Here is another basic economics story that should be easy to understand once you think about. If you have borrowed a lot of money, you have to cut down your spending elsewhere.
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Personal debt still hampers spending
Pawee Sirimai
Even though household debt has been quite stable, massive leverage will continue to weigh on economic growth over the next few years, warns a high-ranking official at the Bank of Thailand.
"The problem of high household debt remains with us, and I think it will remain a drag on consumption for the next few years," said Mathee Supapongse, the deputy governor overseeing monetary stability at the central bank.
According to the Bank of Thailand's data, the country's household debt rose almost 80% to 11.5 trillion baht at the end of March this year from 6.41 trillion at the end of 2010. In terms of household debt to GDP, it also surged to 78.6% at the end of March from 59.3% at the end of 2010.
However, household debt has risen at a slow pace recently, gaining only 400 billion baht from the end of 2015. The ratio of household debt to GDP declined from a record high of 81.2% at the end of 2015.
The high family debt load has crippled purchasing power and private consumption, which accounts for half of the country's GDP, and prevented a broad-based recovery, Mr Mathee said.
"Household debt remains our concern," he said. "We've just started launching measures to curb high household debt."
The central bank recently tightened its regulations by setting a cap on the credit line for credit cards and personal loans for those earning up to 50,000 baht a month after it found young adults are the major new borrowers of personal loans, pointing to risks down the road for the country's household debt burden.
"However, the effect of the measure will not be harsh since it applies only to new customers," Mr Mathee said.
High household debt will remain a drag on consumption while keeping low-income earners in a vulnerable position based on income and interest-rate shocks, he said.
Private consumption usually grows 4-5% annually, but it has dwindled to only 2-3% in the past few years because of high household debt.
"During the past one to two years, consumption growth sagged to 2-3% because some income went through the deleveraging process for household debt," Mr Mathee said.
The central bank saw a slight improvement in private consumption in the second quarter this year, supported by higher farm income from increased agricultural production, but it has not been sustained, as farm prices are softening again.
He said the economic recovery this year is mainly supported by external demand from a strong recovery in exports and tourism.
