by Manuel Alvarez-Rivera, Puerto Rico
Voters in the Kingdom of Thailand went to the polls on Sunday, December 23, 2007 in the first parliamentary election held since the September 2006 military coup that overthrew the elected but increasingly authoritarian and allegedly corrupt government of Prime Minister Thaksin Shinawatra.
Thailand's legislature, the National Assembly is composed of the Senate and the House of Representatives; the latter has 480 members, of which 400 are elected in 157 two- or three-seat constituencies, while the remaining eighty seats are filled in eight electoral regions by party-list proportional representation.
Since a 1932 revolution brought an end to eight hundred years of absolute monarchy, Thailand has suffered numerous coups, and the country has alternated between intervals of at least nominal democratic governance and periods of military rule.
The democratic interludes were often characterized by fractious multi-party politics, weak coalition governments, and the participation of high-profile military figures in prominent leadership roles. However, in the 2001 general election the new Thai Rak Thai (TRT; Thais Love Thais) party of Thaksin Shinawatra, a billionaire telecommunications tycoon, emerged as the dominant political force, displacing the traditional parties on a populist platform of development money for rural villages, debt moratoriums for farmers and low-cost health care. Despite accusations of nepotism and cronyism, Thaksin remained highly popular among the rural poor, particularly in the northern and northeastern parts of the country. As a result, TRT won a large parliamentary majority in the 2005 general election, and Thaksin was able to form the first single-party government in the history of Thailand.
However, Thaksin's triumph proved to be short-lived. His government became even more intolerant of opposition criticism, and a snap legislative election called the following year in the wake of mass protests demanding Thaksin's resignation was boycotted by the opposition parties. The vote was subsequently invalidated by Thailand's Constitutional Court, and a fresh election was slated for October 2006, but the military staged a coup prior to the election and overthrew Thaksin, who was at the time in New York City. Corruption was cited as the reason for the coup, although widespread discontent about Thaksin's heavy-handed suppression of an armed insurgency in Thailand's predominantly Muslim south (the rest of the country is overwhelmingly Buddhist) appears to have been a major contributing factor as well.
The election is being held under a new constitution approved by voters last August - the country's sixteenth since 1932; however, martial law remains in force in 31 of Thailand's 76 provinces. TRT was dissolved after the 2006 coup and party leader Thaksin has remained in exile (for good measure, he was banned from taking part in politics for five years, along with more than a hundred prominent party figures), but a pro-Thaksin party - the People's Power Party (PPP) - has emerged as a major contender in the election. In fact, PPP leader Samak Sundaravej - an old hand in Thai politics - has made no attempt to conceal that 1) he's Thaksin's surrogate; and 2) that he wants to bring Thaksin back. In fact, Thaksin - who faces corruption charges in Thailand - has indicated he will return early next year. Meanwhile, the Democratic Party (PP), the main opposition party during Thaksin's tenure in power, is likely to emerge as the PPP's main challenger under the leadership of Western-educated, 43 year-old Abhisit Vejjajiva.
However, neither party may secure an absolute parliamentary majority, and several smaller parties may hold the balance of power, chiefly among them Chart Thai, led by former Prime Minister Banharn Silpa-Archa (another old-school politician). It's no secret that the military does not wish to see PPP in power, although they have insisted that the outcome of the election will be respected regardless of who wins. Nonetheless, it is anticipated that if no party secures an overall majority, the armed forces will exert pressure over the smaller parties to reach a coalition agreement with the Democrats.
What's less clear is what would happen if PPP wins an absolute majority. There have been rumblings about alleged PPP vote buying - in truth, an endemic problem in Thai electoral politics - and it's quite possible that the vote could be at the very least partially annulled (or PPP forcibly disbanded) on the grounds of electoral irregularities. A further military intervention cannot be ruled out, but if it takes place it may well generate far less public sympathy than the 2006 coup, particularly since the interim government put in place by the armed forces after the coup has proved to be inept, and Thailand's economic growth is now the slowest in the region. Nonetheless, the return road to democracy may turn out to be a rocky one.
