The GDP report for Q1 has been published by the NESDB (here).
The main information is : the thai economy shrank 7,1 %, compared to the first quarter 2008. In Q4 2008, the drop was 4,2 %.
Therefore, we are in recession (classic definition is 2 quarters with negative growth).
The official analysis is that the thai economy has bottomed out, AKA it can only get better the following quarters.
This is wrong.
I wrote on my previous report :
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…
I was spot on : deflator on Q1 was 2,2 % (2 % on Q4)… So if we calculate the annualized GDP rate (difference between Q4 and Q1, times 4), we get a striking -13 % !
Now, let’s have a look on 3 components of the GDP (real GDP = inflation removed) :
We are diving. Even the private consumption is now in negative territory (-2,6 % compared to Q1 2008).
The NESDB writes :
… the first reduction in 10 years since 1Q 1999 owing to a fall of real sector in line with world economic slowdown. This dampened consumer’s confidence and purchasing power, which resulted in a decrease in expenditure on durable, semi-durable, and non-durable goods, particularly on passenger car, and motorcycle.
As for the Gross Fixed Capital Formation (investments) the fall is even worse : -15,8 %.
Here are the values (in millions THB, nominal GDP = at current prices), for each components so you can juge their relative importance.
Private consumption = almost half of GDP (1 195 billions). The Government spending is a tiny part (270 billions).
Exports and imports… Now this is something that people have often some problem to understand… For the GDP calculation, imports are deducted from exports (because you obviously don’t produce what you import).
So what is important is the difference (exports – imports).
On Q1, imports dropped at a furious rate (-30 % !), much more than exports… Therefore, the trade balance is positive, therefore the contribution for GDP is positive (5,2 %).
And what about the change in inventories ? A big drop (-7,5), that depresses the GDP growth rate.
2 explanations :
-companies have cleared their stock. Normal reaction during a recession.
-and gold. The NESDB writes :
In addition, export of gold increased significantly due to higher price in the world market. This caused the stock of gold declined nearly Baht 100,000 million.
Indeed, my readers already know this anomaly (that showed up in the february exports figures, read here).
Inventories changes accounted for -156 billions… and gold is responsible for two thirds…
So let’s try to recap and to make a reasonable forecast for Q2. It means not a forecast to please people but a forecast that takes the reality into account.
-exports : no change. We are still 25 % down. Confirmed in april (first month of Q2, with a crash of 26 % read here). There is absolutly no reason to believe that exports could increase (a lot) on may and june. Furthermore, don’t forget the base effect… The Peak Exports was july 2008… It means year on year comparisons are going to get uglier and uglier !
Furthermore, we can see that oil prices are going up again… That could increase imports… and therefore, reduce the trade balance… and therefore reduce the positive contribution for GDP growth…
-investments : no change. The situation is even worsening. Very simple to understand : the longer the crisis lasts, with a depressed global demand, the more businesses are going to postpone their investments projects. It’s just insane for a business manager to try to increase (today) his production capacities !
It makes no sense. Furthermore, the psychology is starting to crack, and this is precisely why the authorities are stepping up their idiotic PR campaign about “Green Shoots” and “Recovery”. It shows their desperation.
The longer the crisis lasts, the more the fools who believe that it would be short timed, change their minds… And they join the recession club (cut of investments, cut of spendings, etc.). Not good to fuel a recovery.
-government spendings. Ah ! The best part for the Lalalanders… They believe that gvt can buy its way out from the crisis. Sorry folks, the government is broke, and I really don’t believe Thailand can act like USA (= to borrow like there is no tomorrow).
-Private consumption : worsening. Let’s ask the clowns how they think Mister and Miss Somchai, who started to reduce their expenses on Q1, are going to change totally their behavior and will spend like crazy on Q2 ?
Allo ? What ? I can’t hear the clowns anymore. Oh yes, I’ve just had an idea : let say that the 66 millions of thais are going to win lottery next week. Give them 1 billion THB each, case closed, problem solved. 😉
It’s of course just a fantasy. And why it could even get worse ? Well, again, the longer the crisis lasts, the more companies will close, downsize, the more people will lose their jobs… the more they will be afraid of the future etc. It’s of course a basic negative loop. But the clowns can’t understand this very simple idea.
So, with such depressed conditions, GDP on Q2 will be as bad as Q1. Simple as crystal clear.
Now, what are the positive items that could curb and change this reality, a little bit and on temporary basis ? There are some.
-government spendings : a little boost (like the 20 billions national bribe given by Abhisit in april) could soften the negative trend. But it would be a blip on the radar. Absolutly not a sign of recovery. Abhisit is just unable to launch and manage really the mega projects. Even though he would sign all the contracts and would get all the financing tomorrow, the money would not be injected into the system before several months.
-inventories : I think some companies have cut their production… too fast and too deep… They will have to produce again, even at lower levels. And the gold mania is probably over (unless prices explode, that would convince many thais to sell their gold).
Voila. And all my comments at the end of my report about GDP Q4 remain valid.
The longer this crisis lasts, the more the negative effects will increase : compound effect, negative loop, you name it.
The system (with many shock absorbers) can’t sustain a long crisis.