Wednesday, December 17, 2014

Commodities and Currencies

There’s quite a bit of gloom in the air these last few weeks. The plunge in oil and other commodity prices, capital pulling out of emerging markets, and currency turmoil, have people getting very worried about growth prospects next year. There doesn’t appear to be a bottom yet on oil prices, and it’s anybody’s guess where all this will end up.

In Malaysia’s case, oil price depreciation and Ringgit depreciation seems like one piling on the other – the latter is making things worse (Malaysians feel relatively poorer), on top of the drop in oil and gas revenues. But conflating the two like this is wrong. The depreciation of the currency is in fact a required and necessary result of the drop in oil prices.

Wednesday, December 10, 2014

OECD: Income Inequality Harms Growth

Just a quick note – unfortunately, quick notes appear to be all I have time for these days. The OECD has released a new report on the influence of income inequality on economic growth (excerpt):

Inequality hurts economic growth, finds OECD research

09/12/2014 - Reducing income inequality would boost economic growth, according to new OECD analysis. This work finds that countries where income inequality is decreasing grow faster than those with rising inequality.

The single biggest impact on growth is the widening gap between the lower middle class and poor households compared to the rest of society. Education is the key: a lack of investment in education by the poor is the main factor behind inequality hurting growth....

Monday, December 8, 2014

Notes On Oil

I came up with some talking points for a presentation last week, and since so many people have been asking for a comment on the drop in oil prices, I thought I might as well publish them.

Why is the price of oil dropping?

Essentially, its a demand and supply imbalance. On the one hand, China has been slowing down while Europe has backslid and Japan went into technical recession after implementing a sharp increase in its consumption tax. The only two real bright spots of growth in the developed world is the US and UK, and the US has rapidly developed its domestic oil supply in the last five years. To compound this, the energy intensity of growth (how much energy is required to support a higher standard of living) has been declining for decades.

Wednesday, November 26, 2014

Malaysia Human Development Report 2013 [UPDATED]

I attended the launch yesterday, which included commentary by the authors, led by YBhg Tan Sri Kamal Salih, and a very lengthy panel discussion.

You can download the full copy here.

This has been a looong time coming as publication was held up for a year. though I’m not a liberty for revealing why. In any case, if you want the very short version, this video explains everything in 2 minutes and 34 seconds:


Due to bandwidth limitations (too many people have tried to download the report), the MHDR site has been overwhelmed. You can try this alternative link instead to download the report. Warning: it’s a massive 66MB file, so the download could take a while.

Monday, November 24, 2014

Ringgit Under Pressure? Markets Are Irrational

I was going to write about this last week, but it got put on the back burner by the suspension of the fuel subsidy (excerpt):

Ringgit down to four-and-half-year low

KUALA LUMPUR: The ringgit has fallen to a fresh multi-year low against the US dollar, as sentiment has been somewhat dented by Malaysia’s shrinking current account surplus and slower economic growth in the third quarter of 2014.

At 5pm yesterday, the ringgit was being traded at 3.3565 against the greenback – the weakest level since May 2010. The ringgit is the second-worst performer in the region after the Singapore dollar so far this year. Over the last two weeks, it had declined 2% against the greenback….

…Analysts said the narrowing current account surplus put Malaysia in a less favourable position compared with the other countries….

Friday, November 21, 2014

Bye-Bye Fuel Subsidies

The Government has had an outbreak of common sense (excerpt):

Hasan Malek: No more RON95 petrol, diesel subsidies from Dec 1

PUTRAJAYA: All subsidies for RON95 petrol and diesel will be stopped beginning Dec 1, said Datuk Hasan Malek.

The Domestic Trade, Cooperatives and Consumerism Minister, who announced this at a press conference here on Friday, said the retail prices for RON95 petrol and diesel will be fixed according to a managed float, similar to the mechanism dictating the RON97 petrol price.

Hasan said there would be an announcement at the end of each month to set the following month's fuel prices.

He said it would be determined based on a monthly average price….

There’s still the super-subsidy on diesel (for public transport and fishermen) and subsidies on natural gas (which are huge), but the latter has been starting to be phased out as well. The gas subsidy in particular has been prone to abuse, with businesses using gas cylinders intended for households.

In any case, we’re well rid of the dangerously complicated multi-income-tier subsidy idea that the government has been mulling over. With global oil prices so low – for November, it appears that consumers have actually been paying a small tax on petrol – there would have been no better time for this move to have been made. We had that opportunity once in 2009-2010, and missed the chance. I’m happy it wasn’t missed this time.

If global oil prices stay low, and this is the scenario market participants are looking at at least for the next couple of years, then well and good. If prices move back up, then the government will no longer have to bear the cost of subsidising petrol and diesel, and use the increase in revenue on something more important – like public transport for instance, or education, or *gasp* paying down debt.

Having said that, we’re still not home free. Prices going forward will still fall under the Automatic Pricing Mechanism, which means profit margins are guaranteed for distribution and retailing. Oil retailers in Malaysia have been used to competing on a non-price basis; that’s not necessarily the optimum for consumer welfare. The next step should be to free up the market, and let the oil companies compete on price. That should give back to consumers some of the welfare loss associated with being exposed to global oil price volatility, essentially sharing some of the risk with producers.

I know, I’m asking for the sky. Still, I’m pretty happy with the decision today. It’s been a very long journey over the last five years.

Wednesday, November 19, 2014

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.

Thursday, November 13, 2014

3Q2014 GDP Preview

I’m torn. Despite all the weak numbers over the past three months, all my forecasting models say real GDP growth will still be above 5%, and in most cases, above 6%, for 3Q2014 (log annual changes):


The IPI based forecast is probably the most bearish, and it still says we’ll be above 5% – my other models are far more bullish. The forecasts for 4Q2014 are weaker, but not unusually so. The generated forecasts for next year cluster a little above 5% growth, which is about right for the Malaysian economy.

Friday, November 7, 2014

BNM Watch: OPR Still On Hold

More or less as expected by just about everyone, yesterday’s MPC meeting has the OPR still on hold at 3.25% (excerpt):

Monetary Policy Statement

At the Monetary Policy Committee (MPC) meeting today, Bank Negara Malaysia decided to maintain the Overnight Policy Rate (OPR) at 3.25 percent.

Tuesday, October 28, 2014

Tiered Fuel Subsidy System: Please Don’t Go There

The floodgates are opening (excerpt):

Full fuel subsidy only for those earning under RM5,000 monthly

KUALA LUMPUR: Those who earn more than RM10,000 per month will not enjoy any fuel subsidy under the subsidy rationalisation scheme to be implemented next year.

In announcing this Monday, Second Finance Minister Datuk Seri Ahmad Husni Hanadzlah said the programme would be divided into three tiers.

After early whispers before the budget, it’s now way out in the open. But, there’s much better ways of managing this than shifting to a convoluted system that’s going to be full of holes. Here’s one fellow Tweeter’s take on it (it’s in BM, but that shouldn’t be a problem, right?).

Thursday, October 23, 2014

Thoughts On The Alternative Budget

This is even later than my thoughts on the official budget (this was supposed to have been published two days ago), even though Pakatan’s budget proposals came out a day earlier.

