Jun 2, 2009

TECHNICAL RECESSION?




TECHNICAL RECESSION?

The Malaysian Government released the first quarter GDP (Gross Domestic Product) result for 2009 which showed a worst than expected decline of -6.2% forcing the Central Bank to again revised its outlook for the year to a negative growth of between -4 to -5%.

"The revision is due to very weak external demand as well as falling private sector investment and FDI (foreign direct investment) flows," says the Prime Minister.

The condition of the external environment was "far worse than expected," he added. The Government had earlier estimated GDP to grow at 1% or to contract up to 1%.

"Although the fourth quarter is likely to be positive, the overall growth for the year is still negative because the first quarter is negative and the expected negative growth in the second and third quarters," he told a media briefing at his office here.

The Prime Minister had also said that two quarters of negative growth would translate into a technical recession. And it was also reported by Bernama (National News Agency) that the PM says that we are now in a technical recession.

Ok I am lost here.. Can you guys help me to interpret this statement on the technical recession as we don’t yet have two quarters of negative growth (the gdp quarterly table for 2008 as above)?

My interpretation of his statement is that we are now in a technical recession but is short of a real recession, is that what the PM is saying?

The general consensus among economist in the definition of an economic recession is two consecutive quarters or six months of GDP contraction or decline (be it negative or otherwise). And with this definition Malaysia has long been in a recession since 2008 as you can see from the table above that every quarter in 2008 has been declining.

The Malaysian government has not yet declared an official recession and has denied on many occasion by proclaiming that the country could avoid a recession.

Earlier Post on Recession HERE.
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