Thailand Crisis

The National Statistical Office has updated its Labor Force survey, with Q1 2008 figures (my old chart here).

Table 7 : “Average wage of Employed Persons by Industry“.

Something clearly happened…

Total average wages increased by 18,1 % compare to Q1 2007 (and +8 % compare to previous quarter) !

For agriculture sector, it’s even more astonishing : +47 % compare to Q1 2007, and +52 % compare to the previous quarter (Q4 2007) !

Non agriculture sector : +16 % year-on-year, but “only” +5,7 % compare to Q4 (it’s still a big increase).

Even though there is always a hike on Q1s compare to Q4… seasonal effect… but hikes on Q1 this year are much stronger.

It’s important to note that we are talking about Q1… Therefore the current gvt and all its “boost policies” is not really linked to this jump (albeit in march…).

It’s certainly more an effect of the… global inflation, particularily the huge increase of prices of agriculture products, etc.

And those wages increases are much higher than the growth… of the economy (GDP) !

Therefore, this money is going to fuel… inflation.

We see already the effects (CPI at +8,9 % in june, see my chart).

From my point of view : it validates the idea that the inflation is creating “spillover” effects… The BOT is going to increase its interest rates, it’s compulsory now. Wages can’t increase at such pace… it’s not sustainable.

Otherwise… welcome to the Zimbabwe path…

[if you want to look at the datas, click on the image

note : don't ask me why item 3 "Electricity, gas and water supply" goes from 20 000 THB on Q4 to 6 000 on Q1 ! Miracle of thai statistics ?]

At last ! At last I’ve found one economist with common sense in Thailand. Or at least who share my views.

Here are some quotes from the Thailand Development Research Institute.

“The Thai economy is expected to grow around 4 per cent this year, not 6 per cent as targeted by the government, if global oil prices continue increasing, according to the Thailand Development Research Institute.

But what should be of concern now is accelerated inflation in the next three to four months due to a further increase in product and fuel prices.

He said the government’s efforts to inject money to help ease living costs of poor people are considered good policy, but the money must be distributed in a form of coupons, not cash, to the real poor.

Otherwise, it would fuel the current inflation trend.

Exactly. It’s totally stupid to try to boost the GDP, by spreading cash around with “stimulus packages” and public spendings, and meanwhile talk about inflation fears. Mechanically, in our current situation, the firsts will fuel the second !

“The government should not build a demand pool nor inject money to boost consumer purchasing power too much because it may push up the country’s inflation rate to stay close to 25 per cent, the rate Vietnam is now experiencing.

“Now, the actual interest rate is in a negative territory. Should inflation go up considerably, labourers may need to seek a further increase in wages. Likewise with producers, who want to raise product prices. If the costs of everything are high, the economy will further slow down,” said Mr. Somchai. (TNA)

Hear ! Hear ! Please note that real interest rates are negative… since january. And have been negative 32 months on the last 50… Look at my chart.

Furthermore, the spillovers effects (higher wages, therefore higher costs, then higher prices in a vicious loop) he’s talking about… are already happening. It’s the inflation tsunami I’ve described before.

As for the growth of GDP (annual rate), the topic, I said that the 6 % target will be difficult to reach. Inflation can’t be hidden anymore… It means the GDP deflator will increase too. And a higher deflator means a lower real GDP (and therefore, a lower growth year on year).

You don’t follow ? No problem, everything is explained there.

UPDATE
Amazing. The Finance Minister now agrees with me… I should ask for a job !

Economic growth could fall below 6 per cent this year due to soaring oil prices and political uncertainties, Finance Minister Surapong Suebwonglee said yesterday.

“At the beginning of the month, we still viewed the situation optimistically, that our stimulus measures would be sufficient to manage the situation,” he said. “But today, we see things different than we had forecast, both in terms of oil prices moving rapidly upward and in terms of politics.” (Bangkok Post)

Datas for GDP Q1 2008 have been published by the NESDB (tables and report in PDF available). Time to update our charts (sorry I’m late).

First, the chart with 3 components : Private Consumption expenditures, Government expenditures and Gross Fixed Capital Formation.