I’m not going to do a head-to-head with the “official” budget – the two are very different animals, and any comparison will not be fair. Pakatan does not have full access to the minutae of government operations, and as such will not have the kind of detailed expenditure breakdown that the official budget does. I take it for what it really is – a policy platform, akin to a political manifesto.

Monday, October 20, 2014

Thoughts On Budget 2015

It’s been a really hectic week, which is the reason I haven’t put down my thoughts on the budget sooner. In one sense, that’s an advantage – it means I get some time to think about it more. In another sense, it’s not – people are probably suffering from budget “fatigue”.

Be that as it may, here’s what I really think: there was a little something in here for everyone…emphasis on “little”. Ok, I’m kidding, just a bit.

Thursday, October 16, 2014

Talking About Tax Reform: Capital Gains Taxes (Reprint)

[I wrote this article for a mainstream newspaper in August last year. It should be read in conjunction with this post]

It’s almost that time of the year again, when the Federal Government sets about planning its budget for the year ahead. With Malaysia’s sovereign credit rating at risk, it’s also time to take a look at reforming tax policy. One avenue that should be explored but has gotten little public airing is adding a capital gains tax (CGT).

Friday, October 10, 2014

Budget 2015–No Live Blogging

Unlike in past years, I won’t be live-blogging the budget this afternoon. I’ll be busy doing…other things.

However, I’ll do my best to tweet about it if time permits (catch the link to my Twitter feed on the right-hand column). Nor have I forgotten about the PR Alternative Budget which was released yesterday (link here)– again, a lack of time to comment. I’m hoping I can do something about both tomorrow.

Friday, October 3, 2014

Subsidy Cut

So, effective yesterday, petrol prices at the pump have been raised to RM2.30 and diesel to RM2.20.

Ballsy move, and to me, completely unexpected. With the 20sen cut in the petrol and diesel subsidy, Malaysia is within striking distance of abolishing fossil fuel subsidies entirely – at least, at the retail level. We still have the gas subsidy to deal with, but that’s less important for a couple of reasons: gas is a cleaner fuel (no negative externalities) and there’s also less implications for the government budget.

Resistance, compared to the similar 20sen cut last year, seems to me to be a lot more muted this time around. Nevertheless, resistance there is.

Thursday, September 25, 2014

Oh Rats!

I was tickled pink when this link turned up on my twitter feed (excerpt):

Investment rats

...One project is Michael Marcovici’s Rat Trader. The book describes the training of laboratory rats to trade in foreign exchange and commodity futures markets. Marcovici says the rats “outperformed some of the world’s leading human fund managers.” The rats were trained to press a red or green button to give buy or sell signals, after listening to ticker tape movements represented as sounds. If they called the market right they were fed, if they called it wrong they got a small electric shock. Male and female rats performed equally well. The second generation of rattraders, cross-bred from the best performers in the first generation, appeared to have even better performance, although this is a preliminary result, according to the text. Marcovici’s plan, he writes, is to breed enough of them to set up a hedge fund...

No, this isn’t an April Fool’s joke. Because believe it or not, here’s what I came across a day later:

The website is here, and the training methods are detailed here. Check out the record of Mr Kleinworth Morgan Jr 5. Brings a whole new meaning to the term “alternative investment”.

I might just recommend this to our investment committee. They could even take me seriously, if they don’t die of laughter first.

The Colour Of Inequality: Available Now

I reviewed the book a week ago. It’s now in stock in MPH, and can be ordered online.

You can check out the blog here and the Facebook page here.

Dr Muhammed is also on Twitter @inequality_MYS

Wednesday, September 24, 2014

GLICs And Capital Outflows

I’ve heard this from more than a few people (excerpt):

Mahathir expresses concerns on fund outflow

KUALA LUMPUR: Former Prime Minister Tun Mahathir Mohamad has expressed his concern over local funds, including the Employees Provident Fund (EPF) on their property investment overseas as it promoted fund outflow from the country. "At a certain extend it is desirable to invest abroad, but we should always have to balance between inflow against outflow of funds," he said…

…He pointed out that too much of fund outflow from the country would not be good for the economy, especially overseas property assets that were acquired.

"Instead of supporting local industry, they (funds) have gone abroad," he said….

Friday, September 19, 2014

BNM Watch: OPR On Hold

It was a coin toss and tails it is (excerpt):

Monetary Policy Statement

At the Monetary Policy Committee (MPC) meeting today, Bank Negara Malaysia decided to maintain the Overnight Policy Rate (OPR) at 3.25 percent….

…For Malaysia, economic activity has been supported by the continued growth in domestic demand and exports…While private investment activity is projected to remain robust, private consumption is expected to moderate…The prospects are for the Malaysian economy to remain on a steady growth path.

Inflation is expected to remain relatively stable for the remainder of the year. Going into next year, inflation is projected to edge higher and is expected to be above its long-term average due to domestic cost factors….

The current stance of monetary policy remains supportive of growth…Further adjustment to the degree of monetary accommodation may be taken depending on how new information will affect the assessment on the balance of risks….

Thursday, September 18, 2014

BNM Watch: MPC Preview

First off, I have NO idea what BNM is going to do today. I have decided opinions on what they SHOULD do, but there’s a striking divergence of opinion in the market about this.

So here’s the situation – the MPC decided in July that with growth looking robust, it’s time to normalise interest rates and head off the risk of “financial imbalances”, which could mean anything from excessive borrowing by firms and households, or an imbalance in net foreign asset holdings, or pretty much anything really. I didn’t agree with the decision then, and I still don’t.

August 2014 Consumer Prices

Prices in August took another blip upwards (log annual and monthly changes; 2000=100):


Wednesday, September 17, 2014

The Colour Of Inequality

[Full disclosure: Dr Muhammed is a good friend of mine, so the following commentary should be taken as unbalanced and totally biased. You have been warned]

There’s a new book coming out this weekend on income and wealth inequality in Malaysia, at MPH:


Monday, September 15, 2014

Wages and Productivity

DS Wahid on the share of wages in GDP (excerpt):

Govt planning to push wages-GDP ratio to 40%

KUALA LUMPUR: The Government is planning to increase the ratio of wages to Gross Domestic Product (GDP) from 33.6% last year to 40% in the long term.

Minister in the Prime Minister’s De­p­artment Datuk Seri Abdul Wahid Omar said this would be done gradually.

“This is because any wage increase must be supported by increase in productivity,” he said after attending a media appreciation ceremony with the Statistics Department yesterday…

Friday, September 12, 2014

Thursday, September 11, 2014

Explaining Household Income

DS Wahid’s announcement over the preliminary results of the 2014 Household Income Survey (HIS) has created a minor furore (excerpt):

RM5,900 average household income? Lies, damned lies, and statistics, says MP

KUALA LUMPUR, Sept 9 ― The federal minister's claim that Malaysian households make an average of RM5,900 monthly is a farce that does not represent the actual earning capacity of most Malaysians, an opposition lawmaker said today.

DAP's Bukit Mertajam MP Steven Sim said the figure is a result of creative use of statistics in the 2014 Household income Survey (HIS) preliminary report to paint a “dishonest” picture of increased prosperity among the people….

…On Sunday, Minister in the Prime Minister's Department Datuk Seri Abdul Wahid Omar was quoted by national news wire Bernama as saying that the average household income in the country has risen to over RM5,900 a month, a significant increase from the RM5,000 monthly average recorded in the 2012 HIS.

