Thailand Unexpectedly Cuts Rate After Growth Forecast Cut 

(April 29, 2015)

The two basic sources of inflation are demand-pull inflation and cost-push inflation.

With more money available in the economy and fewer taxes to pay, consumer demand for goods and services would gradually increase, resulting in the rekindling of businesses and boost economic growth.

Economic Recovery depends on Internal Stability 

(April 8, 2015)

Inflation & Fiscal Policy Article

- The article is from good source. Continue to use it.

- Good that your team makes the effort to apply what you've learn in econs class to the project.

- Point on "Inflation within the Article": In this case, the economy is experiencing deflation instead of inflation.

Can team have a look at real interest rate and see how it will affect the lenders (people who save money)?

- Point under "Fiscal Policy within the article": Monetary stimulus refers to monetary policy. In this paragraph that you read, Thailand is using monetary policy (to increase money supply) after introducing fiscal policy (cutting taxes).

Since you have not learn monetary policy yet, it is fine to focus on explaining fiscal policy and how this policy helps to increase GDP. Good work in explaining how this affects consumers and businesses. I would encourage your team to take a step further to think of how it can be illustrated using the keynesian or aggregate demand and supply model.

GDP Article

- This is good too. Keep it.

- To take analysis to the next level, remember to refer to other resources to elaborate the issues/points stated in this article, bring in your personal opinion about the situation, bring in data/comparison with the rest of the world (if there's time) and also apply more of what you have learn in class to explain the situation.

Unemployment Article

- As this article focused on unemployment in highland areas (not the overall unemployment of thailand), should your team choose to use this article, the focus has to be on explaining and possibly addressing this issue.

Updated comments by Wang:

Nice wallpaper! I feel like I'm in a resort looking at your padlet.

Unemployment Article

Ok! The new article has more things for your team to examine and analysis.

Some questions for you to think about and include in padlet (in short points, to elaborate in report):

- Types of unemployment that exists in Thailand

- Think about how informal sector affect the GDP value (yes, you can link this to GDP too).

- Think about how informal sector affects the size of workforce and in turn affects GDP value

Of course, you can feel free to add in more points that you can link concepts learn in econs class to explain the article.

GDP

- I note your team's efforts in highlighting the key points from the articles but you also need to include MORE concepts learn in class to explain and analysis the issue mentioned in this article.

Some questions for you to think about and to include in padlet briefly (short points will do, explain more in report):

- Can the situation be illustrated using the aggregate demand and supply diagram or the keynesian model (see what you wrote about the GDP approach)?

- Some key happenings like oil price falling, changes in tourist industry and government policies.

The formula for unemployment rate is:

Unemployment Rate = Number of Unemployed / Total Labor Force

The key general relationship between inflation and interest rates is: 

Nominal Interest Rate = Estimated Real Interest Rate + Inflationary Expectations

Borrowers who make payments based on nominal interest rates, such as an adjustable rate mortgage or a credit card that is priced based on the prime rate, would face a risk as their nominal loan payments will rise with inflation and interest rates.

These people need to upgrade their skills and competencies through re-training and re-education, which will enable them to further improve their economic growth, so as to stay employed.

There are limitations of the unemployment rate which caused it to be an inaccurate indicator of employment in the economy. Limitations include the omission of discouraged workers, inclusion of the ones who are collecting benefits but not actively job seeking and inclusion of the underemployed.

The black-market activities; also known as the underground economy, involves illegal transactions which government statisticians are unable to track or value accurately, causing it to be omitted from GDP calculations and the ones involved are considered unemployed. Black market activities include the illegal buying and selling of stolen goods, drug and copyrighted material, prostitution, bribery , smuggling, and illegal currency exchange.

This informal sector actually takes more than half, up to 64% of the entire workforce. This shows that most people in Thailand have no systematic work conditions and get irregularly and unevenly paid. Many are not covered by any kind of social security system and have poor knowledge about the need to protect himself socially and economically. This is dangerous to the economy.

Thailand needs to develop labour skills though it has the lowest unemployment rate

The GDP figures reported are usually adjusted for inflation. In another word, if the GDP was calculated to be 10% higher than the previous year and the inflation during the same period is 2%, the GDP growth would be reported as 8%, or the net growth over the period.

However, a higher inflation rate will have an exponential effect on prices, as it rapidly erodes the consumers' purchasing power, slowing the economy down, reduces GDP, and will increase the unemployment rate.

