Are we in recession?

In a previous entry about Kedai Tutup, a number of commentators, especially those in the private sector argued that there is an economic problem. I argued that problems in one particular sector does not mean that the overall economy is in trouble. But then again after sitting immersed in the jacuzzi in the Times Square swimming pool, my mind starts wondering again and I have to rethink my earlier position and reevaluate the situation from the point of view of an impartial economist.

Actually it's very hard to tell if a country is in recession or not especially if there are no high-frequency indicators like in Brunei.

Technically speaking, a recession is called that when we have two straight quarters of negative GDP growth. And the calculation must be done by using the seasonally-adjusted quarter-on-quarter growth rates. The problem is that our statistics do not show current quarterly GDP data. JPKE is currently in the process of developing quarterly data and until then we cannot really tell with confidence what economic situation we are in currently.

Alternatively, as some analysts would do, we can use Leading Economic Indicators (LEI) -- such as industrial production, business confidence index, retail sales index, consumer confidence index. We can make some infererences from such data. But again, Brunei doesn't have such data. And again we are in the process of developing some of the indicators.

Unlike other countries, Brunei does not have policy institutes or think tanks which can develop a third party statistics. Brunei's many Chambers of Commerce or even the Banks Association do not commission or own full time agencies which can carry out those work. So, everything is left to the government and to JPKE. It is also high time that for businesses to band together to get the studies done and not rely fully on JPKE.

So, in the absence of such data, technically we don't have much basis to claim whether we are in recession or otherwise.

Can we speculate based on the annual data? The answer is maybe. Based on the annual growth rates of 0.5% y-y (in 2004) and 0.4% y-y (in 2005) there ARE reasons to suspect that we MAY be in recession. But such suspicion must be confirmed by: (1) data from corporate levels; (2) some analysis on the sources of monetary growth.

(1) If private sector (based on their knowledge about their own balance sheets) says that revenue and income are indeed declining (and continuously declining) in the past 4 (four) quarters, then it MAY be true that we are in recession.

(2) If monetary growth in Brunei in the past 8 quarters (or two years) is determined by factors other than domestic trade (or economic activity), then we can SUSPECT that economic activity indeed weakens.

In short, at this stage we cannot tell with full confidence about the state of our economy. All we have is only a hunch, at this stage.