Sim stressed that the figure does not make sense when the government itself admitted that 80 per cent of Malaysian households had benefitted from the Bantuan Rakyat 1Malaysia (BR1M) cash aid programme, whose recipients must earn less than RM3,000 a month.

He added that government statistics also showed that 82.5 per cent of Malaysians below the age of 30 earn less than RM3,000 a month as at September last year….

…Sim stressed that the median household income in Malaysia ― which stood at RM3,626 in the 2012 HIS ― gives a clearer idea of how much Malaysian households actually earn as it differentiates between low and high income earners….

Tuesday, September 9, 2014

A Ticking Time Bomb

I was at EPF’s International Seminar yesterday, and one of the presenters showcased this video:

Thursday, August 28, 2014

The Mythmaking and Storytelling Of Economics

Noah Smith (@Noahpinion on Twitter) waxes lyrical on the culture of economics (excerpt):

Economics Isn't Science or Literature

…Economists use many of the same tools as scientists and engineers -- matrix algebra, multiple regression, control theory. But they don’t use them in the same way. In economics -- especially macroeconomics -- the goal is often to persuade other people of your point of view. As Federal Reserve economist Kartik Athreya writes in his 2013 book “Big Ideas in Macroeconomics”:

“My view is that a part of what we do is "organized storytelling, in which we use extremely systematic tools of data analysis and reasoning, sometimes along with more extra-economic means, to persuade others of the usefulness of our assumptions and, hence, of our conclusions...This is perhaps not how one might describe "hard sciences[.]”

Wednesday, August 27, 2014

Trade-Offs, Opportunity Costs and Unintended Consequences; Or There’s No Such Thing as a Free Lunch

I had a long conversation with an old friend of mine this weekend, and although I’m not about to disclose what we were talking about (yet!), it brought to mind how fundamentally different economists think to the way other people think.

Economists are always thinking in terms of trade-offs – you can’t do something without affecting something else. In a proverbial world of scarce resources and unlimited wants, every action has some form of reaction, even if these don’t conform precisely to Newton’s Third Law of motion. In Milton Friedman’s evocative language, “There’s No Such Thing as a Free Lunch”.

This is especially true of the policy-space. Every change in policy has both costs and benefits, though some of those costs or benefits might not be readily apparent. Replacing SST with GST for instance, or going forward with the TPPA – there are pros and cons, winners and losers in each decision, and the cost-benefit analysis is not always as clear as people think. Take for example the ever contentious issue of petrol and diesel subsidies – most people don’t see (or won’t see) the flip side of artificially cheap energy.

So we come to this (excerpt):

Economics for the masses

…are economists actually able to win hearts and change minds? Or is economics merely used to justify and reinforce pre-existing beliefs?

A new paper* from political scientists at Duke University suggests that economists can influence public opinion, but only on technical policy issues. They are less effective when it comes to politically contentious questions….

…So how did the dismal profession stack up? First the bad news. Despite the expert consensus, the majority of respondents, excluding those that were uncertain, disagreed with economists on every issue….Wheras [sic] this distrust was equally spread amongst most demographic groups, the authors found that right-wing respondents were significantly less likely to trust economists.

There were, however, some more positive findings. When they were informed of the consensus position of economists, respondents were more likely to agree with them. However, the size of this effect varied according to the nature of the policy issue. Members of the public were more likely to agree with economists when quizzed on technical issues, such as the gold standard or forecasts for tax revenue. But on politically charged topics, for example trade with China or the merits of immigration, the economists’ consensus was far less likely to sway public opinion. Not only that, but when the respondents were informed that their own views did not match those held by most economists, their level of trust in them decreased markedly. This was not the case with the more technical issues – even when they disagreed with economists their trust was unaffected. It seems that on hot-button issues, the public uses economists to validate prejudices, and loses faith in them when they fail to do so.

Confirmation bias is alive and well. One wonders how many bloggers and social media activists are wasting time and doing nothing more than preaching to the converted, present self included.

Friday, August 22, 2014

Calculating Real Interest Rates

One of the reasons analysts have been quoting as being behind BNM’s increase of the OPR last month was negative real interest rates.

What is that? Essentially, it’s the rate of interest on any particular deposit or debt instrument, less then rate of inflation.

The intuition behind this simple: what you’re trying to get at is a measure of the real purchasing power behind a deposit or investment. If you have a positive real interest rate, you can buy more goods and services when the deposit is withdrawn or the debt matures than you did at the start. If you have negative real interest rates, you can get less. A negative real interest rates means that you could be gaining more money, but the amount of goods and services you can buy could be less than when you started.

July 2014 Consumer Price Index: Nothing To See Here, Move Along

Wednesday’s inflation report saw the CPI rising by 3.2% (log annual and monthly changes; 2000=100):


Monday, August 18, 2014

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):


Friday, August 15, 2014

Perspectives On Development: The Role Of Women

This post is my catching up on various research and articles that I’ve bookmarked over the last few months on gender issues.

The World Bank has some new research briefs issued this week:

New Evidence Highlights What Works to Empower Girls and Young Women

Washington, August 11, 2014—Educating, empowering, and employing the largest-ever generation of young people is vital to ending poverty and boosting shared prosperity—the World Bank Group's twin corporate goals. New impact evaluation (IE) briefs by the World Bank Group (WBG), released ahead of International Youth Day 2014, shed new light on what works in development interventions targeting girls and young women, who still account for a disproportionate share of the world’s poor and face persistent inequalities at home, school, and work that help keep them and their families in poverty.

You can access the briefs through the article or through the World Bank’s gender resource site (here).

Thursday, August 14, 2014

Abolishing Fuel Subsidies: Lessons From Indonesia

From the East Asia Forum (excerpt):

Time for a new approach to Indonesia’s energy subsidies
Authors: Stephen Howes and Robin Davies, ANU

Indonesia’s new president, Joko Widodo (Jokowi), will face many challenges but none more pressing and immediate than dealing with Indonesia’s energy subsidies, which this year will constitute a quarter of total government spending…They were 20 per cent of expenditure when President Yudhoyono (SBY) came to power, and they will be almost 25 per cent when he leaves office later this year….

…A more radical reform program is needed: instead of one-off increases, a time-bound program with an upfront agreement that the end result would be the elimination of energy subsidies within, say, three or four years….

…Whether Jokowi will deliver remains to be seen….

Tuesday, August 12, 2014

Inequality Starts At Birth

This isn’t a nature or nurture argument; this is a nature AND nurture argument (excerpt):

Inequality Begins at Birth

Over the past year, the lack of universal pre-kindergarten for American four-year-olds has become a national issue….Even as these efforts are being made, however, new research is making it increasingly clear that educational disparities start much earlier.

The value of universal access to early education has long been recognized: it improves the life chances of disadvantaged children and is crucial to keeping a level playing field for all….

June 2014 Industrial Production: Hold On To Your Hats, Folks!

The rocket has blasted off (log annual and monthly changes; seasonally adjusted; 2000=100):



Monday, August 11, 2014

The Fallacy of Composition and the Monetary System

I was tempted to be snarky about this, but that wouldn’t be fair, on laymen or anybody else.

