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HR: The Not So Hidden Recession
By Harun Rashid
30/8/2001 6:28 am Thu
by Harun Rashid
Aug 29, 2001
Malaysia is two thirds into the third quarter. According to the central
bank governor and the prime minister, there is no recession. The analysis
is somewhat hedged, and hinges on the 'technicality' of the matter.
It is understandable that the prime minister wishes to avoid the stigma
which attaches to his operation of the country's economy if there is a
genuine, full blown and widely recognised recession. To avoid this, a
fudge here, and a fidget there, brings the figures nicely into acceptable
denial. Unfortunately, the country is in a recession, a bad one, and the
sooner this is recognised and acknowledged, the sooner significant steps
can be taken to assuage the damage.
The Malaysian statistical department has a webpage, and on this
webpage there is the following statement: "The Malaysian economy
slowed down in the second quarter to grow by 0.5 percent year-on-year
after a growth of 3.1 percent in the first quarter." This is a strange
statement, for several reasons.
If the economy "slowed down," there is a suggestion that it was "faster"
in the previous period, specifically the first quarter. If so, then the
country is in a recession, according to the definition: two consecutive
quarters of decline. There was a decline in the first quarter, and there
was the "slowed down" reported for the second quarter. What kind of
sleight of hand is this, coming from the central bank governor appointed
by the prime minister?
The second part of the statement is equally puzzling. The year-on-year
growth is given as a positive 0.5 percent. The amount given as GDP for
the second quarter of 2000 is given by the statistics department as
RM84.7 billion. The GDP for the second quarter of 2001 is reported to be
RM82.6 billion, a decline of RM2.1 billion year-on-year.
Given the ambiguity of the announcement, one wonders if it is possible to
determine with accuracy the state of the economy. Looking at the figures
for the first quarter (RM 82.1 billion) and then the second quarter, RM
82.6 billion, it appears that indeed there is an increase, thanks to
significant government contributions toward hotel and airline reservations
for civil servants, EPF contributions for (undelivered) computer
purchases, and large mega-project construction announcements. Such
are the components of domestic demand. This questionable increase is
reported as "growth of 0.5%" over the first quarter, while the "slow
down" refers to the year-on-year figures.
Is there any way to get a clearer picture of economic events?
Thankfully, the answer is yes, with the result about what was expected.
To see the translated version one only needs to look at the moving
average of the GDP taken two months at a time. In Figure 1, the moving
average of the GDP, for first quarter 2000 to date, is plotted in red, while
the raw data is plotted in blue. It is possible to see the trend as a
smoothed curve, one which rises sharply to a peak, then turns sharply
down with the new millenium.
Looking at the smoothed curve, it is clear that the country is indeed in a
steep decline, and has been for two consecutive quarters. No amount of
tangled talk can transform the curve into a 'recovery' or even a
'flattening out' of the national economy. The trend shows a steep decline,
and there are no indications that improvement is to be expected in the
It is possible to project what the GDP will be for the third and fourth
quarters. Figure 2 attempts to do this, using the smoothed moving
averages, although any prediction has its limits of accuracy. But national
GDP figures don't usually change radically in the absence of powerful
external factors, and it is unlikely the curve will be significantly deflected
from what is shown.
The probability for such a departure from the plotted curve would require
significant improvement in the amount of business activity conducted
between our major trading partners. But Japan offers no hope for
improvement, Singapore continues to experience significant problems of
its own, and the US, in spite of lower interest rates and tax incentives,
has yet to respond.
If the current plot holds for the balance of the year, it indicates a decline of RM14.5 billion from the peak at RM87.5 billion down to RM73 billion. This is a decline for the year of - 16.7 percent, far from the prime minister's original projection of 8%. To be fair, he has said that a reappraisal and reduction may be necessary. Still, he maintains, "We could have a positive growth for the year. Two percent might be possible." If so, it will require much more figure juggling than is easily concealed. Nevertheless, we all hope the eventuality proves him correct. He already knows (along with the central bank governor) how difficult it is to hide a recession.
Link Reference : Harun Rashid Worldview: The Not So Hidden Recession