Thai economy, though strong, may soon be lagging behind

[webfact]

STREETWISE
Thai economy, though strong, may soon be lagging behind
Achara Deboonme

BANGKOK: -- At a glance, Thailand's economy remains resilient to political turmoil that has led to five months without permanent government and no sign of an election date to bring an end to the power vacuum.

Shopping districts and malls are still crowded. Long queues outside popular restaurants are still a familiar sight. Traffic in Bangkok remains as congested as ever, as motorists shrug off the rising fuel prices.

Even Moody's, which rates financial health around the world, says that Thai economic fundamentals are strong enough to withstand political fallout. Its latest report notes that Thailand's credit strength is enough to cushion the damage. The government's debt structure is a key strength in this regard. This is thanks to the range of maturities of government bonds. Notably, Thailand is one of the few countries in the world to issue 50-year bonds. Other Thai strengths include prudent monetary, macroeconomic and debt management, sustained external strength despite erosion of the post-Asian financial crisis current-account surplus, a relatively strong growth outlook and an overall healthy banking system.

"Thailand's fundamentals and existing buffers compare favourably to other Moody's-rated sovereigns that have recently experienced revolutions, or are undergoing political crisis," noted Moody's report.

Compared to other emerging markets, Thailand's economy is expected to remain strong, Moody's said in a separate report. In the Emerging Markets Sovereign Research Series on "external vulnerabilities, exposures, mitigants and credit supports", the rating agency noted that recent financial market volatility and pressure on their currencies have underscored the potential vulnerability emerging markets face during an extended period of uncertainty. Those with external imbalances, a reliance on external funding, and weak policy frameworks will remain vulnerable to sentiment changes, capital flow adjustments, or disorderly market reactions.

Thailand's current account deficit is forecast to be 0.6 per cent of GDP this year. Meanwhile, the "vulnerability indicator" is estimated at only 45.7 per cent, against 610.5 per cent for Venezuela, 300 per cent for Ukraine, 171.3 per cent for Turkey, 159 per cent for Hungary, and 127 per cent for Chile.

Despite subsidy programmes, Thai government debt is relatively small at 33 per cent of GDP, while wider public-sector debt is less than 10 per cent of GDP with low contingent liabilities; financing costs remain low, with 10-year government bond yields below 4 per cent - less than their long-term (since 2001) average of 4.3 per cent; and inflation expectations are well anchored thanks to a credible monetary policy framework.

Things look positive, particularly when most businesses are still doing fine and not laying off workers. As of September 2013, 264,000 people were unemployed - just 0.7 per cent of the workforce. Export-oriented businesses are optimistic that orders will increase in line with recovery in advanced economies, while smaller firms expect a rebound in domestic consumption. Optimism prevails, though economic houses take turns to chop their GDP forecasts.

Yet, this optimism could be easily killed. In its emerging markets series report, Moody's notes that the ongoing political crisis is slowly undermining some of Thailand's traditional buffers.

"Disruptions associated with anti-government protests which remain largely confined to certain areas in Bangkok but have been dragging on for about five months are affecting investor sentiment. The currency depreciated more than 10 per cent over the course of 2013. The foreign reserves declined to US$158 billion in early January to their lowest level since September 2010, but have stabilised since then. Meanwhile, growth will be negatively affected in 2014, primarily because planned public investment will be further delayed with some negative spillover into private investment. Amid the impact on confidence, we expect domestic demand will remain weak for at least the first half of 2014."

Also, we need to remember that the world doesn't stand still. Even if our strengths remain the same, we can easily fall behind if other countries out there show improvement. For now, the Thai stock market is rising in tandem with other emerging markets, the index once more passing the 1,400 points level. Yet, this money can easily leave for other markets that show a better performance.

Indonesia continues to show improvement in its debt profile, which mitigates currency and refinancing risks and supports creditworthiness. South Korea's strong current account surplus, low level of government foreign-currency debt and low domestic-currency external debt will also cushion any possible impacts from the global financial market turmoil and exchange rate volatility.

Vietnam is entering its third year of broad macroeconomic stability following an era of heightened imbalances. While lower than its historical trend, Vietnam's real GDP growth continues to be higher than similarly rated countries and provides support to credit. Foreign exchange reserves are near multi-year highs. Consequent exchange rate stability has also contributed to benign inflation over the past two years.

