There is this dichotomy between what many people perceive to be the performance of the economy and the numbers that have been generated by Malaysia’s Department of Statistics. Officially, the Malaysian economy grew 4.7% in 2013, down from the 5.6% recorded in 2012. Despite the lower number, GDP growth throughout 2013 accelerated, rising from 4.1% in the first quarter to 5.1% in the last quarter.
These are by no means bad growth figures. Given the slowing growth of the labour force over the decades, Malaysia’s potential headline growth rate has been naturally declining. A growth rate averaging above 5% for the last two years is in fact commendable, especially since Malaysia’s neighbours are doing considerably worse, relatively speaking.
Yet, there remains a startling pessimism regarding the state of the economy, a pessimism that transcends concerns over the cost of living or jobs or income growth. “The economy is bad”, one elder statesman said to me a couple of months ago. In a certain sense he’s wrong, but in a very real sense he’s right.
The economy has grown, and grown in a fairly robust manner. Real GDP growth[1] in Korea, Taiwan, Thailand and Hong Kong all averaged or exceeded 4% between 2001 and 2010 with Singapore averaging above 5.5%; Malaysia meanwhile saw growth around 4.6%. Since then, average growth for the aforementioned economies were 2.9%, 2.5%, 3.2%, 3.1%, and 3.3%. Malaysia by contrast averaged over 5%.
After the initial recovery from the global recession of 2008-2009, global trade growth plateaued. Countries that were most dependent on global trade saw their economic expansion stunted. Yet in the Malaysian case that barely occurred, despite being one of the most highly exposed and open economies in the world. What explains this gravity defying performance?
Whatever one might think of its virtues or faults, credit is due to the government’s Economic Transformation Programme (ETP). By fostering an environment conducive to investment, Malaysia saw a sudden sharp increase in capital investment, both public and private. While the infrastructure projects under the ETP hogged the limelight, private investment increased sharply as well, particularly in 2012. There’s no doubt that the resulting investment boom helped support economic growth even as external demand remained subdued.
Yet this seeming success wasn’t broad-based. Growth was primarily concentrated in construction and its related sectors. While one could argue that investment in infrastructure such as the Mass Rapid Transit project was necessary and long overdue, there was also an accompanying boom in commercial property construction. The manufacturing sector on the other hand suffered from flat exports, while the primary sectors were affected by both slowing demand and softer commodity prices.
So on the one hand the benefits of Malaysia’s recent growth has been narrowly distributed, while on the other, risks to the economy are increased from potential over-investment in a single sub-sector.
Nevertheless this is not unusual for Malaysia. Growth in the 1990s was focused in manufacturing and construction, with the primary sector declining. Similarly, growth in the 2000s (pre-2008) saw the return of agriculture and mining outshining growth in both manufacturing and construction, as a global commodity price boom helped drive up incomes in those sectors.
The Malaysian economy is thus fairly diversified, with multiple sources of growth. That helps sustain aggregate income growth even if particular sectors are not doing so well. But in turn, that means the distribution of the benefits of that growth can and will be uneven at any given point in time. Over the last few years, construction and real estate have been significant drivers of growth; with the recovery in the US and other advanced economies now taking root, manufacturing looks set to join the party. But the ongoing growth slowdown in China and India has affected demand and prices for primary commodities and things don’t look so cheery for palm oil, and the oil & gas sector.
Perceptions of the overall economy would thus be driven more by personal circumstance than an objective and holistic appraisal. The answer to the question, “How’s the economy doing?” thus really, really depends on who you’re asking, and when.
For the vast majority of Malays, who happen to live in rural or semi-rural kampungs, the economy has not grown all that much, and consequently, they have seen little direct benefit from that growth. Likewise, any expansion and increased profits from petrol and natural gas, impact Putrajaya far more
than the Malaysian States (and their coastal shelves) from which, petrol and natural gas are obtained, as a disproportionate share of the profits from such resources are taken by the Government in Putrajaya, leaving the regions from which such natural resource are obtained, insufficiently monetarily rewarded for their local resources. The rapid decline in primary forest in Sarawak, with the resultant exportation of raw hardwood and finished products, on the other hand, has all but rewarded the local State Government in Sarawak, leaving its Chief Minister, Datuk Taib Mahmud, handsomely rewarded for his state’s timber products.
It is not that Malaysia’ economy has not grown, or performed as anticipated, as much as, it is that Malaysia’s economy does not advantage all participants to the same degree by any means, nor do all benefits that accrue from various sectors of the Malaysian economy, reach most Malaysian citizens either proportionately or even fairly. Thus, quantitative measures of Malaysia’s economic growth does not accurately reflect the overall quality of economic and social life of the vast majority of Malaysia’s citizens as that economic growth is unevenly distributed and tends to exacerbate, rather than narrow, the income divisions and disparities between the wealthy top tiers and poorer bottom tiers of Malaysia’s citizens.
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Middle income trap:
1981
Average fresh graduate pay US$470
Average double storey terrace house in Klang Valley(dwelling of choice of middle class) US$60,000/- (127.5 mths pay)
Average 1.5 ltr car – US$3500 (7.5 mths pay)
2013
Average fresh graduate pay US$750
Average double storey terrace house in Klang Valley – US$300,000/- (400 mths pay)
Average 1.5 ltr car – US$24200/- (32 mths pay)
How is the economy doing? It does not depend on who you ask, it depends on how you measure. For me, it is purchasing power parity. This reflects on your quality of live and standard of living!
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I did not read this article beyond the second paragraph because it is waste of my time, written by your typical economist who measure growth by using economic indicator(s) that mean nothing to any real person. Even if a country achieved high GDP, does it translate into even distribution of wealth for all its citizens? What is so violent for me, and I am sure to most of you, is that economists, politicians, and supra-national institutions (like the IMF, WB, etc, and of course business institutions have appropriated indicators of this and that to make their arguments. Isn’t it time to question, not only the validity of these indicators that alleged to portray social realities, but also the very notion of indicator itself?
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