On the tail end of a patchy recovery
While policymakers have been quick to proclaim an upturn is on the horizon, the man on the street has a far starker view of economic reality, write Pathom Sangwongwanich and Darana Chudasri
Agreat sense of discrepancy has emerged as rosy news headlines on Thailand’s economic growth in the first half do not align with reality, with people from all walks of life wrestling with bread and butter issues. In downtown Asok, known as a bustling financial district and exciting nightlife hot spot, things are not looking good for Suwaree Hirunporn-thanont, a 48-year-old small restaurant owner who is feeling the pinch as the prolonged economic woes have hit consumer spending on food, putting a dent in her earnings.
“My profit used to be 4,000-5,000 baht per day, but now I hardly turn one. Whatever profit I do make, I use it to buy ingredients,” said Mrs Suwaree.
She has resorted to making less food to sell in order to cope with the drop in revenue and consumer spending. Still, her spending more often than not exceeds her income, which prompted Mrs Suwaree to seek loans, both from the formal and informal sources.
As taught in any introductory economics course, GDP is a barometer widely used to measure a country’s economic performance. In this case, policymakers can finally crack big, sparkling smiles. After previous attempts to revive economic growth proved futile, GDP growth figures in the first half came as a godsend, nearly inducing a sense of euphoria.
The National Economic and Social Development Board reported that Thailand’s GDP rose by 3.7% year-on-year in the April-June period after expanding 3.3% in the first quarter.
The rise marked a 17-quarter high, after the 5.2% growth spike in the first quarter of 2013. In the first half, the economy grew by 3.5% year-on-year.
An influx of Chinese tourists along with the construction of new BTS skytrain lines may further reinforce such ecstatic feelings. But upon closer inspection, what you find is an unbalanced economic recovery, where unequal wealth distribution persists across all sectors and the anguish endured by the middle class and poor persists.
VICIOUS CYCLE
Although it may not be too tangible, Thailand’s economic recovery is not a fantasy. Rather, it is not broad-based, with the recovery momentum concentrated in the export and tourism sectors.
A recovery in Thai exports is mainly attributed to a pickup in commodity prices in the global markets, contributing to greater commodities growth in the first half, said Kampon Adireksombat, senior vice-president of Kasikorn Securities.
So what is constraining a more broad-based economic recovery? If the devil is in the details, household debt is a key factor keeping a lid on private consumption.
Debt is a word which Thais are familiar with, as vivid memories of the 1997 Asian Financial Crisis still linger for many. While the current extent of household debt may not be a conduit reigniting another financial meltdown, the spiralling debt problem makes it difficult for consumers to make ends meet.
Despite a pickup in commodity prices, households are cautious on spending as they have to allocate their income for debt-servicing and house repairs in light of heavy flooding, resulting in sluggish personal spending, said Amonthep Chawla, head of research at CIMB Thai Bank (CIMBT).
Similar to Mrs Suwaree, Nattaya Jitmun is nonchalant about the much-touted economic recovery, saying daily life remains a struggle with money hard to come by, as income generated from food sales fail to cover household spending.
“My earnings are used for debt repayment, which subsequently causes monthly spending to outweigh earnings. I have become more indebted since I have to look for more money to cover [household] spending,” said the 55-year-old food vendor in Chiang Mai province.
“It is a vicious cycle,” said Mrs Nattaya, who has monthly earnings of 25,000 baht.
Burdened by credit card debt and bank loans, Mrs Nattaya has tried to service her obligations in a timely fashion, but admits that there are times when she has failed to make repayments on account of being short on cash.
Elsewhere in northern Thailand, an employee at a commercial bank living in Phrae province also shrugs off the headlines heralding the economic recovery, lamenting that the cost of living remains high and the majority of income is used for household spending and servicing credit card debt, together with mortgage and car payments.
“My situation is quite awful at the moment because my earnings almost equal my expenses,” said Srisuda Chaisombat, 31.
“People whom I know are facing a similar situation, but I don’t know how bad their [finances] are.”
Thailand’s household debt rose almost 80% to 11.5 trillion baht at the end of March from 6.41 trillion at the end of 2010, according to Bank of Thailand data. In terms of household debt, it also surged to 78.6% at the end of March from 59.3% at the end of 2010.
“The problem of high household debt remains with us, and I think it will remain a drag on consumption for the next few years,” said Mathee Supapongse, the deputy governor overseeing monetary stability at the central bank.
Lacklustre private consumption is also mirrored through subpar sales of fast-moving consumer goods, growing a meagre 1% in the first half, according to market research firm Kantar Worldpanel Thailand.
Sales in three major product categories — household goods, personal care and food and drinks — dropped significantly in the first half.
“[Consumers] buy less volume from fewer categories, shopping less often and paying less,” said Kantar’s new business development director Aitsanart Wuthithanakul. “They choose to buy necessary products, forgoing unnecessary ones.”
The non-durable index of private consumption fell by 0.7% year-on-year and 0.6% year-on-year in the first two quarters, respectively, according to central bank data. The index rose slightly to 0.3% in July, down from a 1.6% increase in June.
MEAGRE INVESTMENT
Akin to domestic consumption, eyes are fixed on private investment, as it is one of the key indicators suggesting a boom or bust cycle for an economy.
Although private investment rebounded considerably between April and June, that reality was not reflected in the central bank’s lacklustre business sentiment index, while the manufacturing production index and the capacity utilisation rate remained tepid, said Mr Kampon of Kasikorn Securities.
Private investment rose by 3.2% year-on-year between April and June, up from a decline of 1.1% registered in the first three months, National Economic and Social Development Board (NESDB) data showed.
Private investment is mostly seen in the construction sector, where there is a glut of condominiums in Bangkok, while further monitoring of the capacity utilisation rate is warranted to assess private investment trends, said Mr Amonthep.
The private sector is not just waiting for Thailand’s general election to occur, but also focusing on continuity in state-level investment policies, such as the special economic zones and megainfrastructure investment projects by the next government, he said.
Despite disagreeing with the NESDB’s GDP report on the economic recovery, Thongchai Juntawong, a 41-year-old state schoolteacher based in Chiang Mai, said the economic outlook this half is expected to continue improving slightly once the high tourist season kicks off and crop-harvesting among farmers begins.
A similar view on improved economic conditions was offered by Ratthabol Suadmalai, 31, who attributes his positive outlook to the e-commerce boom and growing digital spending.
As an employee earning a fixed monthly income, his salary enables him to pay for necessary expenses including rent, said Mr Ratthabol, who works as a business-to-consumer coordinator at a global insurance company in Bangkok.
Without a consistent income, it would be difficult to pay for incurred expenses, said Mr Ratthabol.
This proves a point whereas self-employed individuals, or those working in the informal sector, are at the mercy of the swaying economic pendulum.
“Self-employed people warrant the most concern as they have been affected by sluggish private consumption, which in turn causes their income to drop,” said Mr Amonthep.
My earnings are used for debt repayment, which subsequently causes monthly spending to outweigh earnings. I have become more indebted since I have to look for more money to cover [household] spending. NATTAYA JITMUN Food vendor in Chiang Mai