Importantly, as our neighbours gear up for the Asean Economic Community, Thailand has been left without a government to quicken the pace of preparations. It should thus come as no surprise if other Asean nations move up the IMD's next competitiveness rankings as Thailand falls behind.


-- The Nation 2014-04-22

[noitom]

Thais are delusional and in a constant state of denial about where the country is ultimately heading.

[somo]

Thais are delusional and in a constant state of denial about where the country is ultimately heading.

And where is that? Knowing the ultimate destination must be amazing please share.

[arthurwait]

More spin from you know who.

[Bkungbank]

Most Thai have huge saving and FDI are still strong but the politic is the most obstruction by implement certain policies which hurts the entire economy like rice pledging programmed which damage the national reserved and minimum salary which not only scare away investment but inflation on goods in the market.

[fab4]

What?

Does that mean that the legion of posters on here saying that the PTP have raped the country, the rice subsidy programme has bankrupted the country and whats left the Shinawatras have been systematically siphoning off, were wrong?

Surely some mistake.

[chiang mai]

Thais are delusional and in a constant state of denial about where the country is ultimately heading.

Whatever happens, don't let the facts in the article get in the way of your prejudices.

[DrTuner]

It's the household debt that'll be the killer if/when the downturn comes. Probably still a few years in the future until the over leveraged consumers run into margin calls.

[WoopyDoo]

The only reason the economy is strong is that the government's ability to interfere in fiscal policy has been removed with the dissolution of the house.

Trust me.... If they had the ability to continue to fiddle with it.... The economy would be in the shit.

[robblok]

What?

Does that mean that the legion of posters on here saying that the PTP have raped the country, the rice subsidy programme has bankrupted the country and whats left the Shinawatras have been systematically siphoning off, were wrong?

Surely some mistake.

As far as I know the debt is far more as 30% of GDP I believe around 45% If I am right and i remember reading it somewhere then this article is fake of course.

As for Taksin raping.. just look at the graph.. debt went up since his ppl came into power.

Edited April 22, 2014 by robblok

[chiang mai]

Post number 9 - A reasonable conspiracy theory, even if it is totally incorrect! Did you even read the OP?

Edited April 22, 2014 by chiang mai

[WoopyDoo]

It's the household debt that'll be the killer if/when the downturn comes. Probably still a few years in the future until the over leveraged consumers run into margin calls.

Absolutely correct..... nice to see someone who knows what is going on.

Household debt will indeed be the killer. It could be 110% and still going up with 3 years from now unless the country gets a proper government to sort out the mess and fast.

Once debt outstrips GDP by 10% the acceleration of defaulting starts to get out of hand.

The interest rate would need to be slashed to cope with it and keep it in check... But that won't work.

The banks will own the economy and in effect own Thailand. Then it is <deleted>-d.

We will see another Greece situation possibly, and god forbid a Portugal situation where the debt to GDP is about 350%... at least they have the EU to bail them out. Thailand has nobody.. ASEAN won't have the same financial mechanisms as the EU, they won't bail each other out.

Thailand can easily become a bankrupt bankrupt country full of bankrupt people.

[WoopyDoo]

Post number 9 - A reasonable conspiracy theory, even if it is totally incorrect! Did you even read the OP?

Yes I did.

I was responding to the title more than anything with that post.

The overall economy is strong considering the political climate, but they are pointing at the wrong issues.

Household debt will burst the bubble.

[chiang mai]

"Outstanding public debt totalled 5.37 trillion baht as of Oct 31, or 45.28% of gross domestic product (GDP)" - hmmm, long way to go to 110%!

EDIT: even if calculated against household debt which is 83% of GDP.

Edited April 22, 2014 by chiang mai

[WoopyDoo]

"Outstanding public debt totalled 5.37 trillion baht as of Oct 31, or 45.28% of gross domestic product (GDP)" - hmmm, long way to go to 110%!

EDIT: even if calculated against household debt which is 83% of GDP.

You don't understand the difference between public debt and household debt do you?

Let me try to explain.