It’s not easy thinking through economic problems, and monetary problems in particular. Slip ups are common, even among seasoned economists. It doesn’t help that standard texts on money and banking are badly wrong on how banks actually operate and how money is created. It’s no wonder then that people have a hard time figuring out what’s going on, and how changes in policy and customer preferences affect the monetary system.

Example 1 comes from a couple of weeks ago (excerpt):

Thursday, August 7, 2014

June 2014 External Trade

The base effect is starting to wear off (log annual and monthly changes; seasonally adjusted):


Tuesday, August 5, 2014

100 Years Ago Today, WWI Began

It varies depending on which country you’re in (e.g. August 1 in Germany, August 3 in France, August 4 in the UK), but 100 years ago today, World War I began in earnest. The following four years saw a deadly conflict that crossed the globe and took the lives of 16 million people and injured 20 million more, and led directly to the greater conflagration of WWII.

The conflicts of the past sixty years or so, as damaging as they were and taking their own toll of human suffering, have been mild blips by comparison to the wholesale slaughter that took place on the Western and Eastern fronts.

By sheer coincidence, I’ve been listening to a rendition of Barbara Tuchman’s “The Guns of August”, a superbly written and sobering historical account of the build up to the war and its pivotal first month. May we never see anything like this ever again.

Monday, August 4, 2014

Data Releases for July 2014

I’m back from my usual Ramadhan blogging sabbatical. It’s been a bittersweet month – the economy is chugging along better than I ever hoped for and the German demolition of Brazil in the World Cup semifinals was a hoot to watch, but then there was the staggering blow of the MH17 tragedy and the incomprehensible Israeli invasion of the Gaza strip on the very same day. Geo-political risks appear to be increasing, while the global economy remains on a fragile footing, the US recovery notwithstanding.

Friday, July 11, 2014

BNM Watch: OPR Raised To 3.25%, Market Yawns

It was so blatantly telegraphed after the last MPC meeting, the disappointing thing would be if they didn’t go through with it (excerpt):

Monetary Policy Statement

At the Monetary Policy Committee (MPC) meeting today, Bank Negara Malaysia decided to raise the Overnight Policy Rate (OPR) by 25 basis points to 3.25 percent. The floor and ceiling rates of the corridor for the OPR are correspondingly raised to 3.00 percent and 3.50 percent respectively....

Monday, July 7, 2014

May 2014 External Trade: Defying Gravity

When is the trade engine going to lose steam? I honestly don’t know (log annual and monthly changes; seasonally adjusted):


Wednesday, July 2, 2014

Even Billionaires Are Complaining About Inequality

Li Ka Shing is losing sleep (excerpt):

Sleepless in Hong Kong

...I am 85 years old going on 86. I feel blessed to have seen more in life than I could remember, and happy to remember more than I have seen; so why am I sleepless in Hong Kong?

I fear that widening inequality in wealth and opportunities, if left unaddressed could fast become ‘the new normal’. Inequality is perhaps inevitable as some are simply better able than others to capture the opportunities that globalisation and the knowledge economy affords.

I fear that intensifying resource scarcity will pose challenges of immense proportions to our future.

We need to act now to turn challenges into opportunities. Technology is no panacea, but we need technological and innovative interventions to increase our options.

Tuesday, June 24, 2014

May 2014 Consumer Prices

Inflation? What inflation? (log annual and monthly changes; 2000=100):


The annual rate of increase across all three of my inflation measures appears to have peaked – the monthly rate of increase for May is virtually zero i.e. there’s been precious little price changes between April and May.

Monday, June 16, 2014

The Meaning Of Innovation

Malaysia is pretty poor at doing R&D. Spending relative to GDP is by any standards low; so are the number of researchers relative to the population. Patent applications, in absolute terms, in relative terms, and in the ratio of local to foreign applications, are in a word: pathetic. The government has all kinds of programs to get R&D and innovation going, the latest of which is MaGIC. Much of these ideas revolve around the invention and commercialisation of new products.

While this is certainly one way to get innovation off the ground, it’s not the only – or even the best – way of increasing productivity, incomes, and local value added. Getting to and sustaining high levels of development involves much more than that. I think we really need to put as much emphasis on process innovation and managerial innovation as well.

Thursday, June 12, 2014

April 2014 Industrial Production: Steady As She Goes

The numbers aren't as spiffy as the out-of-this-world export growth numbers, but they’re pretty respectable (log annual and monthly changes; seasonally adjusted):


Industrial output rose by 4.0%, coming off last month’s 4.3% in log terms, with a pickup in mining helping to offset a pullback in manufacturing and electricity production.

Tuesday, June 10, 2014

Right Conclusion; Wrong Analysis

A commentator sent me this link (excerpt):

How our Winner Take-All Market Deepen Income Inequality while Decaying Our Education System?

Are we better off than we were 10 years ago? I am sure the majority of us will answer with a resounding ‘NO’. Why is this so? There are many reasons that contributed to this, among them are the following.

  • Increased in income inequality
  • Rising costs of living
  • Income not catching up with inflation
  • Longer working hours and less recreation
  • More indebted than before
  • Less opportunity for self-improvement due to time constraint
  • Society is getting more competitive
  • Crime on the rise
Wonder what caused the above? Listed above are the consequences or the price of economic development that are caused by forces that shaped our social economic fabric. We are living in a world where resources such as land, labor and natural resources are in limited supply or scarce. To maximize the usage we not only have to limit wastages but also need to efficiently allocate these scarce resources to the most important part of the economy.

April 2014 External Trade: Up, Up and Away

I’m not going to tire of saying this – the first few months of last year were so awful that all the numbers coming in this year look great by comparison (log annual and monthly changes; seasonally adjusted):


To be fair, part of the reason is that we are indeed seeing real growth, it’s just that it’s not as strong as the yearly growth numbers seem to imply.

Thursday, June 5, 2014

Tax Compliance: Giving Voice, By Giving Choice

Here’s a tip for Inland Revenue – even giving the illusion of choice will reduce tax avoidance and under-declaration of income (excerpt):

Can giving taxpayers a voice increase tax compliance?
Cait Lamberton, Jan-Emmanuel De Neve, Michael I. Norton

Non-compliance with tax costs governments billions, in part because people really don't like paying taxes. This column reports two experiments designed to see if it's possible to make people hate taxes a little less and raise tax compliance. The results indicate that if people are given the opportunity to express a preference (though not actually make the final decisions) on how their taxes are spent, they are much less likely to cheat….

Monday, June 2, 2014

Reinhart and Rogoff Were Wrong

I’ve always been somewhat leery of the notion that high public debt results in slower economic growth. Piketty’s “Capital in the Twenty-First Century” for example (which I’m in the process of reading), examines the historical record of the UK and France and generally finds this not to be true.

Here’s a more generalised result, using the very same data from the seminal Reinhart and Rogoff study that sparked off austerity-mania in the Western world (excerpt; emphasis added):

Determinants of the growth and sovereign debt correlation
Matthijs Lof, Tuomas Malinen

Since the outbreak of the financial crisis, the relationship between debt and growth has been an issue of heated debate among both academics and policymakers. Reinhart and Rogoff (2010a) showed a negative correlation between sovereign debt and economic growth, and argued that countries could be confronted with a considerable decline in their growth potential after the debt-to-GDP ratio exceeds 90%.

