2Q2014 GDP: Into Orbit

My, oh my, how things have changed (log annual and quarterly SAAR changes; 2005=100):

We ain’t talkin’ bout no base effect no more. T’ain’t bout prices neither. At 6.4% in percentage terms, the economy has put up a pretty solid growth number. If the low level of output in 1Q2013 influenced growth this year, that’s less of a consideration for 2Q2014. And if export and commodity prices trended up in 1Q2014, they’ve been flat or trending down in 2Q2014 (log annual and quarterly SAAR changes; 2005=100):

3Q2013 National Accounts

Well, it’s a week late, but better late than never.

GDP growth in 3Q2013 rose 5% on the year (log annual changes; 2005=100):

Critiquing The Critique; Or This Is NOT How You Calculate Inflation Part II

I got tipped off about an analysis of the ETP last week, which makes some of the same points I made two years ago (excerpt):

A Critique of the ETP (Part 2)
We won’t really be twice as rich in 2020

RM48,000 in 2020 is not real income.
The ETP promises to double gross national income GNI) per capita to RM48,000 by 2020 from RM23,700 in 2009. However, RM48,000 in 2020 will be worth a lot less than RM48,000 today, just like RM100 today buys a lot less than RM100 eight years ago, thanks to ever-rising prices. If Malaysians are really to be twice better off, nominal income must be RM64,000 by then, to compensate for the 2.8% per year inflation that PEMANDU expects.

Nothing transformational in the RM48,000 target.
This target is for nominal$ income, which includes inflation, and not real income, which strips out inflation. Because of inflation, nominal GNI per capita growth averaged 8.2% from 2001-2010, whereas real GNI grew only 3.2%. At the historical average 8.2% per year growth rate, nominal incomes will exceed RM48,000 by 2018 anyway, with or without the ETP or PEMANDU.

PEMANDU and its expensive consultants cannot even get basic mathematics correct.
If the income target is RM48,000, PEMANDU’s 6% real GNI growth rate and 2.8% inflation forecasts are wrong. If its growth and inflation forecasts are right, then the RM48,000 target is wrong - it should be RM54,145 in 2020, not RM48,000. Furthermore, key metrics of some EPPs – the investment value, GNI contribution and jobs created – are unavailable.

Grade ‘D’ for data transparency.
In this series, we evaluate the ETP on its own terms based on the goals and plans outlined in the ETP Roadmap. PEMANDU scores a ‘D’ for data transparency. Like us, Malaysia’s top research house finds it impossible to get the numbers to add up.

Expected Versus Actual Democracy

Greg, you’re going love this. From VoxEU (excerpt):

The Democratic Transition
Fabrice Murtin Romain Wacziarg

As witnessed during this year’s Arab Spring, democracy doesn’t always emerge smoothly. This column examines the long march toward political freedom since 1800. It argues that while both income and education affect democracy, the rise in primary education has been the main driver of democratisation over 1870-2000.

Throughout history the march toward political freedom has not been a smooth process. It has happened in fits and starts, in waves, and was often reversed or interrupted. The collapse of several Middle Eastern authoritarian regimes in the wake of this year’s Arab Spring illustrates the point clearly...

...Whether democracy affects education and income or whether the causality runs the other way is the key source of disagreement in this debate. Studies examining the consequences of democratisation uncovered mixed results...

Beyond GDP: Part III

I wrote a couple of posts a year ago on this subject (here and here) that you might want to read first. Now a year later, the whole idea of what constitutes human happiness and what economics and governments can do about it are in the news again. This from The Economist magazine (excerpt):

The joyless or the jobless
Should governments pursue happiness rather than economic growth?

IN 2006 Richard Layard, an economist at the London School of Economics, argued that unhappiness was a bigger social problem in Britain than unemployment. In the “Depression Report”, which he co-wrote, Lord Layard pointed out that more people were claiming incapacity benefits because of depression and other mental disorders than were on the dole…

…This month David Cameron, Britain’s prime minister, asked the Office of National Statistics to measure the country’s “general well-being”, as part of his promise to focus on GWB not just GDP.

Why Demographics Matter: Japan’s Lost Decade Was An Illusion

Via Lars Christensen, Daniel Gros points out Japan’s performance over the past two decades hasn’t been as bad as it looks (excerpt):

The Japan Myth

…How should one compare growth records among a group of similar, developed countries? The best measure is not overall GDP growth, but the growth of income per head of the working-age population (not per capita). This last element is important because only the working-age population represents an economy’s productive potential. If two countries achieve the same growth in average WAP income, one should conclude that both have been equally efficient in using their potential, even if their overall GDP growth rates differ.

When one looks at GDP/WAP (defined as population aged 20-60), one gets a surprising result: Japan has actually done better than the US or most European countries over the last decade. The reason is simple: Japan’s overall growth rates have been quite low, but growth was achieved despite a rapidly shrinking working-age population.

2009 State GDP

Just a quick note – I’m a little under the weather from a cold, so I’m taking it easy for the next few days.

This report was actually released last week, and almost brings us up to date on state level GDP. If you recall, DOS started releasing state GDP data about this time last year, starting with 2005-2006 data. The latest numbers report 2009 GDP figures by state.

I haven’t gone so far as to analyse any of the numbers (the October MSB release has priority), but there don’t appear to be too many surprises here – Penang was the worst hit by the recession, due to its high exposure to export manufacturing, while KL continued growing because of its high concentration of service industries.

