Thailand is entering into stagflation as there is no consumption to lubricate the economy, says Finance Minister Sommai Phasee.
A vendor pushes a cart past a luxury store at Ratchaprasong intersection in Bangkok but there is no consumption to power the economy, says Finance Minister Sommai Phasee. SEKSAN ROJJANAMETAKUN
"The poor people don't have money to spend while people who have money to spend are not confident about the future, so no one consumes anything," said Mr Sommai.
However, he does not see the situation as critical as the government's fiscals are quite strong and its soon-to-be imposed stimulus measures are expected to boost liquidity.
"We will assess the situation and the results of the measures in the first quarter of this fiscal year," said Mr Sommai.
The high level of household debt in a number of Southeast Asian countries also poses a risk for private consumption growth and banks' asset quality, according to Moody's Investors Service. But it is ultimately manageable, it said.
"While elevated household debt could place refinancing pressure on mortgage and consumer credit as the global cr edit cycle gradually tightens, Southeast Asian bank systems are largely sound and can withstand significant asset deterioration," said vice-president and senior research analyst Rahul Ghosh.
"In addition, if these stresses begin to affect the wider economy, regional governments can implement counter-cyclical policies to support domestic demand."
With the US Federal Reserve likely to raise rates in 2015, capital inflows into Southeast Asia will moderate, says Moody's. Rapid growth in consumer credit has led to several pockets of high household leverage.
Malaysia and Thailand are most vulnerable to rising rates due to high overall indebtedness and a rapid pace of credit accumulation in recent years, the international rating agency said. Household debt as a share of GDP was high for both, at 87% for Malaysia and 82% for Thailand, at the end of 2013.
In addition, household debt relative to income levels in the two countries is also elevated, suggesting that debt-servicing capacity in both is likely to become problematic as credit conditions become less favourable.
However, regional banking systems show strong internal defences, high capitalisation levels, robust profitability and low reliance on wholesale funding.
If these stresses pressure household balance sheets or property prices, relatively subdued domestic inflation in most economies in the region give central banks room to loosen their monetary policy stances if necessary, Moody's said.
Public balance sheets across Southeast Asia are relatively healthy compared with global peers, which suggests that governments could initiate stimulus packages and spending programmes to support domestic demand.
Overall, Moody's thinks that although the household sector in some of the region's economies may experience pressure as a result of higher global interest rates, the risks are well contained and can be mitigated by government action.
Meanwhile, Mr Sommai will propose an outline plan to address the problem of underground loans to Deputy Prime Minister MR Pridiyathorn Devakula within the next 10 days.
A nano-finance service is at the centre of the Finance Ministry's plan to get rid of loan sharks after banks complained that micro credit, which allows them to lend informal workers up to 200,000 baht each in return for a 28% interest rate, was not economically viable.
Mr Sommai said the ministry would soon issue an announcement to permit interested investors to apply for nano-credit licences. Lenders can loan up to 120,000 baht per borrower, while the ministry is expect to impose a maximum interest rate of between 30% and 36%.