While the research by Reinhart and Rogoff had a substantial influence in policy circles, their results are controversial….

Friday, May 30, 2014

World Cup Prediction: Brazil (natch)

These guys have waaaay too much time on their hands (excerpt):

World Cup 2014 Special
Brazil set to succeed on the pitch …but it’s an uphill battle for the economy

While there is not much to cheer about regarding the Brazilian economy, we believe the Brazilian population will at least be able to cheer about its national team’s result at the upcoming football World Cup.

In this document, we present our forecasts not only for the Brazilian economy but also for the outcome of the World Cup. We have estimated an econometric model for the World Cup result based on data from the five previous World Cup tournaments and used the model parameters to simulate the upcoming World Cup and the results are clear to us.

In our view, home advantage, a large population and a strong football tradition will ensure that Brazil wins the World Cup. We believe Argentina will be in the running but will lose to Brazil in the final. Germany will take third place.

However, chance is a major factor in football, so nothing is given – not even for Brazil. To describe these factors we have used so-called Monte Carlo simulations to estimate the probability of different teams winning the World Cup. Brazil is strong favourite, with our simulation indicating a 45% chance that Brazil will win the tournament. We calculate the runners up are much less likely to win, with Argentina having an 8.1% chance, Germany 7.6% and France 6.7%.

[H/T Lars Christensen]

Growth And Taxation

Growth and taxation – it seems like a contradiction in terms. Taxation tends to create economic distortions, affecting decisions on consumption, investment and savings. This happens because taxes change the incentives facing economic agents – a consumption tax reduces the propensity to consume, an income tax reduces the incentive to work and invest. Subsidies work in the exact opposite way.

But there are forms of taxation that can promote growth – or at the very least, be less distortionary. That’s a point that’s almost totally absent from the debate surrounding the implementation of GST in Malaysia:

  1. As a value-added tax, it’s far less distortionary than the SST system that’s currently in place; and
  2. Because just like in any other country where a VAT has been implemented, exports will be zero-rated. As a result, GST will also actually give a (minor) fillip to growth relative to the SST system

Wednesday, May 28, 2014

March 2014 Employment

If there’s anything that will tell you the economy isn’t quite as good as the 1Q2014 numbers indicate, it should be employment (‘000):


Not to put too fine a point to it, job creation in 1Q2014 sucked – in fact, it’s been pretty poor since the middle of last year.

Monday, May 26, 2014

Penalty Kicks and Economic Policy

There’s a link? There is a metaphorical one, according to Stephen Gordon (excerpt):

Action bias and the political economy of penalty kicks

Most penalty kicks result in a goal; this is why soccer players go to such comical lengths to draw a penalty…The usual strategy is to try and guess where the ball will be kicked and to jump in that direction. Surprisingly enough, the tactic of not jumping - that is, guessing that the ball will be kicked down the middle - is under-utilised.

An interesting study from a group of Israeli researchers (Bar-Eli et al, 2007) offers a plausible explanation: 'action bias'…

Friday, May 23, 2014

April 2014 Consumer Prices

The CPI numbers for April were released late on Wednesday, and they point to benign inflationary pressure (log annual and monthly changes; 2000=100):


The annual change is still high, but the monthly growth numbers show the impact of price hikes of subsidised goods has dissipated away, showing little in the way of any pass-through into other prices.

Tuesday, May 20, 2014

Household Debt: One Small Victory At A Time

In both financial and economic theory, debt repayment is most effective when the highest cost debt is tackled first, i.e. pay off the debt that has the highest interest rate. That’s the rational solution, as it reduces the burden of debt the fastest.

But this abstracts from the very human desire and motivation to reduce debt. From that perspective, reducing the smallest debt burdens is actually the most effective strategy. And here’s the proof (abstract):

Small Victories: Creating Intrinsic Motivation in Savings and Debt Reduction
Alexander L. Brown, Joanna N. Lahey

Saving when faced with the immediate option to spend is an unpleasant but not conceptually difficult task. One popular approach contradicts traditional economic theory by suggesting that people in debt should pay off their debts from smallest size to largest regardless of interest rate, to realize quick motivational gains from eliminating debts. We more broadly define this idea as “small victories” and discuss, model, and empirically examine alternative behavioral theories that might explain it. Using a laboratory computer task, we test the validity of these predictions by breaking down this approach into component parts and examining their efficacy. Consistent with the idea of small victories, we find that when a mildly unpleasant task is broken down into parts of unequal size, subjects complete these parts faster when they are arranged in ascending order (i.e, from smallest to largest) rather than descending order (i.e., from largest to smallest). Yet when subjects are given the choice over three different orderings, subjects choose the ascending ordering least often. Given the magnitude of our results, we briefly discuss the possible efficacy of these alternative methods in actual debt repayment scenarios.

Quick wins, low-hanging fruit, small victories – whatever way you want to call it, making progress however small is a necessary part of any process. At the risk of over-generalising, breaking up difficult tasks into small, achievable segments increases the rate of success. Taking it even further, any success however minor should be celebrated, because these are just milestones to greater achievement.

The human mind works in wonderfully strange and mysterious ways.

Technical Notes

Alexander L. Brown, Joanna N. Lahey, "Small Victories: Creating Intrinsic Motivation in Savings and Debt Reduction", NBER Working Paper No. 20125, May 2014

Monday, May 19, 2014

My Rant Of The Day: Misusing The Word “Print”

The last few months I’ve been forced into reading a lot of analyst reports. While for the most part it’s been worthwhile in terms of gauging what other people are thinking, there’s something about these reports that just bugs the hell out of me.

And that is the use – or rather, misuse – of the word “print”.

This isn’t even a problem just with our local guys either, I see the word often used by foreign bank and broker analysts as well. As in, “the latest GDP print” or “compared to the 4Q2013 BOP print”.

From the context, these guys are using the word “print” as synonymous with “record” or “report”. But in English, “print” doesn’t carry the same meaning, connotation or usage as the latter two words. To me, a “print” is a reproduction of something, not the thing itself.

So when people refer to a report as a “print”, I have visions of them queuing up to get reports as they’re published, and fastidiously making reference to their own individual copies while writing out their commentaries. Since this isn’t what anybody actually does, referring to economic data as coming from a “print” makes me cringe. It’s as if the form of a report (a publication) is more important than the data it conveys (the actual numbers).

Here’s the link to the Merriam-Webster definition, and here’s the link for the Oxford Dictionaries definition.

Nowhere in those definitions is “print” used in a way that could denote a report or the content of a report – only the process by which it is made (verb) or the form it can take (noun). The image that I usually carry in my head, when using “print” as a noun, is the same definition used by New York’s Museum of Modern Art:

“A print is a work of art made up of ink on paper and existing in multiple examples. It is created not by drawing directly on paper , but through an indirect transfer process.”

The stuff I have hanging on my office wall are prints. The data and reports issued by national statistical authorities are NOT prints.

Unless you happen to think these are works of art.

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).

