Where will GDP go after flood?

Where will GDP go?
I am not very mathematic oriented so I really don’t know.  Some said that stock market index can go to 800 in the coming months.  Recovery will not be quick. 
But here is the framework for you to think and fill in yourself.
Basic economics calculates GDP from 3 approaches.
Expenditure approach: C+I+G+X-M
Income approach: C+S(domestic)+S(foreign)
Sectoral approach: Agriculture, Manufacturings, etc.
When flood comes, it wipes out wealth. Wealth is past savings put into real assets.
When supply of goods are low, price will increase as an immediate reaction. 
Interest rate can not be raised because the cause is not from high demand but from supply shortage.
There will be high consumption, high investment and high government expenditure to replace damaged assets and continue production.
Domestic products for export are low.  And in the open economy like Thailand, inflation from shortage of foods and other consumer or durable goods will be translated into higher imports.
We can anticipate lower export and higher import than previously.  The balance of trade
 will be reversed or not depending on estimation of spending and damage and how fast the new investment.
If there is not enough capital inflow, international reserves will be lower.
Debts will be higher when business, government and household borrow. Savings will be depleted to finance consumption and investment.  
If domestic savings are not enough, and no direct capital inflow, we will see banks net foreign position does the offset.


4 thoughts on “Where will GDP go after flood?

  1. After tsunami in JL peaple tried to forecast what would happen to JL stock market.
    then they looked back to the event after the earth quack in Kobe. the JL economy recovered very fast after 1.5 years. Will our case be like that.?
    i think too much saving in non productive investment is not good for the eco.
    I think about what should be next for our world? what should we invest? if USA used to build a huge hoover dam or build some others big silly things to create job in the past.
    then our world should now invest in whatever in order to save more energy, create less pollution, having more green technology and production, no matter how much cost compared to current production.

    money is illusion.. man made and man imagines that it is real.

  2. I think our economy will recover quickly, but perhaps we will not get a meaningful or a well planned investment as Kobe. I remember the new downtown buildings. The city took the advantage of the disaster to re-build the city. But in our case in the south, Tsunami cleaned up the shore and beaches for use, then we pollute them again with ugly surroundings. Perhaps I am so inclined to orderliness, I hate people who do not have respect for public property.

    I agree with you that the world will be a better place if we invest intelligently with the view of caring for nature. Better still if we stop measuring everything in GDP, growth and consumption.

    Yes, I agree with you that money is illusion. But to rise above that perception, you need an intelligent leader both at home and at the global level.

    • I see the spending plan as a politico-economic means to gain confidence from the public and it could help the ruling party to divert the public issue from the present and very uncomfortable one to a kind of dream for those who have tendency to focus on money, rather than living lives and mismanagement problems. The flood crisis is just at the beginning as there could be many problems ahead, including household debt crisis and chaotic political violence ahead. The household sector in the central plain is collapsing amid heavy household debt and possible difficulties in repaying the (state) banks. After the crisis, it will require a huge amount of public money to compensate the losses and reconstruct the affected areas. Therefore, the government should not be making the plan too early without an effective and efficient strategy. The larger an inefficient spending plan, the likelihood of the debt crisis will take place. This is worrisome when the government said about its early intention to launch a hugh spending financed by public debt.

      Let me share my view only this for now.

  3. I have following comments to share. They came from practicing economist and executives in finance and banking.

    C.S. October 31
    SHARES RALLY — Time to sell. What EU is going to do 2-4 months from now?
    There will be no magic stick. Every major economy will have to tighten its

    belt. Plus the effect of the flood will be enormous. 2 to 3 months from now,
    I believe the index will be at the same level as in early 2010 (750-800)
    Prepare to buy when the index goes below 800.

    C.S. (29 Oct,2011)

    Demon Tues. Nov 1


    DJIA lost about 500 points in the first 2-day of this week. So is likely in the markets in the emerging countries, including Thailand.

    Whether the SET will drop down to the 800 level or not, we have to wait for the G-20 meeting in Cannes, France, on Nov 3-4. If the emerging countries, BRIC including Japan, clearly show definite signs of willing support to the EFSF’s Euro 1 trillion, proposed last week, the market should be able to ride out of the brink.

    The jitters are that those supports will naturally come with strings attached, and whether they will be large enough for the need. Can the EU accept them, in the midst of strong disagreement at home?

    Is it a time to sell now? You decide. — Demon

    CC, Nov 2

    I think there is a good possibility that the Thai market will fall below the 800 level for domestic reasons. Most analysts are predicting that GDP growth in 2011 will be below 3% and this implies that Q4 2011 will suffer a fall in GDP of 3 to 4%. Apart from the adverse effects of the current flooding on industry and commerce, the tourist industry will suffer greatly for a while. Foreigners are unreasonably afraid – charter flights going into Phuket in January have a large number of cancellation and are running at 50% of the level this year. QOQ GNP will not recover until Q4 2012 but that is because of the low base in Q4 2011. It will take at least 6 months before the electronics factories can be fully operational.


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