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.

A Strange Tale of Two Countries: Kiasuland & Bolehland

Let's go back to history when Singapore was kicked out of the federation of Malaysia in 1965.

One country which had no resources started thinking that the Kiasu spirit will strengthen the people's competitiveness. They then worked hard and turned a strategic weakness into a strength: thus the emergence of a developed kiasuland with the highest GDP per capita in Asia (US$35,445 versus Japan's US$34,678 and nearly five times larger than Malaysia's US$7,522 based on 2007 nominal GDP data).

The other country which had plenty of resources, timber, rubber, palm oil, petrol, gas, etc found that it could afford to be a bit complacent and lepak. Thus the bolehlah attitude pervaded the whole civil service and infected the corporate and personal culture of the people.

So when Tun Dr Mahathir made mocking remarks about Singapore Mentor Minister Lee Kuan Yew's visit to Malaysia, I think TDM should realise this twist of destiny:

The morale of these two countries is that bolehland will always be lagging behind kiasuland merely because of different attitudes of mind and spirit. Nothing to do with physical resources or whether water was transacted at 3 sen per 1,000 gallons (made under two agreements in the 1960s).