Today's article is far from being sarcastic towards or mocking Thais. On the contrary, it explains the current weakness of the economy and, more importantly, the serious implications for the effectiveness of the government's economic stimulus packages. So, this article is recommended reading for the new economic team.
Everybody is disappointed with Thailand's GDP growth of 1.8% for the second quarter. With returning foreign tourists and robust domestic demand, all economic research houses expected to see growth of 3% or higher.
In the June 2023 edition of the World Bank's Global Economic Prospects report, the organisation predicted GDP growth in 2023 will hit 3.9%. While the economy is facing a low level of growth, most of its neighbours in the Association of Southeast Asian Nations (Asean) seem to be faring better.
Indonesia leads the pack with 5.2% growth in Q2, followed by the Philippines with 4.3%. Vietnam, Thailand's top competitor, managed 4.1%. Trailing is Malaysia with 2.9%. But one cannot really blame Malaysia for its lacklustre performance, as its economy has cooled down after seeing 5.6% growth in Q1.
In case one forgets how the economy performed in Q1, the answer is: 2.6% growth. Nothing much to write home about.
Of course, nationalists would make the usual argument that Thailand, having a larger-sized economy than our Asean neighbours, has more difficulties in driving economic growth. If that were true, please explain why the Japanese economy grew 6% (annualised basis) in Q2.
Japan's economic growth is driven by booming exports, particularly from automobiles, which is more than enough to compensate for the 0.5% contraction in private consumption and zero growth in capital expenditure.
While Japanese people work hard to boost exports to take full advantage of a weak yen, Thais keep our economy going by partying.
In Q2, private consumption shrank 0.5% in Japan but Thai private consumption rose 7.8%. (Never, ever say that Thai people are poor.)
But that is not the climax. The climax is that private consumption growth is driven by spending in the "restaurants and hotels" category, which expanded 49.1%.
Without super high growth in this party category, private consumption growth would have been reduced to 0.9%, which is in line with a subdued GDP expansion of 1.8%.
Some economists may argue that the reason why spending in the restaurants and hotels category is high is because of returning tourists.
Nice observation, but wrong. I compared the "restaurants and hotels" spending figure with the same type of spending in 2019 and found that spending in Q2 of this year was still 31% higher.
Furthermore, Thailand had 9 million foreign tourists in Q2/2019 compared to 6.4 million tourists in the same period this year. Returning tourists are definitely not the factor. The spending boom is solely attributed to Thai consumers having a good time.
Do not try to explain that it is because of inflation. These figures are real and derived from real GDP data.
The party spending factor is not limited to Q2/2023. Restaurant and hotel spending rose 67.9% in 2022 and 97.1% in Q1/2023. One could excuse the 2022 spending as it followed two long years of no partying during Covid. But 2023's spending growth really has no good explanation.
What would have happened if Thais behaved and did not go out spending money unwisely in this "party" category? GDP growth would have been reduced to -1.5% and -2.3% in the first two quarters of 2023, respectively. Technically speaking, the economy would have been classified as being in a recession.
That is the real picture of the economy. We are in an economic recession phase. The new government, please take note.
By the way, when assessing GDP growth with the "no partying" findings, I do not unrealistically cut spending growth to 0% but rather keep growth at a reasonable rate of 5%. I came up with the 5% growth figure as it seemed to be the average spending growth in this category from 1993-2019.
There are three important questions to ask about this unusual spending phenomenon. They are: First, where do people get the money to pay for restaurant and hotel spending? After all, average income growth is merely 1.8% (derived from GDP growth).
My answer to this question relates not to income but debt. Not more borrowing, but from skipping payments on their existing debt.
Thai consumers have 16 trillion baht of household debt outstanding. The estimated monthly repayments of principal and interest should be around 3% of outstanding debt or about 480 billion baht. Per quarter, total repayment obligations would be 1.44 trillion baht. Why pay? Let's have a good time!
Second, why do people make suicidal decisions like that? I have to guess again, as there is no economic theory providing an explanation. The answer could be that monthly repayment obligations are too much to service from income.
When one cannot make full monthly payments, as required by creditors, why bother to pay at all? Creditors will threaten you with legal action just the same. So why pay? Let's have a good time!
I found this post on social media. "All I want in life is to pay off (my) debt and live day by day afterwards. I no longer have dreams." That hurts.
Third, would economic stimulus packages make things better for Thais? I doubt that very much. The flagship cash handout programme, if the government is able to pull that one off in a time of deep negative excess liquidity, is small compared to the total household debt burden.
A 560-billion-baht package would be able to pay for 1.2 month's worth of debt repayment. In a month's time, Thais would be drowning in a sea of debt again. When a government policy is unable to permanently relieve Thais from tough times, what do Thais do? We will use the 10,000 baht to party!
For an update. July's excess liquidity situation worsened to minus 851 billion baht despite the fact there was US$2.2 billion of capital inflow in the month of July. With a $5.2 billion capital outflow in August, it was possible to celebrate 1 trillion baht of negative excess liquidity. I am waiting for the Bank of Thailand's data, which will come out at the end of September, to confirm the trillion baht liquidity gap.
My next article will be about "Life and Death".
No, I am an economist, not a novelist. It will be about "Liquidity and Debt". I will visualise Mr Srettha's government as Santa Claus with no cash but a credit card.
People around it ask for gifts, or rather, gifts that Santa promised during the election campaign -- lower petrol prices, lower electricity bills, a 20-baht flat fare for BTS and MRT rides, a mega-cash handout, etc. But when Santa uses the credit card to pay for the gifts, the credit card machine blinks "Transaction Denied!"
Chartchai Parasuk, PhD, is a freelance economist.