Thursday, February 25, 2010

A tale of two recoveries: Malaysia vs. Germany

Today, North America saw the Q4 2009 GDP figures for Malaysia and Germany. In my view, the two releases accurately depict the developed vs. developing picture of economic recoveries: one is causing the other.

Malaysia's real GDP, population 29,992,577 in 2008 according to the World Bank, grew 4.5% compared to the same period one year ago. The impetus behind headline number was domestic demand (GDP minus net exports), +3.9% Y/Y and external demand (exports), +7,3%.

The recovery in Malaysia is healthy. Domestic private consumption improved 1.7% Y/Y, while investment surged 8.2% over the same period (up from -7.9% in Q3).

The pace of contraction in German real GDP, population 82,140,043 according to the World Bank, slowed to -1.7% Y/Y from -4.7% Y/Y in Q3. On the surface, the trend is sound: the annual economic deterioration is slowing markedly. But below the hood, the true nature of the beast is present: only external demand and government spending are stabilizing GDP.

The growth rate in domestic demand is essentially moving laterally; it fell to -2.8% Y/Y from -1.6% Y/Y in Q3, and is now essentially unchanged from Q2 (-2.7% Y/Y) . Pockets here and there are improving - the decline in imports and machinery slowed somewhat; spending on machinery jumped 3 points to -18% Y/Y in Q4 (this is not much of an improvement).

Is this a country-level illustration of the world growth schism? Are Emerging Markets providing the impetus growth for all? I think so.

Rebecca Wilder

9 comments:

  1. Those look pretty similar to me, Rebecca. Do you think my http://bit.ly/TreasuryConsumersBillOfRights is economically sound?

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  2. well, you did succeed in making me look up malaysia in the world factbook; here's confirmation of your postualate:
    Asia Leads the Way Out of Recession - WSJ.com
    The global recession was made in America. The recovery is being made in Asia. This week's headlines well illustrate the striking contrasts: Thailand said its economy expanded at a 15.3% annual rate in the fourth quarter, and Taiwan said its grew at an 18% pace. But Germany said its economy didn't grow at all in the quarter, and the only reason it didn't contract was that German industry managed to boost exports to healthier economies. "The slump was very synchronized. The recovery? Increasingly less so," says Olivier Blanchard, chief International Monetary Fund economist. Take a quick tour of the world economic recovery room. First stop is the rich, mature economies—the U.S., Europe and Japan. None are healthy yet...

    http://online.wsj.com/article/SB10001424052748703510204575085280515242598.html?mod=WSJASIA_hps_LEFTTopStoriesWhatsNews

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  3. The really big question is when will demand, beyond that to replenish depreciating equipment or to buy a pair of jeans because it's been two years, kick in? Anecdotal evidence suggests that credit to businesses is still very, very tight in the commercial banking system. Therefore, if you are a small business and want to get a loan in order to expand your business (i.e., investment spending) - then you have to go to the private equity market. I am not familiar with reliable data on private equity flows....

    It's been great having you stop by on News N Econonmics! Rebecca

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  4. HI James, you really produce a lot of commentary/research on the internet - I'm impressed.

    To what do you refer by "similar"? I suspect the charts - they were designed that way (the colors) in order to highlight the differences in growth patterns across the three components. Actually, trade growth hit bottom around the world in the middle (to second half) of 2009 - just when the Chinese saw their bottom in imports....

    Rebecca

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  5. Rebecca, re: "Anecdotal evidence suggests that credit to businesses is still very, very tight in the commercial banking system."

    http://marketwatch666.blogspot.com/2010/02/and-fed-wants-to-tighten-this.html

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  6. Right; but that could be from demand and/or supply factors. What I'm saying is that I have spoken with several people (a small business owner and a lawyer of small business practice specializing in tech) that find plenty of business people that want to borrow in order to grow the business but cannot - no capital to do it.

    I'm still rather optimistic in the resilience of the US, but the data is surely not generally optimistic. It would, however, be interesting to see FDI coming into the US from some of the developing markets.

    Rebecca

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  7. california looks like its trying to sell its office buildings to any takers worldwide...

    http://www.businessweek.com/news/2010-02-26/california-may-raise-2-billion-in-real-estate-sale-update1-.html

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  8. Thanks! I mean, the trajectories are similar but since Malaysia is in the developing world and Germany is already saturated with industrialization, it makes sense to me that Malaysia has greater GDP and domestic demand growth. This great TED talk by Hans Rosling http://www.youtube.com/watch?v=fiK5-oAaeUs has the perspective on the different per-capita GDP growth for the larger developing and developed (Japan) countries in the region.

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  9. However, in the interest of accuracy, 15:25 through 15:27 of http://www.youtube.com/watch?v=fiK5-oAaeUs shows a likely conservative error of prediction, and Dr. Rosling's reason for making it. I think India and China are more likely to come into equilibrium with the developed world closer to 2035 than 2048. Speaking of things that far out, did I mention that http://bit.ly/30in2020 "with or without legislation" is in the same extrapolation path as http://bit.ly/100in2030 -- the investments from flood insurance must be kicking in.

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