Abstract
Despite the relatively strong adjustment in the global economy outlook, the Malaysian economy remains uncertain as the ringgit movement lies ambiguously ahead while volatile capital flows, inflationary pressure, and the vulnerable external sector and global trade remain intense. The Sarawak economy, which relies heavily on primary commodities and export earnings from oil-based industries, will soon face a noxious mixture of economic risks following the decrease in commodity prices. Thus, it is essential to develop a well-timed signaling mechanism to estimate the unpredictable economic forces that develop from the complex and multidimensional issues of domestic and global economies. The ideology of indicator construction from the Conference Board will be applied in this study to build a composite leading indicator, called the Sarawak Business Cycle Indicator (SBCI), to trace the cyclical movement of the aggregate economic activity in Sarawak. In this respect, the SBCI, which has demonstrated statistical significance with an average leading power of 3.5 months, is expected to be important in reflecting a notable economic outlook for the State. More importantly, the SBCI will serve as a valuable reference to act as a short-term forecasting tool to provide insight at both the national and state levels.
Highlights
According to the Department of Statistics Malaysia (2017), the economic growth in Malaysia expanded to 5.9 percent in 2017, driven mainly by private sector demand, with support from the external sector
Because the domestic and global markets are full of uncertainty and are highly dynamic and the comprehensiveness of the Sarawak’s Gross Domestic Product (GDP) as a measure of the economic outlook remains a long-running debate in the business cycle analysis, it is important for Sarawak to keep abreast on the latest external development and predict the possible outcomes that could affect the development of different sectors of the economy
The Auto-Regressive Integrated Moving Average (ARIMA) (2, 2, 2) model was chosen as the most well-fitted and efficient model to forecast the Sarawak GDP based on the minimal out-of-sample forecast evaluation reported by Mean Squared Errors (MSE)
Summary
The commodity market is likely to extend losses in the face of plunging crude oil prices, threatening the position of the state to remain as the third largest Gross Domestic Product (GDP) contributor in the country. Because the domestic and global markets are full of uncertainty and are highly dynamic and the comprehensiveness of the Sarawak’s GDP as a measure of the economic outlook remains a long-running debate in the business cycle analysis, it is important for Sarawak to keep abreast on the latest external development and predict the possible outcomes that could affect the development of different sectors of the economy. In this study, the Auto-Regressive Integrated Moving Average (ARIMA) model will be used to forecast the unavailable data of the Sarawak GDP series in recent years, and this series will act as a means to establish the reference chronology of the Sarawak economy
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