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'Surprise' contraction in Thailand.


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Skywalker

 

Thailand's economy falls into recession

_69354875_thaifood.jpgConsumer confidence has fallen

Thailand has fallen into recession after the economy shrank unexpectedly in the second quarter of the year.

The 0.3% contraction in gross domestic product between April and June followed a previous fall of 1.7% during the first quarter of 2013.

Previously, Thailand had been recording strong economic growth, outpacing other economies in the region, with expansion of more than 6% during 2012.

Many analysts had expected this performance to continue.

Sanjay Mathur, head of economics research at RBS, told the BBC that weak exports and domestic demand, plus fading business confidence, were to blame for the downturn.

"The fundamental problem here is that it's not just about exports, it is about domestic demand."

"We should be looking at growth of about 3.5%," he said. "In the early part of the year, expectations were that Thailand would be forging ahead of several Asian economies, so that has been a big disappointment."

The end of large-scale government investment projects following the devastation caused by flooding at the end of 2011 has also been cited as a cause for the fall in domestic consumption, which accounts for about half of economic output.

By the end of 2012 Thailand's growth was exceeding expectations, with gross domestic product in the October-to-December period jumping by 18.9% from a year earlier.

However, high household debt, and rising prices have continued to cause concern, and following a cut in interest rates in May, the Bank of Thailand left rates unchanged at 2.5% at its last meeting.

http://www.bbc.co.uk/news/business-23751846

Hot Money being pulled out perchance? 

 

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udonthani

a rather odd ommission from the article is that this 'recession' has been caused in large part by a single item of policy that Yingluck used, in the populist manner of her predessessor brother Thaksin, to secure her election as Prime Minister. More here : http://thediplomat.com/pacific-money/2013/07/20/thai-rice-subsidies-disaster-in-the-making/ Back in 2011, the new Thai government of Yingluck Shinawatra introduced a campaign promise entailing a de facto subsidy in the form of a rice-purchasing scene that set prices at 40-50% above the prevailing market price. The subsequent financial commitment has generated a large black hole in the government’s accounts, and has already resulted in a loss of USD$4.4 billion in the year from September 2011 to September 2012, almost certainly with worse to be announced for the current year come autumn.

 

so this problem is not all that 'unexpected'. Certainly not by those who opposed the rice subsidy policy, who were predicting this mess many months ago.

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udonthani

here is the best article I have seen about the disaster of the Thai rice subsidy that I read in last week's Economist print edition where it was top story in the Asia section.

 


Thailand’s economy
The rice mountain An increasingly unpopular government sticks to its worst and most costly policy

 

IT HAS not been a happy second anniversary for the government of Yingluck Shinawatra. Thousands of diehard opponents of her elder brother Thaksin Shinawatra, himself a former prime minister, took to the streets of Bangkok on August 7th to protest against a bill that could grant Mr Thaksin an amnesty for past offences and open up the possibility of his return from exile. Probably Ms Yingluck is used by now to these kinds of protests, along with the usual rumours of coups. More worrying, perhaps, is widespread and growing dismay over her government’s economic performance, supposedly its strong suit.

This week an opinion poll carried out by Bangkok University found that the government’s approval rating has fallen to its lowest level yet. Most damaging to its reputation is its flagship scheme to subsidise rice. This was the brainchild of Mr Thaksin, who dictates most of his sister’s policies from afar. It was a useful vote-winner during the election campaign in 2011. But its costs now jeopardise both the government’s finances and the economy as a whole.

