Thai Govt Spending To Fuel Consumption, Inflation

[webfact]

ADB FORECAST

Govt spending to fuel consumption, inflation

By Wichit Chaitrong

The Nation

Fiscal sustainability of populist schemes not yet a concern, but growth outlook less rosy

New government spending will boost not only consumption, which is good for the economy, but also inflationary pressure, the Asian Development Bank said yesterday.

The economy will expand by 4 per cent this year, not 4.5 per cent as forecast in April, Luxmon Attapich, senior country economist of the ADB, told a news conference.

The widespread flooding will reduce farm output, while the weak recoveries in developed economies and high inflation will act as a drag on the Thai economy, she said.

The ADB also lowered its forecast for growth in Thailand's gross domestic product next year to 4.5 per cent from 4.8 per cent.

"We've taken into account the first-time-car-buyer and other fiscal expansionary measures," she said, referring to the government's plan to offer tax rebates of up to Bt100,000 for first-car purchases.

Inflation is also expected to be higher than predicted earlier - 3.8 per cent this year instead of 3.5 per cent, and 3.2 per cent next year instead of 3 per cent.

Regarding government spending on schemes such as price pledges for rice, a minimum wage of Bt300 per day for workers and minimum salaries of Bt15,000 for new university graduates, Craig Steffensen, ADB country director, said he understood that the government was trying to manage the economy along an inclusive growth path - focusing on the poor.

The government has backtracked on some election promises, as it has to follow fiscal discipline.

Whether government spending will lead to a fiscal crisis later on is not a foreseeable concern.

"I don't worry about fiscal sustainability as this stage, but I don't know what will happen in five or 10 years," he said.

Household consumption and private investment will continue to expand because of increasing confidence from the improvement in political stability, the ADB said.

Investment will increase in key industries - electronics, petrochemicals and automobiles - which now operate close to full capacity, Steffensen said.

GDP in developing Asia will grow 7.5 per cent this year and next year, slightly down from 7.8 per cent in 2011 and 7.7 per cent in 2012 as previously forecast by the ADB.

Developing Asia continued its steady growth in the first half of this year. The sluggish recovery in the major industrial economies will moderate the region's growth in the second half of the year and beyond, the ADB said.

China's economy is expected to expand 9.3 per cent this year and 9.1 per cent next year, slowing from 10.3 per cent last year.

Luxmon also urged Thailand and other countries to prepare for the growing old-age population by creating adequate pension-fund schemes.

-- The Nation 2011-09-15

[rakman]

Keynesian economics. Always fails in lean times, just hides itself in good times, until the money runs out.

Governments don't create wealth, they consume it. Where does the money government uses come from? Loans? Taxes? How are the loans paid for? More taxes.

Taking money out of the private sector, applying the inefficiency of government, and putting it back in the economy is like taking water from one end of a pool with a leaky bucket and putting it back into the other end. Only water is lost, the pool gets smaller. Eventually, the pool is empty.

Why would anyone think some faceless government bureaucrat is smarter spending money than someone with a job or business?

[siampolee]

Luxmon Attapich, senior country economist of the ADB, told a news conference.

"I don't worry about fiscal sustainability as this stage, but I don't know what will happen in five or 10 years," he said.

In a nutshell it confirms that there is no concern for the immediate future and when the pain begins those in the know will have made their pile and left the country.

Perhaps a look at the fiscal policies implemented by many western governments over the last ten or so years might well show a gloomy picture of what is to come for Thailand.

Seems to me as if this "expert" has taken his lessons from Madoff.

[rametindallas]

Keynesian economics. Always fails in lean times, just hides itself in good times, until the money runs out.

Governments don't create wealth, they consume it. Where does the money government uses come from? Loans? Taxes? How are the loans paid for? More taxes.

Taking money out of the private sector, applying the inefficiency of government, and putting it back in the economy is like taking water from one end of a pool with a leaky bucket and putting it back into the other end. Only water is lost, the pool gets smaller. Eventually, the pool is empty.

Why would anyone think some faceless government bureaucrat is smarter spending money than someone with a job or business?

Well stated.