APPLES AND ORANGES

Consider this: Malaysia’s economy managed to grow, albeit at a slower pace of 0.1%, in the fourth quarter of 2008 (4Q08) despite major economies including its neighbour experiencing severe contraction – the US contracted by 6.2%, the Euro area shrank 1.5% and Singapore contracted by 16.9%.

It is rather mind-boggling to see such figures, where Malaysia considerably outperformed the other countries during the final quarter of last year. Not that we do not believe that Malaysia is superior to the other three countries as its banking system was untainted by the global financial crisis because it was not exposed to the sub-prime mortgage issue. It is just the extent of the out-performance.

But analysing it further, there is in fact a reason for such an out-performance. It is simply because in this case the apple is not compared with other three apples but rather with three oranges.

Why?

In Malaysia, the gross domestic product (GDP) figures are always released in the form of year-on-year change. The 0.1% growth is arrived at when the real output in 4Q08 is compared against the real output in 4Q07.

However, in the US, Euro area and Singapore, as examples shown above, the figures are based on the percentage difference between the real output in 4Q08 and the real output in 3Q08, seasonally adjusted. For the US and Singapore figures, the figures are annualised.

Hence, while one can compare the performance of the US and Singapore economies when using the above figures, one should not compare them with the figure on the Euro area as it was not annualised and on Malaysia’s economic growth as it was y-o-y and not q-o-q.

For the US economy, the right number to use for comparison to Malaysia’s 0.1% GDP growth in the 4Q08 should be the 0.8% contraction it experienced between the 4Q07 and 4Q08. For the Euro area, it would be its y-o-y contraction of 1.3% in the 4Q08. And for Singapore, the republic’s economic output contracted by 3.7% in the 4Q08, y-o-y.

Hence the right comparison for Malaysia’s 0.1% GDP growth in the 4Q08 should be the contraction of 0.8% in the US, 1.3% in the Euro area and 3.7% in Singapore.



As said earlier, we are not doubtful of the strength of the Malaysian economy, but it is just whether she considerably outperformed the others. If someone wants to compare the 6.2% output contraction in the US, 16.9% in Singapore and 1.5% (not annualised) in Euro area to that in Malaysia, he should calculate Malaysia’s output in the 4Q08 against that in 3Q08. It is also a contraction, by 3.6%, not annualised.

But then, there will be an argument that such a figure may not be adjusted for seasonal factors, such as the number of days in the fourth against the third quarter, the number of public holidays and weekends, and other factors.



Notwithstanding the above argument, and for comparison, Malaysia economy registered growth both y-o-y and q-o-q in 4Q07, that is by 7.3% and 0.8% respectively. Likewise in 4Q06, growth rates were 5.3% and 0.3% respectively for Malaysia. However, one important observation is that in 4Q08, Malaysia economy experienced the first q-o-q contraction in the fourth quarter since 4Q00.

Chart 1: Malaysia Real GDP


Perhaps it is high time for Bank Negara Malaysia to also include quarter-on-quarter performance of the country’s economic output, seasonally adjusted, in its Economic and Financial Development quarterly report. Although the q-o-q figures, yet to be known whether or not they are seasonally adjusted, are available in the statistics table released, most layman investors and traders certainly refer only to the report instead of the tables.

Such an inclusion in the report would certainly allow traders and investors to use the right economic figures when comparing to similar figures of other countries, as well as for investment decision at macro level.

(Note: The 1Q09 GDP numbers for Malaysia are expected to be released not later than 27 May 2009.)

****

Article Contributed By Ameer Ali Mohamed. Ameer is Director, Financial Research of NextVIEW. He has a total of 20 years experience as a corporate journalist, investment analyst and fund manager, including as research head of two stockbroking firms and CEO/CIO of a funds management company.


Republished with permission.
This article was published in the Just Say It column in Shares Investment (Malaysia edition) May 2009. You can get the latest copy of Shares Investment (Malaysia edition) at leading bookstores in Malaysia.