This article is the last for 2024. I have made many bad predictions about the Thai economy throughout the year. Many became true, like the contracting credit market, the NPL explosion, and an ineffective cash handout programme. Many have not become true (or have they?). One was GDP growth. Instead of shrinking as I predicted, GDP growth rates improved from quarter to quarter. They were 1.6% for Q1, 2.2% for Q2, and 3.0% for Q3. And it is expected to be 3.5% for Q4 to fulfil the annual 2.6% growth projection.
Why do people take National Economic and Social Development Council (NESDC) GDP figures as sacred, as if the numbers were brought down from Mt Sinai by Moses himself? Is the NESDC as sacred as Moses? People do not realise that GDP accounts are unaudited and the NESDC is not an independent organisation. This article will question the reliability of the NESDC through conflicting actual data on the economy and the NESDC’s GDP compilation figures.
If North Korea reported 3.1% GDP growth for 2023, would readers believe the figure? Driving factors came from a 5.9% expansion in the manufacturing sector and an 8.2% rise in construction activities. Moreover, it was an exceptional year for crops as the wheat and barley harvest rose 22.2%. All these factors saw North Korea’s GDP growth rate double that of South Korea (1.4% growth).
No? The numbers seem too good to be true, and who would believe the numbers coming out of Pyongyang? This must be more of President Kim’s propaganda to outshine South Korea.
What if I told readers that the above numbers accurately presented the North Korean economic situation in 2023 and did not come from Pyongyang but from Seoul? The numbers were collected and reported by the Bank of Korea. Would the opinion be totally different?
Creditability is essential when it comes to data reporting.
If one’s thermometer indicates that the temperature outside is 20 degrees Celsius, but when one steps outside one sweats, what would one do? Logically, one checks whether the thermometer still works properly.
When the NESDC indicates that Thai economic growth is improving, but all Thais — consumers, business owners, bankers, and even the government — complain about a worsening economy, logically, one should check relevant economic data. My reality check is in the table attached.
Let’s start with the bankers. Banks are at the top of the food chain. They provide liquidity to manufacturers and consumers. The whole economy collapses without sufficient liquidity. This fact is proven throughout world economic history, such as the Great Depression, the Tom Yum Kung crisis, and the Hamburger crisis. That is why when I am right about projecting the liquidity situation, I am also confident about my GDP projections.
The credit situation in Thailand is far from being supportive of economic growth. On the contrary, it indicates a contracting economy, particularly in Q3 when private credit contracted 131.1 billion baht. The impact of credit contraction is evident on durable goods sales such as housing and automobiles. Again, see the table.
The Bank of Thailand attempted to counter the contracting credit situation by releasing an unprecedented amount of liquidity into the system. Some 610 billion baht of new liquidity was released in September and October. Unfortunately, banks kept 550 billion baht of it in deposits and used the rest to buy government bonds. As for credit expansion, even with an unprecedented liquidity injection, commercial banks recalled 17.6 billion baht of private credit during those two months.
Surprised? No. Just look at the second row — outstanding NPLs — of the table. The Q3 NPL figure excludes another 480 billion baht of Special Mentioned loans.
The monetary policy is now officially ineffective, i.e., the economy is in a liquidity trap situation.
Thaksin probably knows this liquidity trap problem and will try to create a “new kind of liquidity”, namely stable coins, to bypass the zombie banking system. I can tell readers right away that such a move will not work in Thailand for three key reasons — legal, international ratings, and no distribution channel.
I think Thaksin’s concept of “stable coins” is derived from Donald Trump’s idea of promoting Bitcoin use in the US to supplement bank loans. However, using cryptocurrencies in the US will not involve the government but will be done 100% by the private sector. Mr Trump just promoted using them use.
In Thailand, stable coins would be issued by the government. Hence, the problems of legal, international ratings, and distribution channels must be considered. After consideration, this concept would vaporize, like the digital wallet.
Back to the GDP issue.
The NESDC cannot write GDP numbers at will. They have to be properly “cooked”. The key issue in pushing for higher GDP growth is replacing a sharp decline in durable goods consumption, as shown in rows 3 and 4 of the table.
I will use Q3 as a case in point. The drop in housing and automobile sales is estimated to be about 100 billion baht for the quarter. The 100 billion baht in consumption loss would pull GDP growth down by 2.2%. Replacement consumption must, therefore, be conjured up.
This would be the “Restaurants and Hotels” category, which increased by 115 billion baht or showed 19.8% growth in Q3. The first question that comes to my mind is where do consumers get the money to consume more? The 100 billion baht of consumption loss for durable goods was supposed to be financed by loans. There is no need to say that Thai consumers do not have extra cash. How can Thai consumers be able to do self-financing of 115 billion baht while unable to pay back existing loans, causing NPLs to rise to 1.2 trillion baht?
Moreover, in a recent interview, the president of the Thai Restaurant Association said restaurant sales dropped by 40%. Even with restaurant chains listed on the stock market showing an 8.9% increase in sales in Q3, where did the 19.8% rise in expenditure on restaurants and hotels come from?
Please do not say that the rise in consumption in the restaurants and hotels category comes from foreign tourist spending. Foreign tourist spending of 123.5 billion baht in Q3 was already recorded under the “Exports of Services” category and cannot be counted twice. The 115 billion baht increase in spending in this category is solely from Thai consumers. I will not say whether NESDC numbers are reliable. Readers can judge that after reading the article. For me, Q3 GDP is not 3.0% but, after proper adjustments, 0.2%.
My last word for this year. Whatever predictions I made for 2024 that have not come true yet will come true in 2025.
