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.

November 2013 Industrial Production

Yesterday’s industrial production numbers paint a picture of returning growth (log annual and monthly changes; seasonally adjusted):



Thursday, January 9, 2014

November 2013 External Trade

If trade growth keeps at this pace, I’d be pretty happy (log annual and monthly changes; seasonally adjusted):


Tuesday, January 7, 2014

Household Responses To Changes In Income

This is technical, but very useful for those of us having to analyse the Malaysian economy (abstract):

The Marginal Propensity to Consume across Household Income Groups
Dhruva Murugasu, Ang Jian Wei, Tng Boon Hwa

Understanding heterogeneity in the way households respond to income changes is crucial for policymaking, as shocks in the economy often affect specific groups of households differently. Using data from the Household Expenditure Survey (HES), this paper estimates the marginal propensity to consume (MPC) out of disposable income for Malaysian households and examines how the propensities differ across income brackets. We find evidence that the MPC out of disposable income for lower income households is higher than that for higher income households. The MPCs vary from 0.81 for those earning below RM1,000 to 0.25 for those earning above RM10,000. These MPCs allow policymakers in Malaysia to estimate more precisely the aggregate consumption effects of income shocks that affect households of specific income groups.

For those not familiar with the terminology, the MPC is basically a ratio of how much is spent from an extra Ringgit of income. For instance, as quoted above, 81% of an additional Ringgit of income is spent for households earning below RM1,000 (full results are available on page 11). Note that this is the marginal propensity to consume, not the average, which would be considerably higher.

In any case, props to BNM for publishing, and can we have more papers like this please?

Technical Notes:

Dhruva Murugasu, Ang Jian Wei, Tng Boon Hwa, "The Marginal Propensity to Consume across Household Income Groups", Bank Negara Malaysia Working Paper Series WP2/2013, December 2013 (warning: pdf link)

Universal Pre-school: Worth Fighting For

There’s an emerging global consensus and expanding research literature that very early education matters, and is effective in determining life outcomes (abstract):

The Impacts of Expanding Access to High-Quality Preschool Education
Elizabeth U. Cascio, Diane Whitmore Schanzenbach

President Obama’s “Preschool for All” initiative calls for dramatic increases in the number of 4 year olds enrolled in public preschool programs and in the quality of these programs nationwide. The proposed program shares many characteristics with the universal preschools that have been offered in Georgia and Oklahoma since the 1990s. This study draws together data from multiple sources to estimate the impacts of these “model” state programs on preschool enrollment and a broad set of family and child outcomes. We find that the state programs have increased the preschool enrollment rates of children from lower- and higher-income families alike. For lower-income families, our findings also suggest that the programs have increased the amount of time mothers and children spend together on activities such as reading, the chances that mothers work, and children’s test performance as late as eighth grade. For higher-income families, however, we find that the programs have shifted children from private to public preschools, resulting in less of an impact on overall enrollment but a reduction in childcare expenses, and have had no positive effect on children’s later test scores.

Speaks for itself, I think.

The important point is this: over the long term, reducing income and wealth inequality depends on education. Meritocracy is only a viable strategy when everyone starts off on the same footing. But given that higher income families have a higher tendency to put their children through pre-school, that gives those children a head start which lasts into their teens and has ramifications for secondary and tertiary education.

So unless we move towards universal pre-school education, we’re handicapping children from lower and middle income families right at the get-go, and perpetuating an aristocracy of wealth.

Technical Notes

Elizabeth U. Cascio, Diane Whitmore Schanzenbach, “The Impacts of Expanding Access to High-Quality Preschool Education”,  NBER Working Paper No. 19735, December 2013

Monday, January 6, 2014

Estimating Costs Of Global Fuel Subsidies

There are costs, and then there are costs (abstract):

The Economic Cost of Global Fuel Subsidies
Lucas W. Davis

By 2015, global oil consumption will reach 90 million barrels per day. In part, this high level of consumption reflects the fact that many countries provide subsidies for gasoline and diesel. This paper examines global fuel subsidies using the latest available data from the World Bank, finding that road-sector subsidies for gasoline and diesel totaled $110 billion in 2012. Pricing fuels below cost is inefficient because it leads to overconsumption. Under baseline assumptions about supply and demand elasticities, the total annual deadweight loss worldwide is $44 billion. Incorporating external costs increases the economic costs substantially.

Friday, January 3, 2014

November 2013 Monetary Conditions

Happy New Year!

I’ve taken a break from writing about Malaysia’s monetary environment for a few months now, as it was getting boring and a bit too much like work. But a lot has happened in the last couple of months, and things are getting interesting again.

Interest rates have taken a roller coaster ride since April 2013, when the rumours about the Federal Reserve planning a pullback in its QEIII program started circulating. Speculation has now turned to reality, though since the formal announcement occurred in mid-December, we won’t see the full impact until the December figures are in at the end of this month.