Economics: Citi report says Thailand needs increase “Savings & Investment” to propell growth

Blog Note:

Where does sustainable economic growth of a country comes from?

While there are times to manage a slowing economic cycle with spending and consumption, according to economic theory, savings and investment are the main engine behind a country’s sustainable growth.

Striking a balance between demand from spending and consumption, and with supply, meaning savings and investments-is a difficult task for most governments and central banks.

Focusing on Thailand, many economist have noted Thailand’s falling savings rate and also falling investments.

Household and public debt in Thailand have increased-and at the save time, structural problems, relating to Thailand’s falling competitiveness and the emergence of more competitive investment destinations-have combined to result in falling investments. And as government spends, it has little left to invest.

For the critics of Thailand, keep note that there are many “massive” investments outlays pending in Thailand-relating to energy and transportation. Thailand’s interest rates is also heading up, that in theory, should make savings attractive again, when the rates hit some level in the future.

However, there are clearly risks with Thailand.

The Thai government have decided to address the turbulence in the Thai political situation-with “massive” amounts of subsidy and hand-outs to the public-in an attempt to remain popular.

Those moves, have spurted the Thai GDP upward as the resulting spending and consumption-stimulating demand.

Compounding the situation, the Thai central bank, as with every other Thai institution, have been politicized.

That means that as those demand pile up on the economy, where in the Thai case the economy is not very efficient as indicated by the non-competitive structure of the Thai banking with savings and lending spread among the global highest and weak regulatory over-sight as an example, have resulted in inflationary pressure-at a time of an already global commodity prices upward pressure.

Particularly, on that inefficiency of the Thai banking industry, currently the Thai banking industry is issuing massive campaigns to raise savings from the public-as a way to lock in the savings or the funding costs-against expected higher savings rates in the future. Those locked in low costs savings, would then be lent out, again latter, at lending rates rates that have traditionally been raised immediately with every opportunity.

That hurts both savings and investment.

Yet the Thai central bank, is under pressure to keep short-term growth going-to support the government’s political objectives. That means for the Thai central bank to raise the interest rates to curb inflation, is difficult at best in Thailand.

The following is from the Press Trust of India:

BRICS is passe, time now for ‘3G’: Citi

New Delhi

February 23, 2011

It might not be just BRICS anymore when it comes to emerging markets but ‘3G’ economies as well.

India and China along with nine other economies have been identified as Global Growth Generators or 3G by financial services major Citigroup.

3G indicates sources of growth potential and of profitable investment opportunities.

“We identify the 11 countries which have the most promising growth prospects. Bangladesh, China, Egypt, India, Indonesia, Iraq, Mongolia, Nigeria, Philippines, Sri Lanka and Vietnam are our 3G countries,” Citi said in a report.

Goldman Sachs‘ coinage ‘BRIC'(Brazil, Russia, India and China) has gained prominence in describing high growth economies. Late last year, South Africa joined the four-nation grouping, which is now known as BRICS.

The Citi report, prepared by analysts Willem Buiter and Ebrahim Rahbari, noted  that many of the existing coinages, including BRICS, have “outlived their usefulness”.

It said 11 countries identified are poor today and have decades of catch-up growth to look forward to.

“We hold the view that categories emerging markets, advanced economies, developing countries, BRICS, Next Eleven or the Growth Markets are all labels belonging to classification schemes that either have outlived their usefulness or are unlikely to ever have any,” the two analysts said.

Next Eleven refers to emerging economies —- Bangladesh, Egypt, Indonesia, Iran, Mexico, Nigeria, Pakistan, Philippines, South Korea, Turkey and Vietnam. Growth Markets are BRICs plus Mexico, South Korea, Turkey and Indonesia.

The 3G grouping is based on a weighted average of six growth drivers — measure of domestic saving/investment, demographic prospects, health, education, quality of institutions and policies and trade openness.

According to the report, Mexico, Brazil, Turkey, Thailand and other countries would need to implement major adjustments, including raising domestic saving and investment rates substantially, to join the list of 3G countries.

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