic of Taiwan

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