Thailand’s household debt, already among the highest in emerging Asia, is expected to rise further as a fresh Covid outbreak curbs incomes, weighing on consumer spending and heightening financial-stability risks.
Household debt stood at 13.8 trillion baht, or 87% of gross domestic product, at the end of September 2020, up from 79% a year earlier, according to Bank of Thailand data. Debt levels will be one of the risks the BoT considers in its policy decision on Wednesday after its latest meeting minutes cited household finances as a factor that warrants attention.
Even before the pandemic, “we were already concerned about the household debt level in Thailand, as it inhibits private consumption spending and long-term potential growth,” said Charnon Boonnuch, an economist at Nomura Holdings Inc in Singapore. The new outbreak, a worsening labour market and risks of another recession “will result in an even faster increase in household debt-to-GDP this year, weighing further on the already weak economic recovery.”
Thailand’s tally of Covid cases has more than tripled since mid-December, and the Finance Ministry last week lowered its GDP forecast for the year to 2.8%, from the 4.5% it expected as recently as October.
Despite that, one reason the central bank may hesitate to ease further — its key interest rate is already at an all-time low of 0.50% — is “the concern that loosening interest rates will see additional borrowing from households,” HSBC Holdings Plc economist Noelan Arbis said.
Right now, the baht, the new outbreak and economic recovery are foremost on the central bank’s mind, the economist said. But “as things normalise, which we should expect later in the year or maybe next year, I believe household debt will be the key consideration for the Bank of Thailand once again.”
The government and BoT have passed a series of stimulus and debt-relief measures to help those affected by the latest outbreak. Prime Minister Prayut Chan-o-cha has decided to start easing some restrictions from this week to limit economic losses, even if the number of new cases remains high.
Household debt has been a structural problem for years. The household debt-to-GDP ratio has been above 70% since 2012, with tax incentives, low interest rates, low inflation and a competitive lending environment all encouraging consumers to borrow.
Nuanchan Runkun, 36, is among many Thais struggling with debts of more than 1 million baht, most incurred before the pandemic began. But Covid has worsened things.
Her family lost two-thirds of its income after Nuanchun’s…
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