Thailand Is in Critical Recession Due to Soaring Household Debt

Thailand’s economy is currently experiencing a recession due to significant household debt levels, as stated by a deputy finance minister on Monday. This situation is putting pressure on the central bank to reduce interest rates.

Deputy Finance Minister Julapun Amornvivat stated the government is committed to implementing its major 500 billion baht giveaway program, which involves distributing 10,000 baht to each of 50 million Thais. He expressed hope that the program’s rollout will not face significant delays.

Julapun suggested that the country’s policy interest rate, which is currently at a ten-year high of 2.50%, should be reduced during the central bank’s next policy review on February 7. This reduction is intended to help alleviate the burden of high borrowing costs.

“The rate should be lowered, as the current high rates are a burden on the people. Survival is becoming difficult”, he told the media.

Prime Minister Srettha Thavisin is also advocating for the central bank to lower the key rate, believing it will assist an economy he describes as being in a state of crisis.

Despite criticism from the Prime Minister for not lowering rates amid negative inflation, Bank of Thailand Governor Sethaput Suthiwartnarueput informed Reuters last week that, although growth has been slower than anticipated, the economy is not in crisis. Mr. Sethaput described the existing policy rate as “broadly neutral”.

At its last rate meeting in November, the central bank maintained the policy rate at 2.50%, having increased it by 200 basis points since August 2022 to control inflation.

Recently, the government lowered its 2024 growth forecast for Southeast Asia’s second-largest economy to 2.8%, down from the previous estimate of 3.2%, citing weaker exports and a decrease in foreign tourist numbers.

Additionally, the 2023 growth estimate was revised down to 1.8% from 2.7%, which is below the 2.6% growth seen in 2022. The official GDP figures for 2023 are scheduled to be published by the planning agency on February 19.

“If you ask, it’s now at a dangerous level. It’s a kind of economic recession”, Mr. Julapun stated, attributing this to high debt levels among households and the private sector.

“It’s difficult to drive the economy forward. That’s why we’ve seen economic growth that has always been sluggish”.

Mr. Julapun also disclosed plans for the government to issue bonds in foreign currencies such as the dollar, yuan, and yen in the next one or two years. This initiative is aimed at establishing benchmarks for businesses to raise capital.

He mentioned an upcoming sale of government savings bonds worth approximately 100 billion baht in the 2024 fiscal year, with the initial offering of 40 billion baht slated for March.