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Thailand – BoT: Consumption eroded by high debt
Swelling household debt is a major factor diminishing the purchasing power of lower-income earners, despite the improving economic recovery, says the Bank of Thailand’s chief.
“Despite the rebounding economy, most Thais are not experiencing improvement because their debt burden is pressuring their purchasing power. The Bank of Thailand is working on this problem,” Bank of Thailand Governor Veerathai Santiprabhob said at a seminar hosted by the Thammasat Economics Association.
The country’s household debt-to-GDP ratio was at 80% in 2015 before declining to 77-78% at present.
The central bank recently raised the country’s GDP growth rate to 3.8% this year, in line with the IMF and local economic and research house predictions.
For next year, the central bank has projected the country’s GDP growth at 3.8%, partly because of a high base effect.
Economic expansion next year is expected from all economic engines, including export, government and private investment, domestic consumption and tourism. Private property investment has shown positive signs both in higher capacity utilisation and productivity investment.
Pipat Luengnaruemitchai, assistant managing director of research and financial institutions analyst at Phatra Securities, said even though Thai economic growth is expected to approach 4% this year, the recovery remains fragile as some sectors, particularly the low-income segments, have not benefited from the pickup in momentum, while farm product prices remain low and purchasing power is still weak.
It will take time for the economic rebound to trickle down to lower-income groups, he said.
A raft of risks is threatening economic recovery, including asset price fluctuation from prolonged low interest rates, financial bubbles in several countries, changes in monetary policy of major economies, US trade policy and geopolitical tensions, said Mr Pipat.
Fast-changing technology and ageing society are also threats to economic progress in the long run, he said.
Whether Thailand can attract investment in new technology and how to handle the obsolete technology in the country’s production base are also challenges, said Mr Pipat.
Demographic changes also threaten the not-insignificant number of labour-intensive industries. The working-age population is reducing while retirees are growing in number, which will take a toll on welfare and economic growth, he said.
The stronger baht can be attributed largely to the country’s current account surplus, expected to be close to 10% of GDP, and the US dollar retreat, he said.
To strike a balance, the country needs outbound investment, he said.
He ruled out a cut in interest rate as economic growth will help inflation return to the Bank of Thailand’s inflation targeting band.
While the economic recovery is gaining traction around the world, inflation is still weak, which this could be a reflection of structural change.
Meanwhile, Amonthep Chawla, head of research at CIMB Thai Bank, said that export and tourism sectors are the main engine driving the economic growth but domestic demand and consumption remain tepid as people are repaying debt instead of spending.
Private investment is also subdued as companies delay their investment plans due to uncertainty about future policies, leaving production capacity unused and inventory left over.
Even though exports have picked up, the growth is the lowest pace in the region, he said, adding that merchandise shipment prospects next year will not be as robust as it was this year, and how much strong exports can help boost domestic consumption and investment warrants monitoring.
Mr Amonthep forecasts that the economic growth in 2018 would be at the similar pace to this year as domestic demand will play a greater role and offset softer exports and tourism.
Local interest rate is likely to be kept unchanged until next year, but the central bank needs to oversee financial stability, he said.
Source: https://www.bangkokpost.com/business/finance/1361919/bot-consumption-eroded-by-high-debt