Page 153 - Contributed Paper Session (CPS) - Volume 8

CPS2223 Siti Nuraini R. et al.
as against Malaysia Gross Domestic Product (GDP). The LI is able to provide
early signal of turning points for peak or trough as shown in Chart 1.

Chart 1: Annual Growth Rate of Leading Index (Smoothed) and Business Cycle

Source: Malaysian Economic Indicators: Leading, Coincident & Lagging Indexes

The line in Chart 1 shows the smoothed annual growth rate of LI from
January 1991 to October 2018. Meanwhile, the blue shaded regions refer to
the peak and trough of business cycle which implies the real recession period
in Malaysia. There are three recession period from January 1991 to October
2018. The LI provides early signal of recession as follows:
 Lead 3 months ahead for Asian Financial Crises in November 1998.
 Lead 10 months ahead for Global Economic Slowdown in February
2002.
 Lead 2 months ahead for US Debt Crisis/Euro Zone Crises in March
2009.
The composite index is the combination of individual indicators which
measures the economic cycles behaviour. The advantage of composite index
compared to individual analysis is the tendency to smooth out some of the
volatility of the series. The composite index is generally more reliable in
generating clear and consistent turning points than individual indicators. Table
1 shows components of Leading, Coincident and Lagging composite indexes.
Table 1: Malaysia’s Composite Index
LI CI LG
1) Real Money Supply, 1) Total Employment, 1) Unit Labour Cost,
M1 Manufacturing Manufacturing
2) Bursa Malaysia 2) Real Salaries & 2) Number of
Industrial Index Wages, Investment Projects
3) Real Imports of Manufacturing Approved Number
Semi-Conductors 3) Industrial of New Vehicles
Production Index Registered

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