Thailand's high household debt will continue to constrain domestic consumption and economic growth in 2018, though external factors are supporting an expansion, says a senior official at the Bank of Thailand.
While economic growth gained further traction in the fourth quarter of 2017, driven mainly by external factors, domestic demand, household purchasing power and headline inflation remained below target and some pockets of risk to financial stability still warrant monitoring, said Jaturong Jantarangs, assistant governor and secretary of the Monetary Policy Committee (MPC).
The Bank of Thailand will continue monitoring the country's household leverage and purchasing power next year.
The country's household debt ratio fell to 78.6% of GDP as of the first quarter of 2017 after peaking at 82%, but debt is still high and pressuring domestic consumption.
Even though the economic recovery is gaining speed, its benefits have been felt unevenly, particularly among low-income earners, as people's purchasing power remains tepid.
The labour market has yet to fully benefit from the economic recovery, partly due to structural changes after increased adoption of automation in some industries.
Other factors depressing consumption include migration of labour from the manufacturing sector to the service sector, where productivity and wages are lower, and elevated household debt, particularly for low-income households.
Deleveraging household debt could take some time, with private spending remaining modest and not sufficiently broad-based going forward, Mr Jaturong said.
But private consumption will gradually expand in the period ahead, supported by improvements in farm income due to higher output and better earnings, especially those working in the high-income, export-related manufacturing and tourism sectors.
Paying off debts incurred from the first-car buying scheme initiated by the Yingluck Shinawatra government, and current state measures such as welfare schemes for the poor, should further provide a boost to domestic consumption, Mr Jaturong said.
The MPC at its last meeting on Dec 20 revised up its 2018 domestic consumption growth projection from 3% to 3.1%. The rate-setting panel has also upgraded its 2018 GDP growth outlook from 3.8% to 3.9%.
The upward revision was attributed to continued improvements in merchandise exports and tourism, underpinned by growth among Thailand's trading partners.
Private spending is set to gradually expand and become more broad-based. Fiscal impetus is also targeted to support growth.
With the upward trend of global crude oil prices, the MPC revised up its Dubai oil price forecast for 2018 from US$52.80 a barrel to $55. Rising oil prices are expected to drive inflation higher.
Headline inflation remains tame because of supply-side factors but is expected to slowly rise.
Such supply-side factors include an increase in farm output due to favourable weather.
Going forward, inflation is forecast to edge up slowly on the back of a gradual rise in demand-pull pressures, given the improved growth outlook, together with the impact from an increase in excise tax.
But inflation could be depressed by several factors, such as fresh food prices that will likely be low because of technological advancements and increasing price competition.
The rate-setting committee projected headline inflation of 0.7% and 1.1% for this year and next, while core inflation is forecast at 0.6% and 0.8% in 2017 and 2018, respectively.
Moreover, the MPC said headline inflation will return to the lower band of the target range during the first half of 2018.
