SLUGGISH consumer spending is likely to constrain economic growth this year, but increased investment will help keep up the momentum from a solid 2017, two economic research houses say.
Private consumption will grow slower than the expansion in gross domestic product (GDP), said Naris Sathapholdeja, senior vice president of the TMB Analytics. This is because household income will not increase, especially among farming families. An oversupply of rice and high stockpiles in global market will depress prices this year, said Naris.
The projected holding pattern in farm incomes comes after a 4 per cent increase last year, he said. The workforce in the farm sector is sizeable, accounting for about 30 per cent of the total employed labour in the country.
Moreover, incomes in the in the non-farm sector are showing signs of weakness, as average monthly income grew only 0.2 per cent to Bt14,500 last year, Naris said.
While household debt has decreased to 79 per cent of GDP from a peak of 82 per cent at the end of 2015, it remains high. These factors would lead to slower consumption growth at about 3 per cent year on year, lower than the expected GDP expansion rate of 4 per cent, Naris said.
“With these pressures, people would not be feeling good as consumption, which accounts for 50 per cent of the economy, grows slower than the GDP rate,” he said.
In a separate new conference, Phacharaphot Nuntramas, the head of Siam Commercial Bank’s economic and financial market research unit, the Economic Intelligence Centre (EIC), shares the views of his fellow researcher.
Phacharaphot said private consumption remains reliant on the purchasing power of certain groups, namely high-income earners and car buyers who took part in a first-car incentive scheme. The latter group will have paid off their debts in the coming year. Goods and services businesses targeting the middle class can therefore still do well, he said.
However, most consumers remain preoccupied by a squeeze on overall employment and wages.
“The strengthening of the baht will also adversely affect farmers’ income,” said Phacharaphot, referring to the currency appreciation that has made Thai products more expensive and at a disadvantage to cheaper products from competitors.
However, the two researchers believe that private investment will return to health this year.
Naris said that private investment is expected to grow 4 per cent this year, compared with a rise of 2.4 per cent last year. These flows are expected to be driven by public investment and continued growth in exports.
Phacharaphot sees combined private and public investment in 2018 growing 4.5 per cent year on year, compared with a 1.6 per cent rise last year.
The Siam Commercial Bank research centre forecasts that the economy will grow 4 per cent year on year in 2018 - driven by exports, tourism and investment.
However, there were four key risks to growth, the SCB Economic Intelligence Centre warned.
The low price of agricultural products – owing to surpluses – will affect most household incomes, further dampening already-low purchasing power.
Second, a persistently strong baht will have an impact on revenues in baht and exporters’ competitiveness.
Third, a labour shortage has the potential to disrupt investment recovery.
Lastly, political uncertainty may result in economic costs. These include tensions on the Korean peninsula, a guessing game over the economic policies of United States President Donald Trump and political uncertainty in a number of European Union countries.