Wednesday, May 14, 2014

March 2014 Industrial Production

The March numbers that came out on Monday didn’t show a full picture of health, but did confirm that 1Q2014 growth is going to be pretty decent (log annual and monthly changes; seasonally adjusted; 2000=100):



The REAL Impact of the ETP: The Recession That Never Was

Following on from the 2013 annual reports and quite apart from any benefits that might accrue over the next few years, this is what the ETP has done for Malaysia (RM millions and log annual changes; 2005 prices):



Monday, May 12, 2014

BNM Watch: OPR Unchanged, But Not For Long

Last week’s Monetary Policy Committee statement made very clear that policy tightening of some sort or another is on the way (excerpt; emphasis added):

Monetary Policy Statement

At the Monetary Policy Committee (MPC) meeting today, Bank Negara Malaysia decided to maintain the Overnight Policy Rate (OPR) at 3.00 percent.

Global growth moderated in the first quarter with several key economies affected by weather-related and policy-induced factors. Looking ahead, the global economy is expected to remain on a path of gradual recovery….

…For Malaysia, latest indicators suggest that the domestic economy continued to register favourable performance in the first quarter. Going forward, growth will remain anchored by domestic demand with additional support from the improved external environment….

…Inflation has stabilised in recent months amid the more favourable weather conditions and as the impact of the price adjustments for utilities and energy moderate. Going forward, inflation is, however, expected to remain above its long-run average due to the higher domestic cost factors.

Amid the firm growth prospects and inflation remaining above its long-run average, there are signs of the continued build-up of financial imbalances. While the macro and micro prudential measures have had a moderating impact on the growth of household indebtedness, the current monetary and financial conditions could lead to a broader build up in economic and financial imbalances. Going forward, the degree of monetary accommodation may need to be adjusted to ensure that the risks arising from the accumulation of these imbalances would not undermine the growth prospects of the Malaysian economy.

The key paragraph is the last one, with its ominous warning of “degree of monetary accommodation may need to be adjusted”. That’s about as clear a signal as can be given.

Thursday, May 8, 2014

March 2014 External Trade

Yesterday’s trade report was a mix of good and bad (log annual and monthly changes; seasonally adjusted):


Export growth was pretty good, at 8.4% in log terms on an annual basis. On a monthly comparison however, exports dropped 4.7%. Import growth was near zero on a yearly basis, and contracted on a monthly basis.

Wednesday, May 7, 2014

March 2014 Monetary Conditions

Monetary conditions in March appear to have tightened (log annual and monthly changes; seasonally adjusted):


M2 growth fell to 6.0% yoy, which is more than a little worrying – as a rule of thumb, you want to see money growth approximate real growth plus inflation. Having said that, real indicators have been pretty strong, and loan applications (demand) and especially approvals (supply) look decent; these imply that much of the drop off in money growth is coming from other components of M2.

Monday, April 28, 2014

February 2014 Employment

The February numbers aren’t appealing: employment growth is crashing (‘000):


Job creation has been negative in four out of the last five months – a cumulative reduction of about 400k jobs. That’s a serious divergence between the labour force numbers, and the growth of the economy as a whole.

Friday, April 25, 2014

Natural Resources and the Terms of Trade

I stumbled on this while looking for something else – the Singer-Prebisch thesis. What Singer and Prebisch found (separately and concurrently) is that the terms of trade between primary commodities and manufactures was declining over time. If true, this empirical observation has profound implications for economic development.

Let me explain that in English.

The terms of trade, put simply, is the amount of imports you can “buy” with one unit of exports. In other words, it measures the purchasing power of exports.

If your terms of trade are declining over time, you have to keep producing more and more just to be able to afford the same quantity and value of imports. But commodity production is subject to inelastic supply – it’s extremely difficult to continually ramp up production.

Thursday, April 17, 2014

Spare The Float, Ruin The Economy

I respect TDM a great deal for many of things he’s done. His macro policy recommendations need a lot of work though (excerpt):

Peg ringgit to create environment of certainty in market -- Dr M

KUALA LUMPUR: The ringgit should be pegged at RM2.80 to the US dollar in order to create an environment of certainty in the market, said former Prime Minister Tun Dr Mahathir Mohamad.

Dr Mahathir said the peg would also help businesses manage the rising costs of doing business.

"If the exchange rate is fixed at one rate, it will help businesses plan their budgets for the year, knowing exactly that there the value of the ringgit will not change," he said….

March 2014 Consumer Prices

March is the first month that we can see the impact on inflation from all those subsidy cuts and rate hikes in the last six months. It’s also the first month where we’re completely clear from the seasonal effect of CNY. The prognosis – nuthin’ much going on (log annual and monthly changes; 2000=100):


While the headline rate is still elevated on a y-o-y basis, price increases have fallen back to “normal” levels. Core inflation is a little higher than the average for the last 5 years, but food and energy prices barely budged.

Tuesday, April 15, 2014

Prices Versus Rationing

Give credit where its due. Good policy is good policy, never mind the politics or election promises (excerpt):

Penang to go ahead with water tariff hike despite criticism

The Penang government is standing by its decision to increase water tariffs despite coming under fire over the move.

Chief Minister Lim Guan Eng (pic) said the state is willing to bite the bullet and raise water tariffs in view of climate change and the worsening drought.

He assured that Penang would still enjoy the lowest water tariffs in the country.

"We are facing a climate crisis and water consumption in Penang is the highest in the nation at 311 litres per capita per day. The national average is only 212 litres.

"Such high water consumption is not sustainable and if left unchecked, Penang will have no choice but to resort to water rationing in the future.

"We have to be a responsible government. We will bite the bullet and do this (raise the tariffs). We are willing to face the criticism," he told reporters today.

Monday, April 14, 2014

February 2014 Industrial Production

Last week’s IPI numbers gave me a headache – it’s part of another rebasing exercise, this time to 2010, which required a bit of work to splice – but things are looking up (log annual and monthly changes; seasonally adjusted; 2000=100):



Wednesday, April 9, 2014

February 2014 Monetary Conditions

I was really concerned when I first heard the news last week. After having a peek at the data, I’m don’t feel much better (log annual and monthly changes):


M2 growth is pretty weak at a tad over 6%, even after taking into account CNY effects. Overall, money supply growth has been below 8% for the last eight months. That’s uncomfortably low – lower than I’d like it to be. It implies either slower growth, or disinflationary pressure.

Monday, April 7, 2014

The Broadening Scope Of Economic Jobs

It used to be that being an economist, you’d end up working for the government, in academia, or in the financial sector. Nowadays, the market for an economist is much, much wider.

Take for example the following:

  1. Google and Youtube are looking for quants, to help analyse “large, complex datasets”;
  2. Amazon is looking for economists to, “apply the frontier of economic thinking to market design, pricing, forecasting, online advertising and other areas.”
  3. Twitter is looking for help to, “analyze data and answer complex questions related to users, advertisers, and revenue.”
  4. Qualcomm, who’s processors are at the heart of many smartphones today, are looking for someone to join their intellectual property team, to help advise on IP policy issues.

It’s a much wider job market than it used to be, and there’s never been a better time to be armed with an economics degree.

However, there are a couple of common threads running through all these “uncommon” jobs – a statistics/econometrics background is absolutely required, and a Masters degree is the minimum entry level qualification (PhD preferred).

Time to start hitting those books again, guys and gals.