- Gross Domestic Product (GDP)

- Unemployment

- Inflation & Fiscal Policy

Expenditure Approach GDP = C + I + G + (X - M); where, C = consumption expenditure, I = investment, G = government spending and (X - M) = net exports - net imports Income Approach GDP = rental + interest + profits + indirect business taxes + depreciation + wages Production Approach GDP = total sales of goods and services + value of changes in the inventories – value of intermediate consumption

However, in the article, it was mentioned that the economy recovery's strength and sustainability will depend upon how Thailand addresses its current issues; such as the high household debt, the imminent drought occurring in certain provinces, the weakness in Thailand's key export markets (e.g. China, Japan and the European Union) and the military rule, which could possibility affect the prospect of the political stability.

This shows that in order for the economy to recover from the recession and to prosper, the government needs to intervene and implement some policies to ensure that these factors are well taken care of. Also, by getting the confidence of people and the businesses on the country's economy.

GDP = Consumption + Investment + Government Spending + (Net Exports - Net Imports)

According to the expenditure approach of computation of Gross Domestic Product, factors such as household consumption expenditures, investments, government spending and the difference in net exports and net imports would affect the economy growth of the country. Using the formula, this shows that there had been a growth in the real GDP, which was also mentioned in the article, where the real GDP had grown 2.3% in the last quarter of 2014.

GDP Growth Rate = Real GDP of Current Year - Real GDP of last year x 100

Real GDP of last year

Demand-pull inflation - an increase in aggregate demand by consumers, causing demand to exceed supply and consumers compete to purchase the goods and services. This excessive demand shows that "too much money chasing too few goods", and it usually occurs in an expanding economy.

-There is still room for improvement for the consumer prices. Consumption has been lower than expected for the past year. It has been declining since February last year, which is also lower than the targeted amount. Hence, the government can increase consumption by implementing policies such as lowering taxes.

-The increasing amount of tourist arrivals is also able to boost the economy. It increased from 15.9% in January up to 18% in the first half of February last year. Therefore, the government can focus on tourism, in order to ensure an economic growth.

-With low oil prices, tourism growth and more consumption, the country should be able to recover from recession. Overall, it depends on how effective the government policies and actions and confidence of the people and business in Thailand.

There are 3 types of recoveries, namely "V" shape recovery, "U" shape recovery and "W" shape recovery; which occur when the economy declines and rises rapidly, declines and recovers gradually or when the economy declines again shortly after its recovery from the previous recession respectively.

With the figures and positive economics presented in these articles, we can infer that the type of economy recovery that is occurring in Thailand is the "U" shape recovery, as the economy had declined fast and stayed at the bottom for a while before the gradual rise back.

As most of their disposable income are spent on servicing debt payments, they have lesser nominal money to spend on other goods and services, causing consumption expenditure to subdue, which may result in a drop in the GDP. To add on, as they have lesser money to spend on goods and services, demand for these goods and services will drop, as demand creates its own supply, companies and businesses will then produce lesser, which could and would result in a drop in GDP.

Gross Domestic Product (GDP) is an estimated value of the total worth of a country’s goods production and services, within its geographical boundary, by its local and foreign companies, calculated over the course of one calendar year.

However, there are some limitations of GDP; such as the changes in quality and the inclusion of new goods, leisure time and human effort costs, underground economy, harmful side effects of pollution and non-market production, which may result in the GDP being understated or overstated.

In Thailand, structural and seasonal unemployment are the most major concern as the working population do not have the required skill sets to keep them employed and almost 40% of the labor force works in agriculture sector, resulting in them being unemployed during the off-season. Although they are still considered to be employed if they do part-time jobs or casual jobs during the period, their disposable income are greatly affected, resulting in the drop in consumption, which in turn affects the GDP growth of the country. The lack of skill sets may result in the working population being fired in due time as their jobs may be replaced by improved technologies.

When C = Yd, it indicates that it is a break-even income, also known as a no-saving income.

However, Exhibit 1 is just an example illustrated. In Thailand, the debt-service payment rate is at more than half of their disposable income, causing their disposable income to be lower. A lower disposable income would mean, lesser money to spend on their autonomous consumption, therefore it could possibly lead to dissaving - where one takes out money from previously accumulated financial accounts or to take loans.