MPC: GDP improving, but domestic recovery remains uneven
Thai economic growth momentum has picked up pace, driven largely by robust exports, but the domestic recovery remains uneven, cramped by swelling low-income household debt, according to the edited minutes of the last Monetary Policy Committee (MPC) meeting released yesterday.
“The committee believes growth development still warrants monitoring for some time,” the MPC said. “Accommodative monetary policy remains necessary to support more broad-based and stronger domestic demand.”
On May 16, the committee voted 6-0 to leave the one-day repurchase rate unchanged at 1.50%, where it has been since April 2015. One panel member, deputy governor Paiboon Kittisrikangwan, did not attend the meeting.
The i ncrease i n non-agricultural household income was concentrated in middle-and high-income households, which supported growth in durable goods consumption, while low-income households still lived on stagnant earnings, with elevated household debt remaining a drag on consumption, the MPC said.
For agricultural households, although agricultural output expanded, purchasing power started to improve only in product groups that experienced higher prices, such as jasmine rice and cassava.
The country’s economic growth in the first quarter had risen by 4.8% year-on-year, the fastest pace in five years, accelerating from 4% growth in the previous quarter. The stronger-than-expected GDP for the first quarter prompted the National Economic and Social Development Board to raise its economic growth forecast to 4.24.7% this year from 3.6-4.6% in February, and the Fiscal Policy Office upgraded its growth outlook to 4.5% from 4.2% previously predicted.
Private consumption, particularly of durable goods, steadily expanded, but the improved purchasing power had yet to fully extend to all economic sectors, the minutes said.
The increase in farm income following higher agricultural output was a result of the low base. Earnings of low-income households remained fragile and dependent on government subsidies, the MPC said.
Regarding the labour market, which acts as a key channel for overall macroeconomic growth to trickle down to household spending at the micro level, there were structural challenges in the labour market such as automation in the production processes, limited skill flexibility that constrained mobility across industries, and job searches by graduates that were taking an increasingly longer time.
Unlike the US and South Korea, where economic recovery is taking place in line with significant deleveraging, Thailand saw its household debt fall at a slower pace, reflecting some structural problems that had yet to be fully resolved, the minutes said.
Some committee members noted that the duration of consumer loans in Thailand was shorter on average compared with other countries and a longer loan’s term would lead to lower monthly interest expenses and consequently allow households to have higher disposable income.
Furthermore, some committee members felt that certain financial stability risks were self-correctable, while some other risks might warrant regulatory measures such as credit card and personal loan measures, which the Bank of Thailand already implemented in order to tackle household debt problems last year.