GDP Does Not Reflect The Multidimensional Nature of Development

By Sharifah Azzahra, Certified Risk Advisory, Selangor

This article is in response to Tengku Zafrul Aziz’s statement that pent-up demand will drive Malaysia’s economy to grow faster.

An increase or increasing GDP is often seen as a measure of welfare and economic success. However, it fails to account for the multi-dimensional nature of development or the inherent short-comings of capitalism.

The idea of economic growth stems from classical economics where growth in national income represents the growth in the wealth of a nation. The concept of economic growth gained popularity during the industrial revolution, when market economies flourished.

Today, the importance and usage of GDP as a measure of economic growth is partly because it is easier to quantify the production of goods and services without a reflection on the nation’s wellbeing and purchasing power performance.

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Precisely because of this, GDP is not, on its own, an adequate instrument to measure a country’s development and the nation’s economic condition. It is important to note that development is a multi-dimensional concept, which includes not only an economic dimension, but also involves social, environmental, and emotional dimensions.

Are We Really Getting Better?

Malaysian should be made known about their purchasing power as it is the value of a currency expressed in terms of the number of goods or services that one unit of money can buy.

In May 2022, the Edge reported that the rising inflation threat is expected to lower purchasing power for most Malaysians, as retailers face a double-edged sword between global supply disruptions and rise in commodity prices.

According to DOSM inflation as measured by Consumer Price Index (CPI) indirectly reflects the purchasing power of Malaysia’s household consumption. It was reported that in June, Malaysia’s inflation increased 3.4 per cent to 127.4 in June 2022 as against 123.2 in the same month of the previous year.

The Food index increased 6.1 per cent and remained as the main contributor to the rise in the inflation of this month. Food items still showed a high increase particularly the subgroup of Meat; Vegetables; Flour; Milk, cheese & eggs as well as Bread which are necessities for the people.

In addition, the CPI index has keep on rising from January 2022 until June 2022 as reported by DOSM as below. On the other hand, DOSM also reported on the inflation for income group below RM3,000.

This income group are experiencing 3.4% increase in inflation indicating that their ability to consume and purchase are depreciating. They are mostly effected by the increases from subgroup of Meat (12.0%) followed by Milk, cheese & eggs (8.4%) and Vegetables (7.6%).

The Inflation Nightmare

It is important for the nation to be made known that the inflation rate for consumer prices in Malaysia is getting higher by years. For 2021, an inflation rate of 2.5% was calculated.

According to World Bank, during the observation period from 2012 to 2021, price has increased by 16.4% in 10 years, demonstrating that the value of RM1,000 in 2012 has changed to approximately RM1,163.66 in 2022. Therefore, if your earning has not increased by 16.4% for the past 10 years, be mindful of the economic condition you will be facing in the coming years.

For B40 groups and youngsters who is currently looking for employment, it is important to be knowledgeable in demanding for your salary and earning during job application. It is crucial for us to understand the real value of money to ensure our sustainability in the future and to be financially capable moving forward.

As the government continue to emphasize on the movement of GDP, rarely mentioning about the real movement of price and real value of money, it is essential for this nation to save for the future. Although, MOF anticipated that pent-up demand will somehow flourish the domestic consumption, given the scenario mentioned above, if this nation is an emotionally driven consumers, yes you will support the GDP growth but you might most probably pressure your financial condition.

Be more rational and mindful in spending and for the government it is extremely important to curb inflation especially on the necessity goods and be more transparent in explaining the real economic condition.

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