Technical Notes:

GDP Report By State from the Department of Statistics

Waiting For The Budget: GNI Per Capita

While I’m hanging around waiting for the budget broadcast to begin, here’s a quick note on the New Economic Model target.

You may recall that the NEM target is a minimum of USD15,000 per capita GNI by 2020. I’ve gone on the record to say that I think we’ll reach that target pretty easily, because of:

1. The Ringgit’s appreciation, which is a by-product of going up the development scale; as well as
2. Through the demographic transition that Malaysia is going through.

That doesn’t detract from the necessity of some of the NEM/ETP objectives however – I still believe that a restructuring of the economy is necessary to spread the wealth around, as well as to put the economy in a less vulnerable position relative to external demand.

Beyond GDP Part II

Back in July, I highlighted an article that argued for a more holistic approach to measuring changes in human welfare that goes beyond simple income/output based measures such as GDP. Now along comes this new paper by Charles Jones and Peter Klenow of Stanford University that takes the idea a step further (abstract):

Beyond GDP? Welfare across Countries and Time

We propose a simple summary statistic for a nation's flow of welfare, measured as a consumption equivalent, and compute its level and growth rate for a broad set of countries. This welfare metric combines data on consumption, leisure, inequality, and mortality. Although it is highly correlated with per capita GDP, deviations are often economically significant: Western Europe looks considerably closer to U.S. living standards, emerging Asia has not caught up as much, and many African and Latin American countries are farther behind due to lower levels of life expectancy and higher levels of inequality. In recent decades, rising life expectancy boosts annual growth in welfare by more than a full percentage point throughout much of the world. The notable exception is sub-Saharan Africa, where life expectancy actually declines.

Beyond GDP

Saudara SatD has posted an interesting article from Dr Mohd Mahyudi Mohd Yusop on the limitations of a GDP-centred development paradigm:

Wake up Malaysia, it’s time to play the ‘beyond GDP’ game!

The bulk of the discussions surrounding the recent announcements on the government’s economic strategies, particularly the Tenth Malaysia Plan (10MP) and the New Economic Model, have been centred on the issue of a high-income economy. To the discerning few, this situation raises a pertinent concern on whether or not a high income is necessarily good for the wellbeing of all Malaysians in the spirit of 1 Malaysia.

Indeed, this is a valid reaction given that; as rightly pointed out by many segments of the society who have commented on those official announcements, the actual thrust for those plans is the rakyat’s or people’s quality of life…

…Therefore; the critical question to the general public is; don’t we want to be free from this unintended spell, for our own and our future generation’s sake? …

…Among the developed nations, Canada; which is a G7 and G20 member country, seems to be leading the pack by the official commencement of the initiative referred as the Canadian Index of Wellbeing (CIW) that garners the expertise of Canadian government agencies, non-governmental organisations and universities. To these direct contributing parties, good living standards, robust health, a sustainable environment, vital communities, an educated populace, balanced time use, high levels of democratic participation, and access to and participation in leisure and culture is what quality of life is all about…

…Not surprisingly, the interest on this “new game” has gone across the Atlantic Ocean. The European Commission, European Parliament, Club of Rome, OECD and WWF jointly organised the inaugural “Beyond GDP” Conference in November 2007. Its single most important objective was to settle the issue of which indices are most appropriate to measure progress so that they could best be integrated into Europe-wide public debate and decision-making process…

…In final analysis, the real catch-up game that our policymakers should be concentrating on is: how well we are doing on a more proper wellbeing or quality of life scale rather than the no longer trusted pseudo-measure, GDP. Yes, their preoccupation with the “old game” would certainly lead us to be superficially happier enjoying the endless array of products and services that the market can perpetually offer…

…Therefore, it is an opportune time for our country to be smart, proactive; hence, committed to this new game. The confidence and optimism to succeed is always high for the majority of Malaysians proudly believe that our beloved country does have the right resources, talents and spirit to be a strong contender, if not the winner, in this “Beyond GDP” game.

Only then, the rakyat would be genuinely appreciative towards the various efforts undertaken by the democratically-elected government to improve their quality of life.

Click the link to read the whole thing.

Quite coincidentally, I got the 7th Issue of the Global Progress Newsletter in my inbox last night (warning: pdf link), which covers much the same ground but in considerably more detail, including implementation in certain regions. You might want to read past issues of the newsletter here.

What’s my take on this? I think the article is spot on – but probably premature. Why I say so is because until basic economic necessities are met, there will be little social pressure to move away from a income-centric notion of economic well-being. It’s no accident that the countries most involved in this new effort are advanced economies with already high levels of income.

You won’t much care about quality of life issues until you have a roof over your head, food on the table, clothes to wear, and some assurance that things will stay that way for the near future. Going beyond income-based measures requires a certain degree of excess income in the first place, where people start to value leisure time, the environment, safety and culture for example, more than they value a greater gain in income.

Things are changing here in Malaysia towards engaging with more quality of life issues (particularly in urban areas), but with 40% of the population in relative “poverty”, it will be some time yet before we get to a majority consensus on this issue.

State By State GDP Data: About Time

The Department of Statistics has released state-by-state GDP data for 2005-2006, with 2007 and 2008 data to be released soon.

Two years isn't nearly enough data to look at trends or to do any kind of substantial analysis, but there are some nice nuggets in there. Check out especially Jadual 3 (warning: PDF link), which lists per capita GDP by state. Even though Selangor is the largest in terms of contribution to national GDP, it's only third in terms of income per capita, and on par with Sarawak, Labuan and Negeri Sembilan(!). So much for being developed.