Update
In a stinging rebuke to the military, voters in Thailand gave the People's Power Party (PPP) a plurality of seats in last Sunday's legislative election. According to preliminary election results, PPP won 232 of 480 seats in the House of Representatives - nine short of an absolute majority. Meanwhile, the Democrats obtained 165 seats, while Chart Thai (Thai Nation) secured 37, Puea Pandin (Motherland) 25 and other parties captured the remaining twenty-one seats. Although PPP won the largest number of both constituency and proportional seats, the Democrats polled a very narrow plurality of the party list vote.
PPP has indicated it has the votes to form a government - the party would have a parliamentary majority with the support of either Chart Thai or Puea Pandin - potentially setting the stage for a collision course with the armed forces, which remain in a position of considerable influence under both the new constitution and an internal security law adopted shortly before the election, that grants the military the power to intervene unilaterally in the political process.
Sunday, December 23, 2007
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Special Feature, The German Economy At A Glance
Welcome to the Global Economy Matters Blog. Below you will find the normal chronological blog posts. But first here is our Monthly Special Feature which in January 2008 focuses on Germany. Here you will find charts which provide background data on the German economy. We hope these will be of some help to the first time reader here, making it easier to contextualise, assess and get to grips with the general argument being presented on the blog. The big question which arose concerning the Germany economy in 2007 was whether or not the new found dynamism in German economic activity constituted some form of remaissance, and formed part of a global decoupling process whereby a sustainable recovery in domestic demand was taking place. Analysts on this blog never really accepted this view. The key question and central enigma associated with the German economy is really why domestic demand should have remained so congenitally weak over such a considerable period of time.
Since this phenomenon is also to be observed in the the two other societes with very high (circa 43) population median ages - Italy and Japan - we postulate that demographics and population ageing processes offer some part of the explanation here.
Basically what we can observe as societies move above the 40 median age mark are a number of stylised facts. Weakness in domestic private consumption would be one of these, absence of consumer credit driven property booms would be another, growing pressure on the national debt as the elderly dependence ratio steadily rises would be another, and growing dependence on export growth for sustaining GDP growth would be the central feature of the whole edifice.
We hope you will find the background data presented here useful in assessing the argument which we are presenting on this blog, which is basically that a key component in the longer term growth stagnation from which Germany is suffering has its roots in the underlying demographics. Basically and in the long run (possibly with a 30 year lag) fertility does matter. Please click on thumbnails for better viewing.
What follows is a very rough and ready attempt to describe in broad brush strokes how the contemporary German economy actually works. First off, and as is well known, German society is ageing, and at the same time the German population has started declining. Not only is Germany's median age rising, the proportion of the population in the key 25-49 age group is now falling.
As can be seen from the chart this crucial age group touched its highpoint in 1997/98. This could be thought of as the moment of maximum capacity for the German economy since it includes the crucial 25 to 40 household-former, first-time-homebuyer group. In terms of credit expansion, it is this group which drives a significant part of internal demand.
The age group also includes another important group, the 35 to 50 years one. This group drives an economy in productive terms, since these are the prime age workers. If you think of a society as a 100 metres sprint athlete, then there is an age when this athlete is at the maximum of his or her running potential, an age after which each time they can only run the 100 metres more slowly.
Well a society is the same in terms of its collective economic potential, without addressing underlying issues either through fertility or immigration, it can only move forward more and more slowly. Consumption becomes flat, and GDP growth - gioven the external dependence - fragile.
Private consumption has hovered pretty close to the 60% mark for many years now, while government consumption - after moving sharply upwards as a total share in the first half of the 1970s has subsequently remained pretty constant, moving around the 19% of GDP mark. The big difference has been in the importance of fixed capital formation (GFCF) which reached from 1975 to 2000hovered around the 22 - 24% of GDP mark.