45.28% of 'government debt' or 'public debt' as is also know is not 45% of the GDP.... It is 45% OVER the GDP.

But that is not the issue here.

The household debt is spiraling out of control and has the ability to create a huge recession when the bubble burst, meaning lower GDP and escalating public debt as the government has much less domestic receipts.

The trend line can see it hitting 100% in just 2 years and 110% to 115% in 3 years, and after that the country is in the crapper.

You need to brush up on your economics my friend.

Government debt explanation here.

http://en.wikipedia.org/wiki/Government_debt

Household debt explanation here.

http://en.wikipedia.org/wiki/Household_debt

[chiang mai]

"45.28% of 'government debt' or 'public debt' as is also know is not 45% of the GDP.... It is 45% OVER the GDP."

If you say so, byeee!

[likewise]

0.7 of the workforce unemployed ??? Tell that to kindergarden they might believe that !

[gandalf12]

According to one report on TV the household debt amounted to 81% of GDP. If that doesnt spell disaster I cant think what does. Iagree household debt and government debt are worlds apart but it is households that spend money to keep the country strong. With this level of household debt it says loud and clear that people are not just living beyond their means but that the money they have is printed to make things look good

Edited April 22, 2014 by gandalf12

[chiang mai]

Let's deal with the public debt as a percentage of GDP first of all, some comparisons perhaps, just to put matters into perspective:

http://www.tradingeconomics.com/country-list/government-debt-to-gdp

Now let's take a look at household debt on the same basis, note the right hand colum and perhaps compare against "robust" and traditional western economies such as the UK or Canada perhaps:

Edited April 22, 2014 by chiang mai

[chiang mai]

0.7 of the workforce unemployed ??? Tell that to kindergarden they might believe that !

You are of course correct, the numbers are hugely incorrect, it should have read 0.6%:

http://www.tradingeconomics.com/country-list/unemployment-rate

[GAZZPA]

Thais are delusional and in a constant state of denial about where the country is ultimately heading.

Whatever happens, don't let the facts in the article get in the way of your prejudices.

Moodys is not issuing a glowing report. If you read it through, the message is that Thailand SHOULD be able to roll with the punches regarding the political instability but it also states other emerging markets could soon take over and become more attractive to investors.

Thailand should absolutely not be in recession which is where it is and we are yet to see the effects of the rice pledging scheme and how this will effect the agricultural bank. Add on the car buy out scheme, the fall in tourism, the fall in foreign investment, the fall in local investment and various other things and the picture could very quickly change.

last point, it is very difficult for foreign companies to invest in Thailand, lots of hurdles to overcome,, other developing countries are far easier but as yet don't have the best infrastructure but its changing.

these are also facts that you can easily find out.. if Thailand do not do something to address these things then ultimately i see other countries taking over as the Aseans big driver. Indonesia perhaps which has nearly 4 times the population of Thailand,, (if they sort their problems out of course).

[chiang mai]

I agree, the longer the problem goes on, the worse the impact, I have confidence the country will not comit suicide and I think that's what Moody's is saying also.

Edited April 22, 2014 by chiang mai

[GAZZPA]

I agree, the longer the problem goes on, the worse the impact, I have confidence the country will not comit suicide and I think that's what Moody's is saying also.

I hope you are right, I really do. But I don't have confidence that they won't commit economic suicide. there is so much covering up of the real facts in order to spin and "save face" I don't think they are capable of tackling the problems head on with real purpose.

If you look at the rice scheme for example,, this is potentially a huge amount of money, maybe 10% of GDP in debt. however despite all of the press around it I have never once seen a plan from the government that says,, this is the problem, here are the risks and this is what we are doing about it,, not once. It has all been about denial and as far as I am aware farmers are still not paid.

but again, i hope you are right.

[dighambara]

Many decades ago Thailand has the strongest exonomy in all of South East Asia, but unlike many neighboring countries, created oppressive laws against foreigners.

Singapore changed laws to invite foreigners and boomed. The Philippines improved immigration laws, etc

Once the repression against foreigners was implemented, Thailand began a slow slide down the economic scale.

Opressive ideas: foreigners cannot own property or companies in Thailand, yet can do so in Singapore.

DO THE MATH..!!