Malaysia's Third Quarter GDP

Are we in recession or not?

by Harun Rashid

Dec 1, 2001

The 3Q GDP news was delivered at a press conference by the head of the Bank Negara. Those who heard just the voice on TV and were not watching the picture heard a distict quavering. What could be the problem?

Surely a small thing like the repetion of an earlier error would not produce nervousness. The statement made was that the GDP grew by 0.5 percent in the 2Q, on a year-on-year basis. This, unfortunately is not true, as a casual glance at the results for 2Q 2000 (RM 84,695 billion) and 2Q 2001 (RM 82,696 billion) reveal. The year on year results for the 2Q 2001 were negative by RM 1,999 billion, a decline of -2.36 percent.

To be fair, there was an official admission that the 4Q is likely to be a bit down, blamed on the worldwide slowdown. But this information is then followed by assurance that on the whole, the year 2001 will be positive, even if just by a sen. Seveeral Ministers are still talking about 2 percent growth. Looking at the figures, one sees what is perhaps the primary cause of the vocal tremor.

In the year 2000 the GDP was RM 340.7 billion. If there is to be anything that might be called growth for 2001 the total for the four quarters must surpass this amount. For the first three quarters the total is RM 248.5 billion. This means that the 4Q must come in at RM 92.2 billion or better. The chances for this are next to nil.

Since it is now December, the last month left in the year, it is clear to everyone watching that the situation does not merit a statement that 2001 will be better than 2000. The head of the Bank Negara knows she sounds silly saying this. The year 2001 is going to be at least -3.5 percent lower than the year 2000, and may be as low as -4.0 percent.

The figures, as prepared by the official Statistics Department of Malaysia, can be compared as easily by a teenager as an experienced economist with a PhD.

The latest official announcement of the GDP, taken ver batim from the official Malaysian government statistics page, states:

"The Malaysian economy posted a negative growth of 1.3 per cent year-on-year in the third quarter of 2001 after positive growths of 3.1 per cent and 0.5 per cent in the first and second quarters respectively. This downturn was unavoidable as economies worldwide are shrinking."

The words stare out at the reader rather blandly. They say that finally a quarter has arrived with "negative growth" year-on-year following two quarters of "positive growth," also year-on-year, or so the reader is lead to believe. Yet only the 1Q of 2001 exceeds the 1Q of 2000. The 1Q then may be said to have "positive growth" of 1.34 percent. This, however, completely ignores the sharp decline month to month from the 4Q of -RM 5,231 (-5.98%).

The 2Q of 2001 is less than the 2Q of 2000, and thus the year-on-year results are actually negative, contrary to the report stating they are positive. The 0.5 percent stated for 2Q growth obviously refers to the 2Q increase of RM 523 million over the 1Q. It is not an increase of 0.5 percent year on year as repeatedly stated by both the Bank Negara and the media since the 2Q results were announced.

This little deception not-so-neatly avoids the negative press which attaches to the word recession, which is defined as two consecutive quarters of declining GDP, but also may be a comparison between quarters year on year. Both the 2Q and the 3Q are down relative to the same quarters of 2000, and therefore Malaysia is technically in a recession using the year on year figures.

The 3Q results of 2001 are again better than the 2Q 2001, by RM 949 million (1.15%), but are below 3Q 2000 results -RM 3,878 (-4.43%). For the year 2001, according to the official figures, each quarter has been better than the last, and only the 4Q may be a spoiler. Unfortunately, that is not all the figures show.

The numbers say that for the first three quarters of 2000 the GDP was RM 253.3 billion. For the first three quarters of 2001, the GDP total is slightly less at RM 248.5 billion. The year 2001 thus trails last year by RM 4,788 billion (1.69%.

If economic activity is trailing the 2000 rate, then for a positive result in the year 2001, the 4Q must be gigantic, exceeding RM 92.2 billion. This is clearly unrealistic. Malaysia has not had a quarter so high in recent years. The official projection is for the 4Q to be down from 3Q, which seems to confirm a suspicion that the truth is known, but being concealed.

Since the GDP for 2000 was RM 340.7 billion, how can the year 2001 achieve an improvement over this amount? A realistic projection is for the 4Q to come in at RM 80 billion or less, and if that is the case, the GDP for year 2001 will be less than the year 2000 by about RM 12.2 billion, or -3.58% percent. If the 4Q is substantially down, as the Bank Negara head suggests it might, then the full year GDP for 2001 would be a decline exceeding -4.0 percent.

The sales value of the manufacturing sector for the past few months of 2001 versus the same months of 2000 are shown in Figure 1. There is no indication of a positive year, nor an imminent return to growth.

Figure 1.

The Industrial Production Index (IPI) for the same months of 2000 and 2001 are similarly compared in Fig. 2. The comparison does not suggest a return to improved economic conditions in the near future.

Figure 2.

Looking at the overall picture, it appears that Malaysia is putting large sums of deficit financing into an effort to gain political mileage. Little thought is given for the consequences of this policy. The current party in power is unpopular, and desperate to maintain an image of competence and confidence.

In their effort, the Malaysian economy is being heavily stimulated with borrowed money. Buying political time with borrowed money is both foolish and impossible to sustain, as many other countries have found to their dismay.

A person who makes a practice of purposely parading powdered statistics before the public in gratitude for past political patronage does not generate confidence, and casts unnecessary aspersions upon the statistics themselves.