'He and the other survivors have briefly cheated death, but will not be able to evade their fate for very long." A movie buff will know this comes from Final Destination and the "he" in the quote refers to Alex Browing, the movie's main character.
The quote is suitable to describe the Thai economy in 2024 and what is to become of it in 2025. At the onset of 2024, I predicted the economy could face a financial crisis like the Tom Yum Kung crisis of 1997.
The difference was that the culprit would not be a sudden outflow of foreign capital, causing the baht to collapse. The key difference between 1997 and 2024 was that the country now has more than enough foreign reserves to cover any outflow.
The financial crisis of 2024 would come from inadequate liquidity for the corporate sector's debt repayment, particularly on matured debentures.
About 900 billion baht of debentures would have needed to be refinanced in that year. There were two reasons why I predicted such calamity. They were (1) Thai corporates hit foreign lending limits and could not borrow from abroad to replace domestic debt obligations, and (2) domestic banks, due to threatening NPL problems, would not extend credits to the corporate sector to help pay off debentures.
I was right on the second one but wrong on the first. Somehow, Thai corporates managed to borrow an additional US $7.8 billion (274 billion baht) from foreign sources. However, Thai banks were not as generous as foreign banks. During the first three quarters, they recalled 75.5 billion baht of loans from the corporate sector. The true saviour of this possible catastrophic event was not commercial banks, domestic or foreign, but the Bank of Thailand (BoT).
The BoT aggressively increased liquidity (money supply) by 797 billion baht (as of November 2024), far higher than 2023's full-year increase of 487 billion baht. Since banks did not use liquidity, the liquidity was used by investors to purchase new corporate debentures to refinance mature debentures.
This extraordinary liquidity injection by the BoT helped corporates briefly cheat death. That may be considered the first half of the movie. The movie's second half will depict a different story. As the actual GDP growth of 2024 was likely around 0.0%, corporate performances suffered from a stagnated economy. Investors were already concerned about poor corporate performances, causing the corporate debt securities market to shrink by 217 billion baht in 2024.
This is not a Thai company, but it will be the fate of many Thai companies in 2025: Country Garden, one of the largest property developers in China, is facing a liquidation petition at the Hong Kong Court after the company failed to honour offshore debt obligations.
All one needs is a failure to repay the debt by one or two big names, and the fate of the economy can no longer be evaded. Italian Thai Development was already seeking to delay its 14.3 billion baht of principal repayments. This fear of corporate bankruptcies could lead to a collapse of the entire financial system, which would have similar effects as the Tom Yum Kung crisis.
The threat of corporate defaults is real. In 2020, the Corporate Bond Stabilisation Fund (BSF) of 400 billion baht was set up by BoT to buy up corporate debentures. However, it was not put into effect. Instead, BoT injected money into commercial banks to help the corporate sector's financial situation.
Luckily, the banking system still functioned well at that time and extended 700 billion baht of new credits to corporate clients. Unfortunately, the banking system was in bad shape in 2024. Only 90.2 billion baht of new credits (as of November) was extended to the corporate sector during the year.
Readers following my articles would know that I repeatedly emphasise the importance of a functioning banking system. The zombie banking sector must be fixed. If not, the BoT may inject all the liquidity in the world, and only a small amount of money would reach the private sector's hands.
Former PM Thaksin Shinawatra seems to understand the problem of a non-functioning banking sector. Therefore, a new kind of money, "Secured Coin", is proposed to supplement the regular baht issued by the BoT.
However, the Secured Coin is against Thai currency law and most likely won't take off. If such an alternative currency is ever issued, the economy will face disastrous consequences.
At this point, many readers might already lose patience and ask about GDP's prediction for 2025. As I said in my previous article, Thai economic research houses move in a pack and have announced that 2025's GDP growth projections will cluster around 2.4% - 2.7%. My projection is minus 2.0% for nominal GDP growth and minus 3.0% for real GDP growth. (Please see the attached table). While most economic research houses employ econometric or GCE models for predictions, I use Monetary Approach. Simply put, my model is based on the MV=PQ principle, which was popularised by Milton Friedman.
The flaw of econometric and GCE models is that they assume that all economic entities, particularly the banking sector, behave normally. That is not the case for 2024 or 2025.
The MV=PQ principle is the basis of the GDP calculations and projection in the attached table. According to my projection, readers are free to believe or not to believe it; nominal 2024 GDP growth would not be 3.3% (2.6% of real GDP growth and 0.7% inflation rate) as NESDC would soon announce but rather 0.7% (0.0% of real GDP growth and 0.7 inflation rate).
The reason is that the Thai banking sector does not generate credits despite a large amount of liquidity injection by the BoT, causing the velocity of money growth to be negative.
In 2023, the BoT injected 487 billion baht of liquidity, and the Thai banking system produced 732 billion private credits. In 2024 (up to November), the BoT injected 797 billion baht of liquidity, and the banking system produced 90 billion baht of private credits.
I assume that this negative velocity of money growth will worsen in 2025 as the Thai banking system will be in a deeper zombie state. NPLs rose 15.5% in 2024, making Thai banks even more conservative this year.
However, I give the optimistic assumption that the BoT would be most generous in 2025 by increasing the money supply at a rate of 4.0% or 1 trillion baht. The results are the numbers in the table. Crazy assumptions or great insights? Readers, you be the judge.
I would revisit the GDP growth issue around this time next year to prove that my Monetary Approach of -3.0% GDP growth projections is accurate. However, the numbers really do not matter as many Thai corporates would face the grim reaper this year. That is how the movie Final Destination ends.
Chartchai Parasuk, PhD, is a freelance economist.