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  • 2020 Prosperity?

    New Year economic wishfulness



    CHARTCHAI PARASUK COLUMNIST (Bangkok Post)

    'Nothing comes from nothing. Nothing ever could." Of course, many will recognise these song lyrics from the motion picture The Sound of Music. But this phrase actually dates back to ancient Greece and the time of Aristotle. It is a foundation of all science: nothing can be created out of nothing. Economic science also follows this principle strictly. For a better economy, we first need a better economic environment. Thus, for a better economy this year, we need a better economic environment than in 2019. Will that be the case for Thailand?

    It is traditional for economists in January to predict a better year ahead for the economy. Such optimistic predictions are akin to Christmas and New Year wishes. So despite continued deterioration of the economic environment, the IMF projects world GDP growth in 2020 to be 3.6% -- 0.1% higher than that of 2019. The IMF knows well that 2020 is a risky year as excessive private debt is waiting to explode. Right now, large Chinese corporations are defaulting on their debts. The situation is expected to get much worse in 2020 when many major debts will mature. Chinese companies will have to pay $694.6 billion to domestic bond holders and another $90 billion to dollar bond holders in 2020. Yet even with the negative factors, a better year for 2020 must be predicted.

    Lamenting 2019's disappointing figures, the Bank of Thailand predicts a better year of 2.8% growth in 2020, 0.3% up on last year's GDP growth of 2.5%. But where will the extra growth come from? A couple of weeks ago, economists of a major political party predicted a better economic year for 2020. I hastened to discover their reasons, and was disappointed to learn the prediction is based on "what if" factors like more government investment and SMEs investing to upgrade their information technologies. These ambitions will be difficult to materialise, since the government budget is fixed by law and SMEs lack both funding and knowledge for tech upgrades.

    Unfortunately I did not graduate from the Santa Clause School of Economics. All I have to rely on are the facts.All economies rely on four economic engines to drive them forward. They are investment, exports, consumption, and government spending. How will these four engines perform in 2020 for Thailand's economy. If they begin to roar, you can be sure that the 2.8% target growth can easily be exceeded. But if they begin to choke and die, there won't be much point in talking about GDP figures.

    Investment: This has been the most troublesome economic factor for more than five years. It puzzles me that a country with consistent double-digit investment growth now suddenly has investment growth of less than 5%. At first, I thought the drop was caused by a political factor, but this was not so. It all started with the Great Flood of 2011 which prompted investors to diversify production risks outward to other countries. After that, booming neighbouring economies began to lure new investment away from Thailand to their expanding markets. Of course, high wages and a strengthening baht did not encourage investors to stay here. And government policies focusing on the new economic sector -- namely the 4.0 economy -- gave no comfort to existing 3.0 investors like auto manufacturers. It is no surprise to see more and more automobile and automobile-related factories shutting down operations here in Thailand.

    This year will likely be gloomier for investment in Thailand for two obvious reasons. First, the capacity utilisation rate is too low for investment needs. It is a general rule of thumb that a factory needs to be running at 70% or more of its capacity before investment expansion is required. The October 2019 capacity utilisation rate for Thai industry was a mere 62.8%, a sharp drop from 72.9% in the first quarter of 2018. At this capacity utilisation rate, manufacturers would be better off shutting or scaling down production rather than expanding investment. Second, new factories in neighbouring countries are up and running. Producing goods there and importing them back to Thailand via the Asean Free Trade Agreement, with the help of the strong baht, is more profitable than investing and manufacturing here.

    Consumption: Another factor without hope of improvement in 2020. Thailand's much-distorted income distribution means most consumers must borrow to consume. However, the World Bank's GINI coefficient, which measures income inequality, misrepresents the true picture in Thailand. The incomes of wealthy Thais come from their businesses not their individual accounts. If one wants to see the true income distribution problem, one has to look at wealth concentration figures, not income disparity. Anyway, we are not touching on the income-wealth issue here. We should focus on the fact that with less borrowing, Thai consumers will consume less. The data is clear on this. Consumption of non-durable goods is directly affected by income, while consumption of durable goods is directly affected by borrowing.

    Figures show that Thai household debt has reached 80% of GDP and banks are becoming much stricter about handing out consumer loans. I doubt that the Bank of Thailand and commercial banks want to see a lending spree in 2020. Therefore, higher consumption in 2020 is out of the question.
    Exports: This one is easy. Strong baht, weak world market, competition from neighbouring countries, and a deteriorating production sector. Together, these negative factors caused Thai exports to drop 7.4% in November 2019 and they will prevail in 2020.

    Government spending: The last great hope. Haven't we heard enough that mega-public investment projects will push Thai economic growth past the 4% level? That did not happen in 2019. So why should it happen in 2020? Government spending is limited by the Budget Bill. The government is not free to spend as it wishes. The 2019-20 Budget Bill has passed the first round in parliament and is expected to pass the second and third round in the coming days. Whatever power the government has to stimulate the economy is already in the Bill. It cannot simply wish for more.

    In summary, 2002 will bring less investment, slow consumption, a suffering export sector, and limited government spending. With all these adversaries, wishing for a better economic year could be fruitless.
    Majestically enthroned amid the vulgar herd

  • #2
    link please
    http://thailandchatter.com/showthrea...ll=1#post45112

    Comment


    • #3
      Originally posted by Mid View Post
      link please
      Oops. Here you are: https://www.bangkokpost.com/opinion/columnist/3764
      Majestically enthroned amid the vulgar herd

      Comment


      • #4
        Oh....sure.

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