A tale of two recoveries: Malaysia vs. Germany
by Rebecca Wilder
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 crossposted with Newsneconomics
***Are Emerging Markets providing the impetus growth for all? I think so.***
Maybe. The problem of course is that countries, companies, and individuals tend to post really neat looking statistics right up to the day that people notice that the end is near and start to bail out. I don’t have the slightest idea what the true state of the Malaysian economy is, but I’d sure like to know how strongly it is coupled to China. Rather closely I suspect.
China’s future? Who knows? There are a lot of stresses and strains showing — mostly thanks to the G7 having driven their economies off a cliff. Maybe the Chinese will ride them out. I hope so. But I don’t think that I’d bet money that I couldn’t afford to lose on it.
Rebecca,
Very nice series of post you have put up. Very informative!! Thanks!
“Are Emerging Markets providing the impetus growth for all? I think so.”
Isn’t this the sort of question that can be narrowed down a bit by looking at gross magnitudes? How much output growth, in absolute ($, for instance) terms, has there been in developing economies? How much elsewhere? Is the former a sufficiently large share of the latter that we would be willing to say one is the “impetus” for the other?
A further question is, what’s “impetus”? Tough to test things that aren’t clearly defined. To get to the point, is this a claim of causation? It looks to be one, but it is not entirely clear.
Rebecca appears to arrive at the same general conclusion expressed by Martin Wolf earlier this week.
Definitely a claim of causation. And this is consistent with VtCodger’s point above: at the latest monthly data point, exports to China are up 64% Yr/Yr, 23%, and 80% to the US, Germany, and Japan, respectively. Exports from Germany to China have been at 20% Yr/Yr or more since August ’09. These massive growth rates are, of course, partly due to base effects – but the trend persists.
And China’s a big story for intra-Asia trade as well. Rebecca
Hi MG, Good to hear from you!
let us put this in the perspective of US numbers.
In the third and fourth quarter real gdp report:
Real final sales of US goods & services rose.
1.9% and 1.5%
real gross domestic purchases of goods and services regardless of where purchased:
3.0% and 5.5%.
This data implies that the US is going straight back to the old ways of buying foreign stuff rather than domestic stuff and a large structural trade deficit.
Is the strong US demand the reason Malaysia had foreign demand growth much stronger than domestic demand? ie, the US foreign leakages our very large and is one reason the
LDC are doing better. This is not to deny that the LDC or BRICs went through the great recession in much better shape than the advanced countries and their stronger trend growth is serving them very well.
but the overall picture for them and us is looking more and more like a replay of the past without the US having some leading sector like housing or technology to drive good growth in the US.
correction — in the line about gross domestic purchases the last word should be
produced, not purchased.
Comparing Malaysia to Germany doesn’t seem too frutiful. Basically nothing similar about the countries at all except they both have human beings. Germany hasn’t driven growth for decades, they don’t consume, they export.
I can’t see why some sections of the US political class are fearful of emerging markets unless they feel there is an element of zero-sum gain in capitalism.
Hi Spencer,
The second set – real gross domestic purchases – includes inventory accumulation. The first set – real final sales – does not. If you ex out the inventory, which is probably coming from Canada and Mexico anyway, you still have a really weak consumer. Consumption growth was a meager 1.7% in Q4 (down from 2.8% in Q3) – and that’s on stimulus galore and seriously low base effects.
The latest two quarters cannot possibly represent “status quo”, in my view.
Rebecca