Household consumption in Thailand has been constrained by an ageing population and rising consumer debt, and a string of failed stimulus packages launched in the early 2010s led to a sharp increase in the number of distressed and non-performing loans (NPLs) in the consumer segment, exacerbating already challenging circumstances. However, the tide is beginning to turn. The Bank of Thailand (BOT) has worked to tighten lending, and household debt has eased since reaching a peak of 80.8% of GDP in 2015. Meanwhile, consumer lending recorded strong growth in 2017 alongside a significant increase in domestic automobile sales.
CONSUMPTION SLIDE: Although private consumption has improved, growth remains subdued. The BOT’s private consumption index shows the metric expanded by 1.4% in 2015 and 3.7% in 2016. However, household final consumption expenditure in current US dollars fell from a high of $220bn in 2013 to $214bn in 2014 and $205bn in 2015, before recovering to $206bn in 2016.
Other indicators have also not met expectations: passenger car sales eased from 411,000 units in 2014 to 383,000 in 2015 and remained subdued at 389,000 in 2016, while commercial vehicle sales decreased from 417,000 units in 2015 to 380,000 in 2016. The retail sales index was also relatively flat, shifting from 213.02 in 2014 to 212.92 in 2015 and 215.05 in 2016, while the consumer car sales index declined from 105.54 in 2014 to 98.16 in 2015 and 98.59 in 2016.
LONG-TERM TREND: Subsiding consumption is not a recent trend: household consumption as a percentage of GDP has dropped off in recent decades, from 77.7% in 1960 to 60.95% in 1985, 51.23% in 1998 and 55.04% in 2008. General consumption has also continued a steady downward trend, worth 55.03% of GDP in 2011, 53.33% in 2013, 48.86% in 2015 and a 56-year low of 46.18% in 2016, the most recent year for which statistics from the World Bank were available at the time of publishing.
The problem is partly structural. Thailand is set to be the first emerging economy to become an “aged society”, with 14% of the population forecast to be over 65 years of age by 2022 (see analysis). The UN has also projected that 42% of locals will be over 60 years old by 2044. This demographic imbalance could cause difficulties for the younger generation financing the universal health care system in the coming decades. A shrinking workforce and low levels of skilled labour are also forecast to weigh on long-term consumption. Successive government regimes have taken steps to boost private consumption, seeing mixed results.
STIMULUS EFFORTS: In 2011 the government of then-Prime Minister Yingluck Shinawatra introduced a rice-buying scheme offering up to 50% above market rates, which cost more than $21bn by late 2013. A $681m subsidy programme for rubber farmers was also unveiled in 2013, with global ratings agency Moody’s later reporting that these increasingly expensive subsidies were considered to be credit negative.
In 2011 the Yingluck administration also launched a $2.5bn lending scheme for first-time car buyers. Beneficiaries would receive tax refunds of up to $3200 on purchases of domestically manufactured vehicles. This resulted in surging passenger vehicle sales growth of 84.2% to 694,000 in 2012, which remained elevated at 663,762 in 2013, before easing to 411,414 in 2014. Commercial vehicle sales followed a similar trend, at 218,000 units in 2011, 742,000 in 2012, 667,000 in 2013 and 470,000 in 2014.
While these stimulus programmes boosted sales in the short term, many low-income borrowers could not afford to repay their loans. By September 2013 more than 100,000 new car buyers defaulted on loans and had their vehicles repossessed. Furthermore, farmers participating in the rice-pledging scheme were able to access loans for the first time, leading to a rise in defaults when the initiative ended.
The government also rolled out minimum wage increases in 2011, allowing many to qualify for personal loans and credit cards for the first time, causing more
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