Debt and deflation threaten economic recovery
Weak consumption caused by high levels of household debt is likely to put a damper on Thailand’s economic recovery, according to a number of business leaders.
In fact, the chairman of the Thai Listed Companies Association said the country faced the very real prospect of deflation as the prices of commodities such as rice and rubber continued to fall.
A recent survey of 77 listed companies found that most remained concerned about long-term political instability, despite the general positive feeling towards the military takeover in late May. Other major concerns were labour shortages, which meant an increasing reliance on imported labour from Cambodia, Laos and Myanmar, household debt, and the military government’s capability to accelerate public spending.
In the short term, labour shortages are generally overcome by imported labour, but the reality is that as Cambodia, Laos, and Myanmar see their own economies strengthen over time, the numbers of their nationals willing to relocate to Thailand is likely to be significantly reduced.
Labour shortages particularly affected the tourism and health care sectors, both of which are prime generators of income across the economy, and both are areas in which Thailand is noted.
Household debt increased by a whopping 16.6 percent across Thailand in the last year and is growing at a faster rate than any other Asian country, according to the country manager of Ipsos Business Consulting.
An executive vice-president of the Bangkok Bank has echoed these concerns, stating that household debt has doubled to 83 percent in the past 10 years and this has commercial banks deeply concerned.
On one level, the rich are continuing to spend without much concern. The Bangkok Bank executive noted a recent motor show where 40,000 vehicles with a combined value of 90 billion baht were snapped up, at an average of 2.2 million baht per vehicle.
He noted that most of the money which was recently handed to rice farmers for the failed rice pledging scheme was not circulating in the economy as most farmers needed the funds to repay debts. Equally, a lot of middle-class people were still locked into paying off their debts due to the first-time car buying scheme.
The Bangkok Bank spokesperson said the country’s economic growth has been financed by debt for the past decade or so and it is simply impossible for this situation to continue much longer.
The Bangkok Bank believes the best way for Thailand to grow into the future is to transform its economy to be based more on knowledge and innovation while the key agricultural sector needed to see higher incomes but based on long-term sustainability.