The growth year on year is 6 %.

Impressive. I can hear the people “I told you, there is no crisis, the growth is strong”.

Well… sure… But we need to go deeper.

-INVENTORIES
Bingo. Big jump at 51 billions THB… It contributed for 2,6 points to the growth of GDP. Net exports are decreasing a lot.

-DEFLATOR
The best part. We have 2 ways to calculate GDP : current prices (nominal) and constant prices (real). We use of course real GDP to calculate growth year-on-year.
How do we calculate real GDP ? By removing inflation. What is “inflation” ? A price index (for consumers, we have the Consumer Price Index) and a base year (in Thailand, the base year is 1988).

On Q1, the deflator was 4 % ( 5 % for Q4 2007).

Usually, deflator and CPI evolve in parallel. Here is a chart.

The divergence is obvious on Q1. The low deflator is a statistical glitch… On Q2, it will be higher. It’s a certainty.

And the rule is very simple : the higher the deflator is… the lower the real GDP is, and the lower is the growth year-on-year.

A low deflator boosts GDP figures.

I should add that the net exports component (exports-imports) is going to be crushed on Q2 because… yes you’ve guessed : trade deficit due to oil. Therefore, its contribution to growth will be lower, lower than the 0,6 point on Q1.

What do we have left ? Government expenditures. It will go probably up, but not enough to compensate. Then, Private consumption and Gross Fixed Capital… both are going to be crusched too by the crisis (the first effects should be seen on Q2, and the decrease will accelerate on Q3 and Q4).

Its’s logic : growth of GDP on Q2 will be lower than 6 %. And Q3 and Q4 even worse.

Therefore, the official (government, BOT and all the members of the Boiler Room) target of a GDP growth of 5,6 % for the year is unlikely to be reached.

Rendez-vous on august 25, for the datas for Q2 !

4 indexes (from the BOT) on the same chart.

Private Investment Index
Composite Private Consumption Index
Manufacturing Production Index
Business Sentiment Index

-The dip in april for Manufacturing is of course seasonal (Songkran holiday).
-The continous growth of private consumption is in line with other indicators.
-Private Investment after a peak in february goes down again. And Business Sentiment remain weak.

Usually, I’m not a big fan of indexes (people can argue indefinitely about components and… weights)… but… anyway the BOT did it. So I follow.

You can have a look on the details of components on the website of the BOT.

Note : for the Business Sentiment Index, I’ve added 100 for a scale matter and to ease the reading (index april = 43, not 143).

The Cabinet on Tuesday approved the 2009 Budget Bill of Bt 1.8 trillion with a deficit of Bt249 billion. This is the first spending outlay under the Samak Sundaravej government which will see an increase of Bt175 billion from this year’s. (Nation)

Those figures were already approved by the cabinet on march 19 (read here).

But at that time, the article has more… details :

Deputy Prime Minister and Finance Minister, Surapong Suebwonglee, says the budget framework for the fiscal year 2009 is run under the assumption that Thailand’s economy will grow 5.5 to six per cent, and the GDP will increase to a level of 9.98 trillion baht, while the country’s inflation will stay at 3.5 per cent.

To assume that inflation, for the fiscal year 2009 (from october 1 2008 to september 30 2009), could ease at 3,5 % is a real risk.

And I would say it’s not even a “risk”, it’s just surreal.

Thailand’s consumer confidence index (CCI) in April retreated to 79.9 from 80.7 in March, the first decline since November, according to a survey conducted by the prestigious University of Thai Chamber of Commerce (UTCC).

UTCC vice rector Saowanee Thairungroj said the survey also indicated that the economic confidence index declined to 73 in April from 73.8 a month earlier in response to the impact of rising oil prices, which had caused consumers to become worried over higher cost of living.

Consumers were also not comfortable with the prospects for political stability in Thailand in future, said Mrs. Saowanee. (TNA)

Nothing surprising. Inflation (gasoline + rice + dozen of other prices increases) starts to bite the thai consumer’s enthousiasm (and the rozy fantasy promoted by the government).

And it will continue to do so.

