Thread: Thailand Is Facing 'Stagflation'

No one is spending, warns minister

Bangkok Post
October 21, 2014
Writer: Wichit Chantanusornsiri

Thailand is entering into stagflation as there is no consumption to lubricate the economy, says Finance Minister Sommai Phasee. "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 credit 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.

Full article: Thailand is 'facing stagflation' | Bangkok Post: business

Originally Posted by Sumocakewalk

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.

They are making the false assumption that Thai households are the same as those in developed countries, where it is understood that borrowings have to be repaid.