4Q 2021 GDP: The Good, The Bad, and The Ugly

It's taken me this long to really delve into last week's GDP report, largely because I wanted to try something different (results forthcoming). But before getting into that, the headline numbers themselves are mostly encouraging (log annual and quarterly SAAR changes):

Chart of the Week: Why Seafood Prices Have Rocketed

Actually, three charts altogether:

Issue 1: Global fish landings have stagnated since the 1990s. Effectively, demand is increasingly being met through aquaculture.

Issue 2: Per capita consumption has risen drastically, to over 20kg per person, tripling over the past 65 years. Roughly 85% of fish supply is now used for food, up from half in the 1970s. It’s not just population growth that is stressing fish supplies.

Issue 3: Only 10% of global fish stocks are underutilised. The ratio of fishing stocks that are being exploited at biologically unsustainable rates has been increasing, and is more than double what it was 40 years ago.

Technical Notes:

“The State of World Fisheries and Aquaculture 2016,” Food and Agriculture Organisation of the United Nations (FAO), 2016

3Q 2015 GDP: Flip A Coin

Last week’s GDP report was a mixed bag. On the one hand it paints a picture of an economy slowing down, especially in terms of domestic demand. On the other hand, some of the indicators appear to have bottomed out.

The headline numbers aren’t appealing (log annual and SAAR quarterly changes; 2010=100):

4Q2014 National Accounts: Smokin’ Hot

From last week’s 4Q2014 GDP report, it looks like the IPI was more than just a harbinger, it was spot on (log annual and quarterly SAAR changes; 2005=100):

3Q2014 GDP: Momentum Slowing

I’m still torn. Last week’s GDP report was a little better than I thought, but might just be the best growth we’re going to see for a while (log annual and SAAR changes):

Note that while annual growth is holding up pretty well, quarterly growth in 3Q2014 is actually the weakest in nearly two years. There’s little in either the global or domestic economy to suggest that growth will get any better over the short term.

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):

1Q2014 National Accounts

A little stronger than I thought it would turn out to be, but not too much so (log annual and quarterly saar changes; 2005 prices):

Don’t go overboard though – the quarterly growth numbers tell the real tale. 1Q2013 was a really horrible quarter, which means growth for 1Q2014 will flatter to deceive. Note that 1Q growth was stronger in 2011 and 2012, but weaker in the last couple of years (including this past quarter).

2Q2013 National Accounts

Yesterday’s GDP release showed the Malaysian economy continuing to expand, but well below expectations (log annual changes, 2005=100):

1Q 2013 National Accounts: Braking Hard

Growth in the last quarter of 2012 was shockingly fast. But for every action, etc. etc. Growth in 1Q2013 was shocking too, but in the opposite direction (log annual changes; log quarterly changes, SAAR):

The annual growth number fell from a revised 6.5% in 4Q2012 to 4.1% in 1Q2013 (4.0% in log terms). This was actually a little lower than forecast by my IPI based model – for once, it wasn’t being overly pessimistic – but is still respectable growth, and not bad compared to our regional peers.

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.

3Q2012 National Accounts: Defying Gravity

Well, I’m back from my break, and what an interesting bunch of numbers to come back to. The national accounts data released last Friday showed the economy chugging along at 5.2% in 3Q2012 (log annual and quarterly changes, seasonally adjusted):

There really hasn’t been much variation in the growth numbers either on an annual or quarterly basis since the beginning of 2011, indicating a trending economy.

2Q 2012 National Accounts: Surprise, Surprise

What a nice lead up to the holidays. While I thought 2Q GDP might turn out to be pretty good, 5.4% annual growth is outside all my expectations (log annual and seasonally adjusted annualised quarterly changes; 2005=100)

Seasonally adjusted quarterly growth has been pretty solid too at 5.9%, holding up above 5.7% for three straight quarters.

4Q2011 National Accounts: Meeting Targets

As I thought it might, 4Q GDP pushed the full year 2011 GDP growth above 5%, hitting 5.2% in percentage terms and raising full year growth to 5.1%. Even as external conditions weakened, domestic demand held steady while investment zoomed (log annual and quarterly changes; quarterly changes are seasonally adjusted and annualised):

2Q 2011 GDP: Better Than Expected

While disappointing, the results weren’t totally unexpected. In fact, the y-o-y number of 4.0% came in somewhat higher than the consensus estimate of around 3.6% (and well above that implied by net trade or industrial production output).

In point of fact, apart from the external side, the numbers don’t look half bad (log quarterly changes; seasonally adjusted; annualised):

Another NKRA…

Decided on in the Wednesday cabinet meeting, we’ve got another National Key Result Area to go along with the six already in place:

PM announces NKRA to deal with rising cost of living

PUTRAJAYA: The cabinet decided Wednesday to add another National Key Result Area (NKRA) to the list of six to make it seven altogether.

Prime Minister Datuk Seri Najib Tun Razak said the new NKRA dealt with the rising cost of living...

...Najib said the government would leverage the expertise of Pemandu to assist the relevant ministries and agencies as well as the Cabinet Committee on Supply and Price headed by Deputy Prime Minister Tan Sri Muhyiddin Yassin.

Small Isn’t Beautiful

I have mixed feelings commenting on this issue, but I feel it must be said. From yesterday’s Star (excerpt):

Caring for the livelihood of smallholders

SMALLHOLDERS have always been the backbone of the country's agriculture sector.

Their role, however, is often underestimated despite the big contribution of about 94% of Malaysia's total rubber production, 75% of cocoa and about 40% of palm oil output annually.