 

The rice subsidy was classic Thaksin populism. Two-fifths of Thais work in agriculture, most of them as rice farmers. Ms Yingluck promised that, if she were elected, her government would buy unmilled rice directly from farmers at about twice the market rate, or 15,000 baht (about $500) per tonne. This would put money into poor farmers’ pockets and stimulate domestic demand. Naysayers warned that the scheme would be impossibly expensive. But Thaksin advisers said that withdrawing rice
from world markets in this way would force up the price. Since Thailand was the world’s biggest exporter, the government would be able to cash in later by selling its stockpiles of grain at a profit. So much for the weird theory. In practice, other countries have undercut Thailand, whose exports have tumbled (by about 4m tonnes, or a third, in the first full year of the subsidy scheme). India and Vietnam have overtaken Thailand as the biggest exporters. Unable to find buyers,
the Thai government has been forced to stockpile 18m tonnes of the stuff and counting—equivalent to nearly half the annual global trade in rice. Buying rice from farmers is ruinously expensive, costing the Thai government $12.5 billion in the first year of operation. This year the cost is expected to rise to about $15 billion, or 4% of GDP. Storing the rice also carries administrative and logistical costs, and demands expensive new warehouses. Concern is also rising over the quality of the rice piling up in the warehouses. Rice always deteriorates, but the suspicion is growing that stocks are being contaminated with substandard rice. Criminal gangs and bent officials are said to have smuggled in thousands of tonnes of cheap
grain from Cambodia and Myanmar in the hope of profiting from government largesse. This rice has got mixed in with Thai grain. A good deal of Thailand’s rice is top-grade Hom Mali, or jasmine rice. So quality, and reputation, matter.

 

Poor quality may be one reason why the latest auction of rice stocks was so disappointing. The government managed to sell just 210,000 tonnes, well short of a hoped-for 1m tonnes. But this was also a matter of plain economics, says Vichai Sriprasert, head of Riceland International, a family-run exporter. Why buy now when the government will be forced to sell overflowing stocks later, at almost any price?

 

Millstone It is a fiasco. But having invested so much political capital, Ms Yingluck vows to continue. She has tried to tinker with the scheme, for instance, by cutting the cost of the subsidy from 15,000 baht per tonne to 13,500 baht. That only angered rice farmers, her chief constituency. She quickly backed down, but she intends to try again. Her administration is frantically trying to secure deals for other governments to buy the rice, but this is making only a small dent in stocks. Iran has bought 250,000 tonnes. Meanwhile, daily revelations of incompetence and corruption surrounding the rice scheme take their toll on the government’s standing, and investors fret about the wider effect on the public finances. Government debt levels are rising, and Moody’s, a ratings agency, has warned of the risk that the rice scheme poses to the country’s fiscal discipline.

 

http://www.economist.com/news/asia/21583281-increasingly-unpopular-government-sticks-its-worst-and-most-costly-policy-rice-mountain

 
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Buko Beach

Thailand is doing great compared to Indonesia... they just fell off a cliff !!

 

The IShares MSCI Indonesia Index Fund is down almost 4% today and has been on a slide since late May.

Edited by Buko Beach
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udonthani

Indo I would say is main rival to Filipino economy. They the Filipinos are having a good spell at the moment. That is for sure.

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udonthani

Rice may Suffice.

 

it could bring the whole thing, tumbling down.

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a rather odd ommission from the article is that this 'recession' has been caused in large part by a single item of policy that Yingluck used, in the populist manner of her predessessor brother Thaksin, to secure her election as Prime Minister. More here : http://thediplomat.com/pacific-money/2013/07/20/thai-rice-subsidies-disaster-in-the-making/ Back in 2011, the new Thai government of Yingluck Shinawatra introduced a campaign promise entailing a de facto subsidy in the form of a rice-purchasing scene that set prices at 40-50% above the prevailing market price. The subsequent financial commitment has generated a large black hole in the government’s accounts, and has already resulted in a loss of USD$4.4 billion in the year from September 2011 to September 2012, almost certainly with worse to be announced for the current year come autumn.

 

so this problem is not all that 'unexpected'. Certainly not by those who opposed the rice subsidy policy, who were predicting this mess many months ago.

 

 

well all very interesting but .......

 

GDP = Consumption + Investment + government spending.

 

so if the government is spending more money that will tend to raise GDP rather than lower it.

 

if i had investments in Thailand i would take this as a sign that all is not well in the state of denmark and get out sharpish

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