High household debt – made worse by the pandemic – could sink the economy, experts warn

Experts are warning, this week, that high household debt could sink the economy with Covid-19 fallout exacerbating a longstanding issue in the country.

Even before the pandemic, Thailand has some of the highest household debt rates in the world when measured as a percentage of income. A study by the Bank of Thailand as far back as 2014 found that high household debt contributed to lowered consumption sentiment and lowered purchasing power.

Other studies including those conducted by the TDRI in 2016 showed that the economy was severely hampered by the effects of high household debt and lowered purchasing power. At the time, household debt levels reached 80 per cent of the GDP.

The situation has been made worse by the pandemic. The Bank of Thailand said last year that Thai household debt in of 2020 reached 83.8 percent of the GDP. Analysts at the Kasikorn Research Center (K-research) say that percentage could be closer to 90 per cent by year’s end if government policies do not help ease the burden on households.

On Monday, Thanavath Phonvichai, the president of the Center for Economic and Business Forecasting at the University of the Thai Chamber of Commerce (UTCC), said that the average household debt expanded 42.3 per cent in the past year, approaching 484,000 baht per household. 

According to a survey done by the UTCC, the higher cost of living during the pandemic, the lack of income from lay-offs, and inadequate financial stability were the main drivers of increasing household debt.

The UTCC said that if unaddressed and not eased by better government policy, the situation could exacerbate further and lead to rising non-performing loans.

Thanavath said that he “still believes the situation is under control as the proportion of informal debts is still low.”

Revising GDP growth down

The forecasters at UTCC have downgraded Thailand’s GDP projection from 2.8 to 2.2 per cent growth, due to the worsening economic outlook in the next three months.

“We are worried about the country’s economy during the next three months if the outbreak is still uncontainable. The result may be a higher unemployment or layoffs,” the forecasters said in a statement.

Thanavath urged Thai government to take action on the household debt issues by rolling out economic stimulus measures as suggested by the private sector. He also said that the self-employed are the most vulnerable group and most likely demographic to be unable to pay their debts.

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