Household incomes continue to soar?

I read with amazement the following article from Bernama:

"Household Income Continues to Soar on Economic Transformation".

"The current average monthly household income of Malaysians at about RM5,000 compared to RM4,025 in 2009"

This simple statement begs a few remarks:

[1] 2008/2009 was the worst global recession of the last 50 years, to take 2009 as the starting point for a comparison is rather tricky; at the very least it should have been noted that 2009 was an exceptional year, to put things in the right perspective.

[2] The average monthly household income does not mean much for the average person on the street. Malaysia has one of the worst GINI scores in the world, this index measures the degree of inequality in the distribution of family income in a country. A much better measure would have been to divide the population in brackets and to show how much for instance the people earning the lowest 20% wages have benefitted.

[3] An increase in income is only "real" if accompanied by low inflation. The Department of Statistics claims that the inflation is indeed very low (between 1% and 2% the last year), see for instance this graph. I don't believe those low numbers at all, when I left Malaysia in 2010 almost all prices that I could come up with had roughly doubled in the last say 10 years, not exactly an indication of low inflation (I have to admit that I compared prices in KL, in the rural areas it might have been different).

Interestingly, the Bernama article seems to agree that the official number is wrong:

• "However, he said the government should place greater emphasis and take measures to reduce inflation rates in the two states, which were escalating due to indiscriminate hikes in prices of goods by certain parties."
• "Universiti Sains Malaysia, School of Social Sciences, associate professor of criminology Dr P. Sundramoorthy said, all the government initiatives and various financial support were timely and relevant to ease the burden of the rising cost of living."

But if the real inflation rate is indeed much higher than the reported one (and I think everybody will agree with that), then the real GDP growth (which is the GDP growth corrected for inflation) is much lower than reported.

I wrote before about Malaysia's economic growth, and made some critical comments.

I like quite a few aspects from the Economic Transformation Program and in general I am positive about their achievements, but some of the claims they make are really too much. By giving a more balanced picture their credibility would increase.

Economy grew 5.2%, some critical comments

Malaysia's GDP grew 5.2% yoy in Q3

Malaysia's economy grew at an annualised pace of 5.2 per cent in the third quarter, the central bank said on Friday, as strong domestic demand compensated for a weak export sector.

The third-quarter growth beat economists' expectations of a 4.8 percent expansion.

"Both private and public sector investment was strongly robust during the quarter. We would envisage that this will continue," Bank Negara Governor Zeti Akhtar Aziz told a news conference.

With exports faltering, much of Malaysia's growth has been driven by strong domestic demand and government spending on infrastructure projects, such as a new mass transit system for the capital Kuala Lumpur, and Iskandar, a big industrial zone near Singapore.

Prime Minister Najib Razak must call an election by April next year and is expected to stress Malaysia's robust growth as a key part of his campaign.


Above news is from Reuters on TodayOnline's website. It can't get much better, especially with the elections around the corner, or not?

However, I would like to make some critical comments:

• GDP is corrected for inflation, if inflation is understated (which, I think, is indeed the case like most countries in the world), then GDP is overstated.
• The GDP number is for the whole country, since Malaysia's population is growing fast, per capita the effect is much less.
• Malaysia has a bad GINI score, meaning that the income is very unevenly spread. It is therefore likely that lots of people do not benefit from the growth of the economy to the same degree.
• Malaysia recently went from being an oil exporter to an oil importer, this will have a clear effect in the future since oil production will further slowdown and consumption will rise.
• Huge acreage of jungle has been logged and converted to plantation land. This will give a boost to the economy, but can only be done one-time, after that the economic output of the land fluctuates with the prices of the commodity.
• And finally the country has piled up about RM 500 billion in debt (RM 100,000 for each family of 6) in an attempt to break the world record of budget deficits in a row. Surely that must have benefitted the economy, but again, this is highly unsustainable in the future. 

It would be interesting to know how much the last three factors have contributed to the GDP growth in the last 10 and what the negative effect will be in the coming 10 years.

For those people who have a problem visualizing 1 Trillion (1,000 Billion) in RM 100 notes:

 

The national debt is not yet there, but Malaysia is about half way through and if nothing changes surely 1 Trillion will be reached in the not so far future.