Tuesday, April 1, 2014

Structural Break In Monetary And Financial Data

BNM is making my life, and the lives of every economist in town, a bit more complicated (excerpt, emphasis added):

Adoption of International Financial Reporting Standards for monetary and banking data in the Monthly Statistical Bulletin (Latest Updates: 28 February 2014)

Bank Negara Malaysia is pleased to inform that starting with the December 2013 issue of the Monthly Statistical Bulletin (MSB), the set of Monetary and Banking data pertaining to the balance sheets of financial institutions (excluding tables related to loans/financing) has been revised from 2007 onwards….

...Nevertheless, users should recognise that there is a break in the historical trend between December 2012 and January 2013, especially when studying components at a more granular level.

For Monetary Aggregates (Tables 1.3, 1.3.1 and 1.3.2), data items where possible, have been aligned to meet the existing conceptual definitions. Starting January 2014, the compilation uses data collected based on the new taxonomy, which will result in a break in the historical series. In order to facilitate trend analysis, a one year back series data consistent with January 2014 has been published in the MSB.

The data revisions are all to the good, especially since it will help with cross-country comparisons.

but some of these changes will give me big headaches, especially the change in reporting from a gross to a net basis for bank balance sheets. It looks minor at a 2%-3%, but you’re fastidious about the data you use, stuff like this can drive you up the wall. There’s a half percent difference in monetary aggregates (between RM4-9b) between the old series and the new one as well. No wonder the reported growth rates looked a bit funny this month.

Oh well, there’s no stopping progress…

Monday, March 31, 2014

5 Years On

I wasn’t paying attention last month and completely forgotten about it, but this blog hit its 5th anniversary on the 3rd of February, 2014.

Seems like I just started out yesterday, but its been a heck of a journey – personally, professionally and intellectually. Reading some of my old posts now, I can see many of my mistakes, but I also see just how much I’ve grown and matured through this process. It’s been an immensely rewarding and enriching experience.

Moreso since, based on my stat counters, the blog also hit 1 million page views some time in January, and over 600,000 visitors. Those are numbers beyond believable, which I never even looked for 5 years ago when this site was started as no more than a personal project to stay connected with my ex-colleagues.

Somehow it grew, and through it I’ve connected with a larger world, a larger Malaysia, than I’d ever thought to see. It’s brought me both friends and enemies, agreements and arguments, and I cherish all alike.

So from the bottom of my heart, to all my readers and commentators, and to my wife who has always encouraged my sometimes crazy mania for blogging, thank you. This site would be nothing without you…and neither would I.

Regulation And Ratings

There’s a fascinating new working paper at the NBER that examines how the confluence of ratings and regulation conspired to help create the 2008-2009 global financial crisis (abstract):

Rating Agencies
Harold Cole, Thomas F. Cooley

For decades credit rating agencies were viewed as trusted arbiters of creditworthiness and their ratings as important tools for managing risk. The common narrative is that the value of ratings was compromised by the evolution of the industry to a form where issuers pay for ratings. In this paper we show how credit ratings have value in equilibrium and how reputation insures that, in equilibrium, ratings will reflect sound assessments of credit worthiness. There will always be an information distortion because of the fact that purchasers of ratings need not reveal them. We argue that regulatory reliance on ratings and the increasing importance of risk-weighted capital in prudential regulation have more likely contributed to distorted ratings than the matter of who pays for them. In this respect, much of the regulatory obsession with the conflict created by issuers paying for ratings is a distraction.

Skipping over the math, what Cole & Cooley observe is that credit ratings and rating agencies continue to function pretty well, even under the potential conflict of interest arising from the “issuers pay” model, at least for “vanilla” credit securities.

Thursday, March 27, 2014

Perceptions of Inflation

Pemandu serves up some thoughts on the CPI from the Ministry of Domestic Trade, Co-operatives and Consumerism (now isn’t that a mouthful?) (excerpt):

Food Price Increases Not as Dramatic as Public Perceives It

Many Malaysians have expressed concern over the increase in price of items in the food basket in Malaysia, seeing it as a knock on effect of the reduction of fuel subsidies. However, the reality is that these are part of a global trend where the prices of goods and services are on the rise.

Tuesday, March 25, 2014

February 2014 Consumer Price Index

Question: Has there been an increase in inflationary pressure in the last few months?

Question: Has weakness in the Ringgit contributed to domestic inflation in Malaysia?

I think the answers might surprise a few people, for so far the answer to the first is no (at least, not yet), and the answer to the second is both yes and no.

Let me explain.

Thursday, March 20, 2014

BNM Annual Report 2013

I think I’ve finally settled down enough to start writing for the blog again, but posts will be a little sporadic still until I feel like I’ve got all the pieces of my new job in place. That might still take some time, so I’ll be focusing less on day-to-day data releases, and more on big picture stuff for now. I’ll probably go back to more regular posting in a few months or so.

In the meantime, Bank Negara released their annual report yesterday. There’s no big surprises in terms of their view on the economic outlook – better recovery in advanced economies (leading to higher export demand), and moderating growth in emerging markets. They’re less pessimistic on growth prospects for the latter than many others are. The Governor for instance was quite emphatic that China will be able to overcome their structural and financial imbalance issues, and avoid a hard landing.

Monday, February 24, 2014

The Meaning Of Zero Rated

I’m still snowed under with work commitments, so the blog will be on temporary hiatus until I can get a handle on my new job responsibilities.

Nevertheless, I can’t resist commenting on this (excerpt, emphasis added):

Putrajaya confusing Malaysians about GST, says NGO

Second Finance Minister Datuk Seri Ahmad Husni Mohamad Hanadzlah’s recent explanation of the goods and services tax (GST) is illogical and only confuses the Malaysians, a civil society group said.

The Oppressed People's Network (Jerit) refuted Husni’s remarks that those earning RM2,000 a month would only pay RM15.06 of tax because of the GST.

“The finance minister appears to try to confuse the people with his statement,” Jerit Coordinator E. Parames said in a statement yesterday....

Tuesday, February 11, 2014

4Q2013 Construction and Distributive Trade

The prevailing narrative I see in the media these days – both mainstream and online – is that the economy is in trouble, and we’re doomed unless the government does something (alternatively: we’re doomed unless we change the government).

I don’t know; the numbers are painting an entirely different picture. The angst is partly a function of price increases, which have squeezed wallets across the country. It’s also I suppose a function of which sector you’re working in and whether labour is sharing in the money coming in.

December 2013 Industrial Production

Yesterday’s IPI report confirms the acceleration in economic growth at the end of last year (log annual and monthly changes; seasonally adjusted):



Monday, February 10, 2014

December 2013 External Trade

Things are seriously picking up (log annual and monthly changes; seasonally adjusted):


In log terms, seasonally adjusted exports are up 13.9%, while imports rose 13.5%. The monthly growth figures aren’t quite so positive, but the fact that December would be the sixth straight month of expansion says something.

Friday, February 7, 2014

Aiming For High Wages

There are going to be some scheduling and other changes to my blog posts from now on, as I’m inordinately busy and won’t have as much time to post as I used to. Things will be slow for the next few weeks/months until I get a handle on new responsibilities.

In the meantime, via is some info on the highest paying jobs in Malaysia at different levels of the economy. Hint: doing medicine pays off, but you might be surprised at what really pays at the senior level.

Thursday, January 30, 2014

BNM Watch: Like Waiting For Paint To Dry

Surprise, surprise…not (excerpt):

Monetary Policy Statement

At the Monetary Policy Committee (MPC) meeting today, Bank Negara Malaysia decided to maintain the Overnight Policy Rate (OPR) at 3.00 percent….

