UN agency cuts Thai GDP view

High household debt, China woes to take toll

Thailand’s economic growth outlook this year has been sliced to 3.5% due to headwinds from swelling household debt and China’s economic slowdown, according to the United Nations Economic and Social Commission for Asia and the Pacific (Escap).

High household debt in Southeast Asia’s second-largest economy has been identified as one of the key factors weighing on private consumption growth in 2016, said Hamza Ali Malik, Escap’s Bangkokbased chief of macroeconomic policy and analysis.

Thailand’s household debt rose to 10.8 trillion baht or 81.1% of GDP in last year’s third quarter, up from 10.7 trillion baht or 80.6% in the second quarter, according to Bank of Thailand data.

Uncertainty about China’s economic condition and the spillover impact on regional economies are crucial factors affecting Thailand’s export and financial sectors, Mr Malik said.

“But Thailand is not alone in experiencing this gradual and slow pickup, as a lot of countries are going through a similar phase because a lot of these countries have been primarily dependent on export-led growth strategies,” he said.

Although he deems it acceptable to pursue an export-led growth strategy, Mr Malik said such countries should concentrate on domestic and regional demand as shipments to advanced economies remain subdued.

Escap previously forecast Thai GDP growth of 4% for 2016. Last year’s economic growth is expected to come in at 2.6%, down from a previous 3.9% projection. A Thai export forecast was not provided by Escap.

The Bank of Thailand earlier cut its economic growth estimate for 2016 to 3.5% from 3.7%, citing heightened downside risks such as drought, China’s economic transition and the divergence in monetary policy among major economies.

Thailand’s annual inflation estimate for this year has been revised down to 1.5% from 2%, Mr Malik said, citing reduced economic growth expectations and effects from low commodity prices.

Shamshad Akhtar, Escap’s executive secretary, said robust public spending plans, a tourism recovery and a pickup in private spending would be positive trends for the Thai economy this year.

“Public investment has been raised by a combination of expenditure reallocation, large infrastructure development and revenue measures,” she said.

Shurojit Banerjee, Escap’s economic affairs officer, said the Bank of Thailand would be likely to let the baht depreciate slightly in order to stimulate exports.

“Our advice is not to do it [competitive currency devaluation], because in the end it does not help anyone as your total export value is going to go down as a group,” he said.

But a full-blown currency war is unlikely because China’s central bank has been attempting to calm market jitters by stabilising the yuan’s value against the US dollar, Mr Banerjee said.

Developing economies in the AsiaPacific region grew by an estimated 4.5% in 2015, down from the previous 4.9% forecast and a low since 2009, Escap said.