(Source NESDB, report and data).
As promised, here is my review of the report published monday by the NESDB.
I remind you the main information : real GDP (it means at constant prices) shrinks 4,3 % on Q4 2008 compared to Q4 2007.
Furthermore, growth in Q3 was revised down (from 4 to 3,9 %).
First, here is the chart, per quarter, year on year.
As you can see, if we put on the side the 97 crisis, such a drop is unprecedented.
Now, a little game. As you know, there are seasonal effects. Always.
Q4 it’s the end of year, it’s the high season for tourism, businesses close their fiscal year etc. So, we should compare the evolution of all Q4 compared to Q3 for all the years since 1997.
Precision : here we work on nominal GDP (at current prices) because it’s more precise and because the time of comparison is shorter than year-on-year.
It’s obvious : it’s unprecedented. Even during the 1997 crisis, the GDP grew on Q4 (by 3,79 %), compared to the previous quarter.
Now, let’s go deeper with a comparison between Q3 and Q4 of 2008, to see some trends.
After all the first fallouts of the global crisis started to be visible lately (it started in august-september for exports for instance).
The evolution between Q3 and Q4 is much more relevant (to see the pace of the decline) than an analysis year on year.
First the values :
Real GDP (at constant prices), in millions THB
Q3 : 1 080 679 (= 1 080 billions THB)
Q4 : 1 084 901
Nominal GDP (at current prices), in millions THB
Q3 : 2 321 431
Q4 : 2 201 143
I can see that you are surprised too. 😉
The nominal GDP decreased between Q3 and Q4 (-5,18 %)… but the real GDP has… increased (+0,39 %).
How can we explain such alchemy ?
It’s because of the calculation of the deflator. In other words the way of removing inflation, AKA the calculation at constant prices (read my article here).
The rule is : the lower the deflator is, the greater the real GDP will be. Therefore it makes a year on year comparison more… attractive.
If we want to calculate the annualized growth rate of GDP (it means difference between Q3 and Q4, real GDP, times 4) we get 1,56 %. It means, if the current pace continues throughout the year, the total growth of GDP for 2009 would be 1,56 %.
In any case, that would be a serious slowdown (compared to growth rates Thailand enjoyed before). But nothing compared to other countries (read my article here), who already suffer negative annualized GDP growth rate.
Deflator was high on Q3 (6,7 %), and low on Q4 (1,9 %)… cisor effect… therefore the annualized GDP looks better. But this is a one bullet weapon…
On Q1 2009, deflator will be the same than on Q4 (more or less)… While the contraction of the economy is worsening… therefore the comparison quarter-on-quarter between Q1 2009 and Q4 2008 is going to be really bad (like in so many other countries).
Therefore, the annualized GDP growth rate is going to be really bad on Q1…
Now let’s have a look at 3 of the components of the GDP, with their evolution in percent, year on year.
It’s not a surprise : government expenses increased 10 %… The private consumption remains positive… But the very worrying sign is of course the Gross Fixed Capital Formation (AKA investments)… with a drop of 3,3 %.
No matter what the government is doing or spending… businesses do not invest. Period. The government, like everywhere else in the world, is just throwing money into the air… hopping that it will be enough to hide for a while the holes. The black holes.
It won’t work. Because the fundamental point of this crisis, excepted its scale, is of course its duration.
That’s the faultline.. The policies the governments around the world are using… are designed to be sustainable on the short term… They can’t cope with a very long crisis.
Countries in Europe are proud of their social model, with several (a lot !) of “safety nets”… For instance, you loose your job, the state (sorry : the tax payers) will continue to pay your salary (although not at 100 %) for 23 months (France). Yes 23 months. I know what you think : that’s great. Or he’s lying. 😉
Such policy can deal with intense and short crisis… They act like shock absorbers. But what could happen if the crisis stays ? For years ?
Then the model would just collapse.
The model for the retirement of many babyboomers in USA was : I sale my house at high price with huge profit, and my pension is indexed on a ever increasing Dow Jones index. Great. Life is sweet.
But what would happen if the prices of house drop (it did) and then stay low for long time ? And the stock market ? They are manipulating the Dow Jones trying to gain a few weeks, a few months, to avoid the panic… But what if the stock market drop (it did, and will continue) and then stay low for long time ?
Then the model would just collapse.
What is true for social safety nets, is true for banks balance sheets, stock markets, pension funds, and many parts of the economy.
A small company for instance can cope with a few months of decline of production… and/or with a few customers defaults payments… but not more… The state can give some oxygen to those companies, on a small or even on a big scale (bailouts)… but it will work only on a short term.
In Thailand, the morons are very proud of the plan “2000 THB for 8 millions or 9 millions people”… They think it’s going to “start up” the economy… Like Bush with his “stimulus check” last spring…
It’s just derisory. It will make a fart, a blip on the GDP of the second quarter.
It’s not sure yet of course. But more and more, the picture appears clearly : we have an unprecedented crisis, because of its scale, its globality (all the countries), its simultaneity and… its duration.
The politicians can’t imagine a long crisis.
For them, it’s the real nightmare scenario.