…In recent weeks, shifts in global liquidity have resulted in increased volatility and uncertainties in the international financial markets….global economic and financial conditions remain vulnerable to shifts in sentiments and heightened volatility in the international financial markets.

Wednesday, January 29, 2014

Inflation At Different Income Levels: Why Can’t We Do This?

Kenya does it; India does it; Singapore does it (warning: pdf link):


Consumer Price Index, July – December 2013

During the second half of 2013, the consumer price index (CPI) for general households rose by 1.9 per cent over the same period in 2012. This increase was lower than the 2.8 per cent recorded in the first half of 2013. A similar trend was observed for CPI excluding imputed rentals on owner-occupied accommodation (OOA), which rose by 1.5 per cent, down from the 2.2 per cent in the first half of 2013.

In terms of the different income groups, the CPI excluding imputed rentals on OOA for the lowest 20% income group rose by 1.1 per cent. This was lower than the increases of 1.4 per cent and 1.8 per cent experienced by the middle 60% and highest 20% income groups respectively.

Tuesday, January 28, 2014

Emerging Markets: No, It Isn’t 1997 Again

It seems to be my day to get beaten to the gun. I was going to write a post on this issue, but Lars got there first (excerpt):

Please don’t fight it – the risk of EM policy mistakes

Emerging Markets are once again back in the headlines in the global financial media – from Turkey to Argentina market volatility has spiked from the beginning of the year….

…Lets take the case of Turkey and lets assume Turkey is operating a pegged exchange rate regime – for example against the US dollar. And lets at the same time note that Turkey presently has a current account deficit of around 7% of GDP. This current account deficit is nearly fully funded by portfolio inflows from abroad – for example foreign investors buying Turkish bonds and equities.

The “Bloated” Malaysian Civil Service

I’ve been meaning to write a post on this subject for a couple of years now, but somehow never got around to it. Now DS Idris Jala has beaten me to the punch (excerpt):

Transforming public service delivery

It’s not bloated and we are looking at ways to improve.

Before I start talking about how we can and are doing things differently in the civil service, let me clear up this common misconception that the civil service is bloated.

Many comparisons have been made with other countries by simply taking the number of people who are termed public servants and comparing them as a proportion of the population. However, the problem is that no account is taken of who are considered to be civil servants.

Friday, January 24, 2014

Jesse Colombo Smackdown Part II

Mr Bubble is at it again, but this time, I’ll leave it to someone more qualified to issue the rebuttal:

Is Singapore Headed to an Iceland Style Meltdown: Part I

The piece by Jesse Colombo asking whether Singapore is headed to an Icelandic style meltdown received a lot of attention but not a lot of analysis. I think it is important to examine not only the factual basis for the arguments put forth but also the bigger picture philosophical framework for predicting financial crises. Today in the first part, I will place the arguments in a type of philosophical framework and the biases we have with regards to economic and financial analysis….

You can read part II here.

For what it’s worth, I’d agree that Singapore’s property markets are frothy, credit is expanding way too fast, and external exposure uncomfortably high. But I’d also agree with Prof Balding – it’s a stretch to say this will presage a meltdown.

I’d be far more concerned about structural issues in Singapore’s economy – the ageing society; the lack of productivity growth that has had to be papered over by immigration; the low provision of public goods; the high inequality of wealth and income. All these are probably more important – and immediate – concerns, than a putative bubble about to burst.

Thursday, January 23, 2014

Working For The Few

Oxfam released a new report in conjunction with the World Economic Forum in Davos:

Working for the Few: Political capture and economic inequality

Almost half of the world’s wealth is now owned by just one percent of the population, and seven out of ten people live in countries where economic inequality has increased in the last 30 years. The World Economic Forum has identified economic inequality as a major risk to human progress, impacting social stability within countries and threatening security on a global scale.

December 2013 Consumer Prices

Consumer prices rose 3.2% in log terms in December (log annual and monthly changes; 2000=100):


Wednesday, January 22, 2014

November 2013 Employment

Based on the latest report from DOS yesterday, the economy lost 24.1k jobs in November (‘000):


However, as I pointed out last month, job losses are fairly typical in October-November, so this is just par for the course. This is confirmed on a seasonally adjusted basis, which shows an increase of 58.9k, i.e. the reduction in the numbers employed was lower than usual.

However, the total labour force didn’t drop as much as last month’s numbers, so the unemployment rate has stayed elevated:


I’m still thinking this is a temporary, seasonal phenomenon, so I’m looking to see the unemployment rate fall back again next month. But if it doesn’t, that might put a damper on all the other positive data that has come out of 4Q2013.

Technical Notes:

November 2013 Employment report from the Department of Statistics (warning: pdf link)

Tuesday, January 21, 2014

Reforming BLR

From a press release by Bank Negara a week ago (excerpt):

Industry Consultative Paper on New Reference Rate Framework for Financial Industry

Bank Negara Malaysia is issuing an industry consultative paper to the financial industry on a new reference rate framework to replace the base lending rate (BLR) quoted by financial institutions in the pricing of retail loans.

Thursday, January 16, 2014

Potential Growth In ASEAN

From the latest round of IMF working papers (abstract):

Potential Growth in Emerging Asia
Rahul Anand ; Kevin C. Cheng ; Sidra Rehman ; Longmei Zhang

Summary: Using three distinct approaches—statistical filtering, production function, and multivariate model— this paper estimates potential growth for China, India, and five ASEAN countries (Indonesia, Malaysia, the Philippines, Thailand, and Vietnam) during 1993–2013. The main findings include: (i) both China and India have recently exhibited a slowdown in potential growth, largely reflecting a decline of total factor productivity (TFP) growth; (ii) by contrast, trend growth for the five ASEAN countries has been rather stable and might even have increased marginally, with the notable exception of Vietnam;(iii) over the longer term, demographic factors will be much more supportive in India and some ASEAN economies than in China, where working-age population should start shrinking, with the overall dependency ratio climbing by the end of this decade. Improving or sustaining potential growth calls for broad structural reforms.

Wednesday, January 15, 2014

4Q2013 Forex Update

[I was supposed to post this last week, but better late than never]

With the new year past, I’ve taken the liberty of updating my proprietary Ringgit trade weighted exchange rate indexes. The Ringgit has taken a hammering in 2013…or has it?

From the MYRUSD perspective, it certainly looks like it (index numbers; monthly averages; 2000=100):


Friday, January 10, 2014

Fact Check: Wages And Inflation

I seem to be taking a lot of pot-shots at Rafizi lately; perhaps its because he makes it so easy (excerpt):

Kadar naik gaji Malaysia 2.6%, Indonesia 10%, dakwa Rafizi

Kadar kenaikan gaji pekerja di negara ini hanya sekitar 2.6% sahaja jika dibandingkan dengan Indonesia yang menerima kenaikan empat kali ganda lebih baik iaitu 10% dalam tempoh lima tahun, dakwa Pengarah Strategi PKR, Rafizi Ramli.

Dalam wawancara eksklusifnya dengan Selangorkini, Rafizi berkata, lebih memburukkan keadaan ialah peningkatan kos sara hidup yang berlaku tidak selaras dengan kadar kenaikan gaji yang perlahan.