THE data on economic and financial developments in the country from April to June have once again surprised the market.
Regardless of how you want to interpret it, the overall narrative is somewhat straightforward, that the economy is in a stronger position and moving in the right direction.
Economists describe this phenomenon as robust and stable.
Malaysia’s gross domestic product (GDP) has expanded at 5.8 per cent in the second quarter, the best performance since the first quarter of 2015.
It is better than the last quarter of 5.6 per cent, making the first half of the year’s growth at 5.7 per cent, the firmest pace for the first six months of any year since 2014.
From the unsettling aftermath of the 2009 global financial crisis to the sharp drop in crude oil prices; from the United Kingdom’s decision to leave the European Union to the ascendancy of Donald Trump as the 45th United States president; and, from the unleashing of diplomatic crisis in the Gulf region to missile threats from North Korea, the Malaysian economy continues to maintain its resilience, or the ability to withstand difficult situations, which are mostly beyond our control.
But where does this resilience comes from?
Indeed, it is the manifestation of the National Transformation Programme (NTP), which started when Prime Minister Datuk Seri Najib Razak took over the helm in April 2009.
It is a programme, underpinned by various economic frameworks directing towards innovation, knowledge and creativity, which made the economy less vulnerable to external shocks and gave the ability to move forward in a way that is sustainable and
in an orderly manner.
Under NTP, specific policies and programmes are devised specifically to improve our productivity, education system, research and development, market mechanism, human capital development, public finance and, more importantly, preparing the country for future challenges under the 30-year Transformasi Nasional 2050 (TN50) plan from 2020 up until 2050.
TN50 will deal with new issues that do not exist in the past, such as the inevitable “Fourth Industrial Revolution”.
Hence, all these have given confidence to investors to come here not just for short-term investments, but more importantly, a long-term one.
This is also the reason why the country’s economy has always been given a good assessment by many reputable and authoritative international organisations, such as the International Monetary Fund (IMF), the World Bank, credit rating agencies and many other financial and banking institutions.
All these policies and programmes under NTP also give plenty of opportunities for both local and foreign investors, and business communities, to invest, do business and engage in many other economic activities.
And, in the process, they create more jobs, improve income and wages of Malaysians and accelerate public infrastructure projects. Consumers eventually will spend more, which flourishes international trade activities, both through the import and export of goods and services.
Cumulatively, all these activities are captured in one single indicator known as GDP.
And that is why GDP matters most. Despite limitations and criticism, it still hails as the mother of all figures for economists to measure and predict the economy.
Hence, the 5.8 per cent GDP growth rate recorded in the second quarter says a lot about the state of the country’s economy and its prospects in the future.
This is not just a “macro figure”, which has nothing to do with the people on the ground, because it reflects the people’s living standard and their ability to spend. It also mirrors the health of the government’s spending capacity, which is mostly on directly improving people’s welfare, such as building schools, hospitals and roads.
Equally important, GDP also reflects the level of business and investment activities from the private sector, which ultimately create employment, and develop cities and industries. And when industries develop, rapid investment growth will take place, which improves productivity.
As capacity growth improves with higher exports, wages will rise and as imports increase, the people will have more choices of goods and services. And, of course, development of cities will trigger greater urbanisation, which will essentially increase the people’s quality of life.
GDP data also correlates with other major indicators, such as unemployment rate and inflation level. As GDP increases, unemployment tends to go down, and this is also reflected in the report, whereby our unemployment rate has dropped. But inflation has the inclination to move upwards as GDP increases.
However, for the second quarter data, although GDP data improves, the inflation rate remains stable, which explains why our growth rate is seen as sustainable, that is, having a higher GDP with a stable inflation rate and without incurring more debt and deficit levels further.
It is clear that we are on track to achieve the three per cent deficit target this year and the debt-to- GDP ratio is still kept below the self-imposed 55 per cent level.
Even if we look at the level of business and consumer sentiments, through the Business Condition Index and the Consumer Sentiment Index published by the Malaysian Institute of Economic Research, things are noticeably moving in an upward direction.
Before GDP, economists had relied on other indicators to measure and predict the performance of an economy, such as the stock market.
But this was proven inadequate and GDP came into the picture in the 1930s.
However, today, GDP is seen as insufficient as it fails to capture other dimensions of economic performance, such as welfare, happiness, inequality and environmental degradation.
While I believe that we should go beyond GDP, it should not be totally substituted as it can be used to complement other economic indicators.
DR IRWAN SHAH ZAINAL ABIDIN is the director of the Asian Research Institute of Banking and Finance (ARIBF), Universiti Utara Malaysia