Major structural problems<\/p>\n
Nond Prueksiri, senior economist at Siam Commercial Bank\u2019s Economic Intelligence Centre (SCB EIC), described Thailand\u2019s low interest rate as \u201cmore of a structural problem than a cyclical one\u201d.<\/p>\n
\u201cThere is no meaningful pull from demand. We are an ageing society and carry heavy debt, leaving consumers with little room to spend more.\u201d<\/p>\n
FT said Thailand had recorded 12 consecutive months of deflation before the Middle East conflict.<\/p>\n
Although the outbreak of war drove prices higher, the pressure has already begun to ease, while headline inflation fell for a third consecutive month in July to 1.95%.<\/p>\n
Deflationary pressure is not a positive sign for Thailand, Southeast Asia\u2019s second-largest economy, which aims to become a \u201chigh-income country\u201d by 2037.<\/p>\n
The economy has been stuck at annual growth of about 2% for several years, and the World Bank and International Monetary Fund (IMF) expect growth to slow further in 2026.<\/p>\n
The Covid-19 pandemic dealt a severe blow to tourism, one of the economy\u2019s main pillars.<\/p>\n
Exports, meanwhile, are under pressure from intense competition with cheaper Chinese goods and the emergence of new manufacturing bases in the region, including Vietnam.<\/p>\n
The possibility of higher US import tariffs and a shrinking labour force are also affecting domestic production.<\/p>\n
Don Nakornthab, assistant governor of the Bank of Thailand\u2019s Monetary Policy Group, said on Wednesday that Thailand\u2019s economic growth was \u201clow and uneven\u201d, adding that the policy rate could still be reduced if a crisis occurred.<\/p>\n
However, the BOT executive also acknowledged that monetary policy was \u201calmost at the limit\u201d of what it could do to stimulate growth.<\/p>\n
He said targeted financial measures from the central bank and fiscal stimulus from the government were needed to accelerate economic expansion.<\/p>\n
Ageing adds to economic pressure<\/p>\n
Demographic change is another element of Thailand\u2019s Japanification risk.<\/p>\n
The birth rate has fallen to a 75-year low, while World Bank data show that the total fertility rate is only 1.2 children per woman, below the 2.1 required to keep the population stable.<\/p>\n
Experts expect Thailand\u2019s population could fall from 67 million to just \u201c30 million\u201d over the next 50 years, while government officials and analysts warn that such a change would increase the risks to economic growth.<\/p>\n
Miguel Chanco, chief emerging Asia economist at Pantheon Macroeconomics, said, \u201cThailand\u2019s working-age population has been clearly contracting since before Covid. This points to low structural growth in the future, which generally means low inflation and, in turn, low interest rates.\u201d<\/p>\n
Thailand\u2019s economic and demographic problems resemble those of Japan and South Korea, but the difference is that \u201cThailand is becoming an aged society before it becomes a developed country\u201d.<\/p>\n
Thailand\u2019s population aged over 65 doubled between 2000 and 2020, while the World Bank expects the proportion of over-65s to double again by 2040 to about 26% of the total population.<\/p>\n
\u201cWe will grow old without becoming rich. We are taking the same path as developed economies despite not having reached the income level normally associated with such a transition,\u201d independent economist Burin Adulwattana said.<\/p>\n
Household debt highest in the world<\/p>\n
Beyond its demographic problems, Thailand also carries a heavy debt burden.<\/p>\n
HSBC said household debt stood at 86% of gross domestic product (GDP), \u201cthe highest among upper-middle-income countries worldwide\u201d, while consumers have to rely on loans for everyday expenses amid slowing economic and wage growth.<\/p>\n
Aris Dacanay, HSBC\u2019s senior ASEAN economist, said, \u201cMost household income has to be set aside for debt repayments, which limits consumption.\u201d<\/p>\n
The problem is also having a knock-on effect on businesses and investment.<\/p>\n
Companies are slowing their expansion plans because they cannot rely on domestic demand or pass higher costs on to consumers.<\/p>\n
Low interest rates losing their impact<\/p>\n
Economists said the heavy debt burden had made low interest rates less effective at stimulating inflation and economic growth.<\/p>\n
An economist at Oxford Economics said, \u201cMonetary-policy transmission in Thailand is barely functioning. From now on, most of the support for the economy will have to come increasingly from the government in the form of fiscal measures.\u201d<\/p>\n
Measures of this kind are among the factors that have helped countries escape Japanification.<\/p>\n
In Japan, for example, former prime minister Shinzo Abe pursued large-scale public spending and aggressive monetary easing to help the country break out of a prolonged cycle of low inflation.<\/p>\n
However, economists said Thailand lacked sufficient fiscal space to take similar action.<\/p>\n
They expect the government to begin gradually withdrawing some economic stimulus programmes from 2027 as the public-debt-to-GDP ratio approaches the government\u2019s self-imposed ceiling of 70%.<\/p>\n
\u201cThe fiscal deficit has to be reduced. That will slow the economy, and slower growth means monetary policy must offset the effect,\u201d Dacanay said.<\/p>\n
He expects the BOT to keep the policy rate at 1% until the end of 2027.<\/p>\n
Pantheon\u2019s Chanco said Thailand\u2019s demographic problems, coupled with challenges to its export-led growth model, made it difficult for the economy to expand beyond its current low single-digit pace.<\/p>\n
\u201cThe longer Thailand hesitates and delays reform, the more competitiveness it will lose to its regional rivals.\u201d<\/p>\n","protected":false},"excerpt":{"rendered":"Major structural problems Nond Prueksiri, senior economist at Siam Commercial Bank\u2019s Economic Intelligence Centre (SCB EIC), described Thailand\u2019s…\n","protected":false},"author":2,"featured_media":584657,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[11],"tags":[10791,138,219,22018,1759,111,139,69,95882,4327],"class_list":["post-584656","post","type-post","status-publish","format-standard","has-post-thumbnail","category-economy","tag-ageing","tag-business","tag-economy","tag-household-debt","tag-japan","tag-new-zealand","tag-newzealand","tag-nz","tag-policy-rate","tag-thailand"],"_links":{"self":[{"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/posts\/584656","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/comments?post=584656"}],"version-history":[{"count":0,"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/posts\/584656\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/media\/584657"}],"wp:attachment":[{"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/media?parent=584656"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/categories?post=584656"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/tags?post=584656"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}