Quarterly Economic Review IIIOctober 10, 2013

Bhanupong NidhiprabhaThammasat University

2

Main themes

• Growth and vulnerability• Global slowdown and Business Cycle

Synchronization• Future risks: Fed tapering • China slowdown• US budget politics• Risks from bad policy responses

3

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

-15

-10

-5

0

5

10

Volatile GDP growth pe

rcen

t

Mean = 3.2, SD = 4.6 SD/Mean = 1.4

4

IMF World Economic Outlook(GDP Growth)2013 2014

Advanced Economies

1.2 2.0

Global Growth 2.9 1.2Japan 2.0 1.2EU -0.4 1.0USA 1.6 2.6

5

Impact of global slowdown

Year 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

-20.00

-10.00

0.00

10.00

20.00

30.00

40.00

-1.3

4.4

-6.8

7.4

19.3

-6.6

4.6

17.420.6

15.016.9

18.615.5

-14.3

28.1

2.0-0.3 -0.4

3.8 3.2-0.6

3.9

12.5 12.7

8.1 8.4

12.89.8

-5.1

8.5

Thai Export VS World GDP in Dollar

Export (%change) World Income (%change)

6

20002001

20022003

20042005

20062007

20082009

20102011

-4.0

-2.0

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

16.0

Synchronization of ASEAN-5 Growth Rates

IndonesiaMalaysiaPhilippinesSingaporeThailand

perc

ent

7

20002001

20022003

20042005

20062007

20082009

20102011

-30.0

-20.0

-10.0

0.0

10.0

20.0

30.0

40.0

Exports of ASEAN 5

IndonesiaMalaysiaPhilippinesSingaporeThailandpe

rcen

t

8

Risk Exposure to Global Slowdown

Myanmar

Indonesia

Philippines

Cambodia

Thailand

Viet Nam

Brunei D

arussa

lam

Average SEA

Malaysia

Singapore0

50

100

150

200

250

0.2

31.2 42.659.1 66.4 68.5 72.1 73.5

105.7

210.4

Outward vs. inward oriented Southeast Asian economies: 2000-2011

Average exports share in GDP

Source: ADB

9

High Time for Rebalancing

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

-2.0

-1.0

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

Private consumption

Indonesia Philippines Singapore Thailand

perc

ent

Source: Asian Development Bank

10

How to boost private investment

JAN 2007

APR 2007

JUL 2

007

OCT 2007

JAN 2008

APR 2008

JUL 2

008

OCT 2008

JAN 2009

APR 2009

JUL 2

009

OCT 2009

JAN 2010

APR 2010

JUL 2

010

OCT 2010

JAN 2011

APR 2011

JUL 2

011

OCT 2011

JAN 2012

APR 2012

JUL 2

012

OCT 2012

JAN 2013

APR 2013

JUL 2

013 100

120

140

160

180

200

220

240

260

280

30.0

35.0

40.0

45.0

50.0

55.0

60.0

Business Sentiment (BSI ) and Private Investment

IP IndexBSI

Priv

ate

Inve

stm

ent I

ndex

Source: Bank of Thailand

11

JAN 2007

APR 2007

JUL 2

007

OCT 2007

JAN 2008

APR 2008

JUL 2

008

OCT 2008

JAN 2009

APR 2009

JUL 2

009

OCT 2009

JAN 2010

APR 2010

JUL 2

010

OCT 2010

JAN 2011

APR 2011

JUL 2

011

OCT 2011

JAN 2012

APR 2012

JUL 2

012

OCT 2012

JAN 2013

APR 2013

JUL 2

013 120

125

130

135

140

145

150

155

160

20.0

25.0

30.0

35.0

40.0

45.0

50.0

55.0

60.0

Confidence and Private Consumption

PC indexBSI

Inde

x

Source: Bank of Thailand

12

Countercyclical Spending

2005 2006 2007 2008 2009 2010 2011

-7.0

-6.0

-5.0

-4.0

-3.0

-2.0

-1.0

0.0

1.0

Fiscal stance: Deeper Deficit for some ASEAN

IndonesiaMalaysiaPhilippinesThailand%

GDP

13

19961997

19981999

20002001

20022003

20042005

20062007

20082009

20102011

201215

17

19

21

23

25

27

29

Fiscal Policy Stance

government revenuegovernment total expenditure

Perc

ent t

o GD

P

14

Quality of bank assets during recovery

2005 2006 2007 2008 2009 2010 20110

1

2

3

4

5

6

7

8

9

Bank Non-performing loans(% total loan)

Indonesia Malaysia Philippines Singapore Thailand

15

Capital inflows (outflow) and currency appreciation (depreciation)

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 20110.600000000000001

0.700000000000001

0.800000000000001

0.900000000000001

1

1.1

1.2

1.3

Southeast Appreciation

BruneiIndonesiaMalaysiaPhilippinesSingaporeThailand

Pric

e of

dol

lar (

2000

= 1.

0)

16

ASEAN-5 economies looked similarly during the GFC (2008-2011)

2006 2007 2008 2009 2010 2011 20120

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

1

Stock market returns correlation: Singapore

IndonesiaMalaysiaPhilippinesThailand

17

US Budget politics

• Debt ceiling deadline: October 17• The US government cannot borrow any more• On October 17, the government would have $30

billion on hand, while the daily expenditures were about $60 billion.

• Default risk on interest payments on bonds • Downgrading of the US’s credit rating • Stock market crash• Highest one-month bond interest in 5 years

18

Significant tail risks and bad policy responses

• Be prepared for capital flight after the Fed tapering: No more injection of $85 billion per month

• How far and how long can the BOT defend the baht?

19

Thai Budget Politics

• Consumer confidence• Investor sentiment• Business sentiment and effectiveness of fiscal

policy

20

Fiscal Space and Alternative Growth Driver

19961998

20002002

20042006

20082010

20120

10

20

30

40

50

60

70

Public Debt and Investment

Total investment government gross debt%

GDP