Why paying attention to macroeconomics will change your life

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STREETWISE

Why paying attention to macroeconomics will change your life

Achara Deboonme 

 

BANGKOK: -- Every three months, one piece of news is guaranteed to run in all national media outlets.

 

The quarterly report on the economic growth rate bores reporters because it involves factors that are not easily understood by the layman - from exports and investment to consumption and tourism. Adding to the complexity is that the factors are not static: they change all the time. And making things more complicated are unexpected events like violence or terrorism.

Despite the complicated nature, the quarterly data is something all of us who care about our salaries should pay attention to.

Every economy needs to show growth.

Psychologically, all of us depend on pay hikes every year. We all believe we are entitled to a raise after gaining experience and working harder. We adjust our spending behaviour to match that expectation. This creates demand, encouraging manufacturers and services like restaurants to come up with better products.

What would happen if we anticipated a pay cut instead? We would certainly cut our spending, leaving no incentive for improvement in products and services at any level. This scenario was witnessed after the 1997 financial crisis, which affected some 1 million mostly white-collar workers with high spending power. The Thai economy then picked up on demand for our exports from other countries. 

In the two decades prior to the crash, Thailand's economy expanded nearly 10 per cent on average each year. The high growth was mainly due to a migration of labour from agriculture to industry. Industrial products offer higher added value than raw agricultural materials. For example, the income of Japanese rice farmers increases four- or fivefold if they turn their products into snacks or other goods.

However, the Thai labour migration pattern has now changed. These days factories require more skilled labour to operate machinery, meaning far fewer agricultural workers can make the switch to manufacturing. Demand for our exports has dropped for three consecutive years and is expected to stay low this year. Private investment remains sluggish. 

What's buoying the economy is tourism receipts and public investment. 

But given that government investment and tourism contribute a relatively low amount to GDP, it is best if the economy can expand at above 3 per cent.

Following the 2.8 per cent growth rate in 2015, the Bank of Thailand forecasts a 3.1 per cent growth rate for this year and a slight rise to 3.2 per cent in 2017. The Fiscal Policy Office is more optimistic, forecasting a 3.5 per cent growth rate. That could go up to 4 per cent if budget disbursement in the last quarter of this year is as high as expected.

It is worth asking how long these fiscal policies can sustain the growth rate. Everything comes at a cost. The Government Savings Bank, a tool every government uses to boost the economy, has racked up some Bt12 billion of non-performing loans - loans that are overdue for more than 90 days.

Former prime minister Anand Panyarachun recently lamented the government's ambitious infrastructure investment plan. Addressing a Rockefeller Foundation event, he cautioned that the benefits of such investment are small compared with investing in education.

Economists are convinced that it is good for an economy to grow intensively - by improving skills and technology. And this can be achieved only by investment in education.

According to the OECD Programme for International Student Assessment (PISA), Thailand ranks 47th out of 76 countries for maths and science. Among Asean nations, Singapore comes top, Vietnam 12th, Malaysia 52nd, and Indonesia 69th.

Intensive growth also comes from boosting the efficiency of inputs like labour productivity, physical capital, energy usage and materials. 

In Thailand, the productivity of rice farmers remains unchanged because of the reliance on old methods of cultivation - rainfall and bare hands rather than irrigation and machinery. They also remain at the mercy of rice millers and traders. 

Physical capital like buildings, computers and other machinery are vital to all companies, but Thai factories and offices still lag in terms of energy efficiency. Many are also poor in handling waste.

As the economy struggles, companies are relying more on extensive growth - selling more items in a bid to maintain profit levels. That pattern can be seen with Thai exports, says the Bank of Thailand. This year Thai exporters have reported a higher volume of exports, but a drop in their value. 

Extensive growth tends to be subject to diminishing returns. 

Boosting the economy is an all-round effort. At the national level, it needs supportive policies from government - something this administration is very busy with. We individuals can also help, by focusing on improving our own knowledge and skills before we complain and blame others.

All of us want more benefits, but we should first expect more from ourselves. A first step would be to learn more about macroeconomics and find ways to improve ourselves.

Ask yourself: What did I do between April and June that helped the Thai economy to expand by 3.5 per cent?

 

Source: http://www.nationmultimedia.com/opinion/Why-paying-attention-to-macroeconomics-will-change-30294578.html

 

-- © Copyright The Nation 2016-09-06

[jerojero]

Provided that you believe the stats....

[BigBadGeordie]

[trogers]

Boost the economy like before. Use state banks to issue credits to those who cannot afford to pay them back...and the C in macroeconomics would get a big boost.

[williamgeorgeallen]

as long as people dont study ponzi economics. best not to know the outcome of creating money to be lent out at an ever increasing rates, or keeping interest rates low which encourages unsustainable property inflation.

[johnnysunshine]

I have been saying for centuries now....BUY GOLD!

[digibum]

Unfortunately, individual efforts produce very little in the context of this post.  The only thing that individuals could have done to improve the Thai economy would be to spend more money, which they don't have.  

 

What Thailand needs, or to be more accurate, needed 20 years ago, was a 10 - 20 year plan on improving education and figuring out how to be more than simply an exporter of raw goods.  

 

 

[Krataiboy]

Thai working families' attempts to boost the economy have resulted in more than eighty per cent of them ending up "heavily" in debt, according to a recent survey.

 

Maybe, with dwindling resources, we need a new mantra to replace that of continual growth fuelled by ever greater debt, whether public or private.

 

Contrary to what many lay folk believe (thanks to the tame mass media) private debt is a far greater problem than public debt, particularly now that governments across the West are committed to bailing out "too big to fail" financial organisations which have not mended their profligate ways since the 2008 crash.

[bark]

The Thai economy is now Pokemon based.

[chilli42]

There are two macro trends we can all count on for years to come: a slow and slowing global growth rate and creeping deflation.  Both of these trends are reflected in what is happening in the bond market where the yield of government bonds of some countries are now negative.  There is nothing Thailand can do about this, it's just a small cog in the global economic wheel where it's macro's will simply reflect the bigger global picture.  

 

Related to the article, there has never been a better time to secure funds for infrastructure investment.  Pension funds all over the world are lining up to invest in infrastructure as the rate of return from their traditional investments is just not there.  That said, it's high time Thailand invest in education.

[JacChang]

Which is why an investor like me, don't have any stocks anymore LOL. Even I can't believe it, now a majority of my funds just in property stocks and infrastructure stocks earning 5-7% with growth of 5~9%. I've withdrawn from corporate bonds as well, don't really trust them at a time like this.