Malaysia & Spore's GDP Move In Step?

In the last three years, Malaysia's quarterly real GDP growth has become more correlated (move in tandem) with Spore's real GDP growth. This is because both are highly export-oriented and the global financial meltdown of 2008 basically pulled down their economies simultaneously.

What is also interesting is that in terms of standard deviations, Spore's economy is 3.7 times more volatile than Msia's economy. On an annual basis, Spore's economy is twice as volatile as Msia's.

Look at the chart above (apologies for the quality of the image, will try to overcome the technical glitches) to see the strong linkages between the two economies. The R Square for the 2007-2009 period is higher at 89% compared to 83% for the more extended 2000-2009 period.

Implications: The lower volatility of Msia's economy is due to its broader base economy with commodities and consumption as a buffer. However, in absolute terms, the close correlations of GDP movements indicate that Msia is vulnerable to the global economic cycle.

Incidentally, the KLCI has only an R square of 38% with the STI. Given that KLCI has a 70% R Sq vis-a-vis the Dow Jones, this means that the rest of the driving factor for the KLCI's movements is regional sentiment.