Add the serious political instability of the country… The situation could to get worse.

The datas for the cars and motorcycles market in march have been published (BOT here and there).

Therefore, we can update our chart, per quarter.

First, what about march ? It was a strong month.

-20 845 passengers cars were sold. That’s a whooping +39 % compare to march 2007
-45 262 commercial cars were sold (+10 %)
-151 181 motorcycles (+ 17%)

Now, the view per quarter (click on the chart).

As you can see, we are far from the highs.

What to think about it ? In full crazyness about oil/gasoline prices and inflation… thai people look unconcerned.

Good for them. But I’m wondering if it’s going to last.

Here are the lastest news of the government’s boiler room.

Reminder : the mega-projects (hundreds of km of train lines) are supposed to reach a total of 1 670 billions THB (53 billions USD) until 2011.

The Public Debt Management Office is kind enough to publish a financing plan (article here). Ready ?

-18 % will be borrowed on the domestic market
-14 % will be borrowed overseas
-29 % will come from the annual budget of the government
-8 % will come from the retained earnings of state entreprises

The journalist at Nation is clever enough to note that “It is yet to be decided from where some 27 per cent of the funding will be secured.” !

Goddamned ! 18 + 14 + 29 +8 = 69.

31 % of the total amount are missing.

Hum… A third of the total… That’s messy, isn’t it ? Where they will come from ? From the moon ? Thaksin’s pockets ? Or maybe from the… government’s imagination ?

To this day, on the 1670 billions THB grand master plan… only 2,5 % are financed (by a loan from the JBIC, read here) (or 1,1 %… because the total amount of mega-projects changes, depending on the daily mood of the government…)

The funny financing plan from the PDMO with a third of the budget “missing“… is just another proof that the Mega-Projects are just another Thai Follies… a Mega-Dream.

The Thai government suffered a deficit of Bt156.87 billion during the first half of the 2008 fiscal year, which began on October 1, up about Bt75.6 billion from the corresponding period of Fiscal 2007, a Finance Ministry spokesman said.

Revenue earned by the government during the period totaled Bt657.21 billion, up 7.6 per cent from the corresponding period of the previous fiscal year. Its expenses amounted Bt816.76 billion, an increase of 14.4 per cent from one year ago, Mr. Somchai said. (TNA)

It’s important to note that the budget for current fiscal year 2008 (= from october 1 2007 to september 30 this year) was set by the Junta. The Samak governement has had -until now- small effect on it.

And the target deficit for the whole year was… 165 billions THB (read here). Therefore, the government recorded the deficit of the whole year… in just six months.

The new administration has decided to spend 110 billions THB more in order to “boost” the economy (with various “stimulus packages” and other short term expenses).

Some datas about the government’s expenditures, and the budget, at half year (reminder : fiscal year starts october 1).

-the government spent from october 1 to march 31 : 726,98 billions, 43,79 % of the total planned budget (1 660 billions)

-it’s only 1,39 % more than the first half of the previous fiscal year

on those 726,98 billions :

-Spending on investment increased 6,62 % year on year to 131,5 billions (39,5 % of targeted capital spendings of 332,9 billion for the full fiscal year).

-Budget disbursements on current spendings, including salaries : 595,48 billion out of a total of 1 330 billions planned for the full year.

(source : Nation)

[look at my chart about government's expenditures, here, and other articles here and there]

The National Statistical Office has updated its Labor Force survey, with Q4 2007 figures.

Let’s have a look on the table 7 : “Average wage of Employed Persons by Industry“.
Q4 2007
Total = 8 368 THB - Agricultural = 3 473 THB - Non agricultural = 9 270 THB

Some items are surprising. For instance “Education” at 16 767 THB per month. Teachers in primary schools for instance are paid much less… Or maybe it’s private education…

Here are 2 charts. The first one : % of growth, year on year, of wages for Agriculture and Non-Agriculture sectors.

How to read ? Monthly wages, non agriculture, increased by 9,8 % on Q4 2007, compare to Q4 2006.

The second : average wages (value) for Agriculture and Non-Agriculture sectors.

Here is the table, with the datas.