Smallholders therefore need to be given the security of having a consistent income and incentives to ensure that they would be able to efficiently produce higher-yielding crops to enable local agriculture products remain competitive locally and abroad…

…Having said that, many have voiced their concern over the turn of events lately, which are expected to have a direct impact on the livelihood of smallholders…

Fisheries And The Diesel Subsidy: Both Sides Are Missing The Point

Malaysia’s deep sea fishermen are on strike because the diesel subsidy has been reduced (excerpt, emphasis added):

Fishermen can’t afford to go to sea with steep hike in diesel price

More than 100 trawlers were docked at the Malaysia Fisheries Development Authority complex as fishermen said they could not afford to go to sea.

Kuantan Fishery Association chairman Chia Hee Juak said this was due to the sudden increase in diesel price to RM1.80 early this month.

“Even at the previous price of RM1.25, we were only earning a profit of RM2,000 per trip.

“With this steep increase, we can't even afford to fuel up,” he said.

1Q 2011 GDP: Disappointing

I admit I expected better. So did the consensus opinion, which was looking at between 4.7%-5.0%. But we’re still looking at a somewhat respectable 4.6% GDP growth for 1Q 2011 (log annual changes; seasonally adjusted log quarterly changes, annualised; 2000=100):

The SAAR figure is an even more respectable 7.0%, which compares well with growth throughout most of the past decade.

4Q 2010 GDP: Bigger Bounce Than Expected

You’ll hear and read tomorrow that economic growth moderated further in 4Q 2010, reaching 4.8% after 3Q’s 5.3%. And so it appears from a year-on-year basis (log annual changes):

Trade growth dropped into low single digit territory, while public consumption was flat. Impetus for growth came from private consumption and investment – both welcome news, as the transformation of the economy to high income status requires just that. Full year growth reached 7.2%, quite a bit better than my forecast and the consensus estimate of 7.0%.

A Tale of Two (Spin) Cities: 4Q2009 GDP

The GDP numbers look pretty good don”t they? Real GDP growth hit 4.6%, which by Malaysia’s standards means we’re officially out of recession. This hit right in the middle of the upper half of my forecast range. Rather than comment directly on the numbers, I’m going to try a little experiment and show what happens when you change the basis of calculating growth.

If you recall, for this purpose Malaysia uses quarter on the same quarter last year. Most other countries use this methodology, but very few use it as their reported growth number (with the notable exception of China). To illustrate, such a calculation would look like this:

GDP growth=GDP(4q09)/GDP(4q08)-1

The internationally accepted standard on the other hand is to use quarter on the previous quarter, using seasonally adjusted data, with growth number later annualised:

GDP growth=((GDP(4q09)/GDP(3q09))^4)-1

As an alternative, you can equivalently use a natural log formulation:

GDP growth=(1+(LN(GDP(4q09)-LN(GDP(3q09))))^4)-1

…which is a little easier computationally, as well as being level neutral.

So, here we go…

Case 1: Malaysian standard
After three straight quarters of contraction, Malaysia’s 4Q09 GDP growth numbers confirmed that the country was out of recession, posting a growth of 4.5% against the same quarter last year:



On the demand side, growth was driven by a strong recovery in trade and an 8.2% jump in domestic investment. On the supply side, growth was largely broad based and supported by fiscal stimulus measures which helped drive construction growth to 9.2%, while the manufacturing sector posted its first positive growth in four quarters. The only sector yet to recover is mining, albeit the fall in output improved to –2.8%:



Case 2:International standard
Malaysia’s 4Q09 GDP growth zoomed an impressive 14.2% despite a sharp pullback in government spending, which fell 11.1%:



Output has now recovered to the level prior to the recession, which began in 2Q08 and lasted four consecutive quarters, to 1Q09. On the demand side, growth was driven by a 28.2% jump in exports and a 21.3% increase in domestic investment.

On the supply side, growth was uneven, with agriculture and manufacturing leading the way. Services growth was sustained, but mining sector output dropped 8.50% while construction output growth fell from 9.1% in 3Q to just 1.9% in 4Q2009.



Summary
A real study in contrasts isn’t it? While the broader picture is similar, the details show significant differences:

1. The timing of the recession changes from beginning in 1Q2009 under the official standard to 2Q2008 under the international standard –a full three quarters earlier.
2. The length of the recession also changes from 3 quarters to 4 quarters.
3. Positive domestic demand growth in 4Q2009 turns negative under the international standard.
4. The biggest differences are in the sector breakdowns, with sharp construction and services growth turning into consolidation, and first manufacturing recovery has actually been evident since 2Q2009.

The billion dollar question is: Would a difference in calculation affect the planning and expectations of economic agents (consumers and businesses), and would it affect the timing and scope of government policy? I don’t necessarily think so.

If you recall, the first stimulus package was introduced in November 2008, which coincided with the GDP report for 3Q2008. At that point, under the international calculation the recession would have already entered its second quarter, but was still relatively shallow. The signs were already there however for the sharp drop in 4Q2008, and the even steeper drop in 1Q2009.

However, fiscal consolidation might have happened earlier with the emergence of the economy out of recession in 2Q2009 – that might not have affected for instance the credit support the government provided which formed the bulk of the 2nd stimulus package, but we might not have had as much of the direct spending that the government committed to (nor the pace of borrowing).

So…which way is better? From a pure macro-perspective, neither is necessarily good or bad. I don’t think there would be any changes in BNM’s policy moves for instance. But from a micro-perspective, the international standard offers a better picture of what’s happening on the ground and which areas need government support (if at all). Ideally, both methods should be reported and used for policy adjustments – as is the general practice elsewhere.

Technical Notes:
4Q2009 GDP report from the Department of Statistics