With tumbling oil prices expected to bolster private consumption, last month’s contraction in consumption came as a surprise, says a senior Bank of Thailand official.
The high level of household debt and falling farm prices were to blame, said Roong Mallikamas, senior director for macroeconomic and monetary policy.
She said the fall in private consumption was unexpected and signified the slow pace of consumption recovery.
"A drop in private consumption was more visible than other economic figures, while public investment was lower than expected to a certain degree," Mrs Roong said. "We still have not seen merits from a decline in oil prices transferring to improved consumption."
The private consumption index declined by 1.5% year-on-year last month, worse than December’s contraction of 0.8%.
Falling prices of agricultural produce, particularly rubber, dented household spending, while consumer spending was weighed down by elevated household debt, Mrs Roong said.
Domestic consumption accounts for about half of Thailand’s GDP.
Mrs Roong said the outlook for private consumption was expected to improve gradually, supported by a bottoming out of the decline in prices of farm products and expansion of employment in the non-farm sector.
Household debt relative to GDP has expanded at a slower pace, and the rate could be slower if the economic recovery improves, but the debt ratio is not expected to decline, she said.
The agricultural sector is at risk from swelling household debt since farmers have a high debt burden and lower incomes as product prices fall, she said.
Household debt rose to 10.2 trillion baht or 84.7% of GDP in last year’s third quarter, up from 10 trillion baht or 83.5% of GDP recorded in the second quarter.
The National Economic and Social Development Board expects household debt to rise to 87-88% of GDP this year, while a segment being closely monitored is low-income farmers and workers, who face a double whammy of cheap farm products and rising goods prices.
Although a drop in export growth was recorded in January, the value of oil-related exports fell in accordance with a slump in oil prices, while it is too soon to assess whether exports may fall below the central bank’s 1% forecast, Mrs Roong said.
“We're more interested in export quantity than export value, and we think the quantity has not been harmed,” she said.
Tourism is expected to be the main driver of economic growth in the first quarter, while fiscal spending, private consumption and private investment are deemed to be other supporting factors, Mrs Roong said. The tourism sector grew by 15.9% year-on-year and 11.8% month-on-month in January thanks to an influx of Chinese and Malaysian tourists.
The economic recovery could improve, given that public investment has been accelerated, she added.
Thailand’s current account posted a surplus for the fourth consecutive month in January at US$2.5 billion, down from December’s surplus of $5.5 billion, due to greater tourism revenue and lower repatriation of dividends and profits by foreign companies in the sluggish economy.