Prior to 1975 GFCF was at a much higher level, while post 2000 it has dropped substantially And So what we can see is that the year between, say, 1975 and 2000, when GFCF remaind a more or less constant share of GDP, constituted - to use the language of neo-classical economics - the constant growth period of the German domestic economy.The years prior to 1975 were the convergence, or "catch-up" years
And especially the 1960s, after Germany finally broke out of the destruction and devastation of WWII - while the years after 2000 constitute what the neo-classicists would call the "balanced growth period", although as we can see, it isn't very balanced, and there certainly isn't a steady state.
2008 Forecasts: There is a consenus at the present time that the German economy is slowing. Where there is no real consensus is over the rate at which it is slowing and where and when it will settle. It is clear that GDP growth in 2007 will be below the heady 3.1% annual rate achieved in 2006. The OECD last December revised their 2007 German forecast down to 2.6%, and their 2008 one down to 1.8%. The IMF in their October World Economic Outlook forecast growth for 2007 at 2.4%, slowing to 2% in 2008. Morgan Stanley's Elga Bartsch, while optimistic that the German economy will whether the credit crunch better than most (and here she may well be right) is somewhat more sanguine, putting 2008 growth at 1.5%. In general though I rather doubt her overview that "Germany could well be on the way to becoming the new growth locomotive in Europe." and especially her suggestion that "the phase of underperformance in terms of GDP growth, which has plagued Europe’s largest economy for years, is clearly over." Unfortunately, what we are arguing on this blog is that Germany's GDP growth rates since the mid 1990s are not some special kind of "underperformance", but what can be expected from a society with a rapidly rising median age which is increasingly dependent on exports rather than domestic consumption for growth.
The EU commission in it's November 2007 forecast was also convinced that the German economy was now on a "solid growth path", forecasting 2.5% growth for 2007 and 2.1% for 2008.
I personally will be very surprised if we see growth in the region of 2% for the German economy in 2008, and I even consider the 1.8% from the OECD and 1.5% from Morgan Stanley still on the high side given the extent of downside risk. Basically the reasonably favourable depreciation rules which currently apply to German investment have been changed as of 1 January 2008, and we might reasonably expect to see some sort of impact on investment comparable with the negative shock which hit private domestic consumption following the VAT rise on 1 Jan 2007. In addition all the indications suggest that German consumption will continue to be weak in 2008. So if consumer consumption is at best flat, governemnt consumption equally so, and investment and construction weakening, we are simply lefy with export growth, and here the outlook is definitely more negative in 2008 than it was in 2007. The Spanish economy (one important German customer) is visibly wilting by the day, as is the UK (another big customer), but it is to Eastern Europe we must look for the biggest impact on German exports of any correction in 2008. Just one data point should suffice, Germany exports roughly the same value of goods to the Czech Republic (and more to Poland) as it does to China. This means that Geramny is proportionately not that exposed to any slowdown in China, but hugely exposed to any sudden shift in growth and demand in the East of Europe.
So I would say, that on current data, 1% growth in Germany in 2008 look a reasonable estimate at this point, but that this needs to be taken to mean with considerable downside risk. Germany is now tremendously dependent on what happens elsewhere, and until what does actually happen elsewhere becomes clearer it is difficult to be more precise on Germany.
The only apparent bright spot on the horizon is employment, but I am dubious that in the context of Germany's ageing workforce this will work through as some are hoping, as I expain at some considerable length in this post here. My opinion is that Germany will enter recession at some point during 2008, and that we may well have 2 consecutive quarters of negative growth. The continuing high euro will maintain pressure on German exports, and high oil and food prices will maintain pressure on the inflation front, at least in the first half of 2008. The ECB will probably switch stance towards rate reductions at some point, but since, as Elga Bartsch among many others so eloquently argues German internal consumption and investment are not especially dependent on credit conditions, easing from the ECB may not have as much impact as one would hope for.
Key Posts For Understanding The Present Path of the German Economy
Is The German Economy Heading For Recession in 2008?
Employment and Unemployment in Germany January 2008
Germany Economy, What Price the VAT Effect Now!
The German Economy, Employment, Export Shares and Age Structure
Structural Aspects of German Export Dependence
Does NeoClassical Steady State Growth Really Exist?
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