.... Worldview:
A Negative GDP For 2001?
By: Harun Rashid November 05, 2001

The PM of Malaysia confidently predicts a "positive growth" in the Malaysian economy for the year 2001, as reflected in the GDP. He latest estimate, more modest and lowered dramatically from previous estimates of 7-8%, is in the neighborhood of "0.3%". He admits this level of activity (carefully measured to a tenth of a percentage point) is admittedly small, but it still qualifies as 'growth'. It seems to be an important point with him.

The information, though soothing to some satisfied with superficial sophistry, unfortunately tends to distract attention from other troubling indicators. An example is the monthly report of external trade activity. Though not necessarily more trustworthy, it does have a respectable record of accurately reflecting current economic prospects.

The monthly log of total external trade (exports plus imports), is kept by the Malaysian Department of Statistics. The report is made available to the public online at: http://www.statistics.gov.my

As Fig. 1 shows, the external trade figures since April (including September), have been relatively stable, about RM 50 billion per month.
 
 
 
 

If this trend holds for the last three months, then a projection may be made that the last quarter will be around RM 150 billion. This is RM 24.2 billion less than 4Q 2000, or a drop of -13.9%. Because this result depends on maintaining the current level of external trade for the balance of the year (which at the moment is a rather doubtful eventuality), this relatively sharp decline is a best-case scenario. The drop in the 4Q is likely to be much worse.

Said another way, if external trade for the 4Q of 2001 is less than RM 150 billion, then the fourth quarter year-on-year drop will exceed -13.9% by a proportionate amount.

The total external trade figure for 2000 was RM 666.4 billion. The first three quarters were RM 511.1 billion. The comparable figure for the first three quarters of 2001 is RM 461.3 billion. This is a reduction of RM 49.8 billion (-9.74%) for the year-to-date figures.

If the year 2000 is compared with the year 2001, Jan-to-Jan, then with a best-case projection of RM 150 billion for 4Q 2001, an estimate of the total external trade for 2001 would be RM 611.1 billion, down RM 55.1 billion (-8.3%) from the RM 666.4 billion of 2000.

RM 666.4 billion = External trade for 2000
RM 611.3 billion = Projected 2001 (3Q 461.3 + 4Q 150)
RM -55.1 billion = Difference (- 8.3%)

It is not necessary to wait for the results of the 4Q. Though it is customary for annual results to be announced after the final year-end figures are tabulated, one may also make annual comparisons for a fiscal year that ends on September 30. If this is done, then an immediate year-on-year comparison is possible for the current external trade situation.

The external trade figure for the four quarters ending September 30, 2000 was RM 665.2 billion. The comparable figure for the next four quarters, ending September 30, 2001 is RM 630.9 billion, lower by RM 34.3 billion (-5.2%).

These figures are already on record, so there is no escaping the fact that year-on-year there is a decline of -5.2% in the external trade figure. This is contraction, not growth, and it is certainly not "positive" growth, as both the PM and the editor of NST doubly emphasise the change in GDP.

All trade figures will soon reflect added costs of shipping, due to increased insurance and other security related costs. The increase in the figures will not reflect a real increase in the amount of trade activity. There may even be a decrease as the increased charges put pressure on profits.

Total external trade is not the only component of the GDP calculation. It is, however, a reflection of overall business conditions, and it is less amenable to manipulation than other components (of which the KLCI may be cited as a flagrant example). It serves well as a reliable predictor of what one may expect from the GDP, once it is finally calculated.

When the trend of official projections is charted, such a chart shows a lag of six to nine months between official government projections announced by the PM, and subsequent reappraisals necessary to match a glaring reality. Using this as a guide, we may confidently expect an official "re-adjustment" to a negative GDP for the year 2001 in Malaysia, announced with a sigh and a suitable sandiwara of excuses, sometime late in the Spring of 2002.

- Harun Rashid


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