Household debt makes economy fragile

Household debt makes economy fragile

Govt stimulus programs to get economy going again, that create more household debt, may make the economy worse in the long-run.


Household debt makes economy fragile

TMB Analytics

Amid the bleak economic outlook, the government has been rolling out stimulus schemes -- injecting money into communities via the Village Funds, providing liquidity for small businesses and supporting farmers.

The government's property (real estate) stimulus package has received the most attention. It includes 10 billion baht in loans from the Government Housing Bank (GHB), a reduction in transfer fees to 0.01% from 2% and generous tax deductions.

On the one hand, the property measures are being hailed because they might unlock new private investment. Developers currently have a lot of unsold homes so they have little incentive to build more. But if stimulus-driven buying helps to ease the oversupply, they may be willing to start new projects. On the other hand, unless you can buy a house with cash, the policy raises concerns about household debt.


Where are we now? How has household debt in Thailand been developing over the past 10 years? Up and up, apparently.

In 2005, household debt amounted to 3.4 trillion baht. Today, the amount has more than tripled. Thai households now owe 10.7 trillion baht to financial institutions. From 2005-14, household debt rose by 13.4% per year, almost double the nominal GDP growth rate. The ratio of household debt to nominal GDP jumped to 80% from 45% during that period.

But is 80% really high? Let's look at some other countries, starting with our Asean friends. Indonesia and the Philippines have negligible household debt -- at 9.9% and 7.1% of GDP, respectively. But Malaysia's figure of 85% is surprisingly close to Thailand's. So is higher income associated with higher household debt? Not necessarily. Household debt in wealthy Singapore is just 60% of GDP.

What makes our household debt so high? There are several contributing factors, among them low borrowing costs and the average age of the population. (Young adults usually borrow more.) But we believe the main factors in Thailand and Malaysia have been government policies to stimulate consumption via leveraging.


As we discussed in a previous article, governments like consumption-based stimulus schemes because they are three times more effective than other approaches in the short-run. However, once the party ends, consumption falls more sharply and recovers much more slowly. For proof, look no further than the aftermath of Thailand's first-time car buyer scheme.

Malaysia also had a first-home policy that led to a boom in 2011. From 2008-14, home prices surged as much as 67%. At the same time, household debt climbed to 80% of GDP from 52%.

Sometimes, policies seemingly unrelated to household debt can take a toll. Research by economists Daniel Aaronson, Sumit Agarwal and Eric French in 2012 found that in the US, an increase in the minimum wage encouraged households to spend more than their additional income, resulting in higher debt.

A similar conclusion could apply to Thailand. In 2012, when the 300-baht daily minimum wage was introduced in selected provinces, household debt increased by 18% to the highest rate since 2007.


Why should we be concerned? Research by the Bank for International Settlements (BIS) shows household debt itself is not the root of a crisis but acts as an amplifier. Highly indebted households will be vulnerable to higher interest rates, a fall in income and a drop in asset prices.

Moreover, our own study reveals that the effectiveness of government stimulus is inversely related to household debt. Once debt reaches 50-60% of GDP, the effectiveness of government measures may be blunted. What would happen if Thailand faced a real crisis, consumption fell sharply and the government could do only a little to revive the economy?


The composition of household debt in Thailand and Malaysia further amplifies the concern. In many developed countries, three-fourths of household debt is in the form of mortgages (see graphic). In Thailand and Malaysia, half is consumption-related -- credit-card, personal loans and auto loans.

So what is the problem? The assets underlying consumption-related loans depreciate in value quickly. In contrast, house prices usually go up, so a house is considered an investment.

So one type of loan makes borrowers poorer, while another type makes them richer. Unfortunately, Thai and Malaysian consumers are holding a lot of the former.

Admittedly, economists have devoted less attention to household debt than to public debt, foreign debt and corporate debt. We don't even know how to reduce it effectively. So far, we've seen only one event that could bring down the household debt -- the 2008 subprime crisis [the 2008 financial crisis that began in the US].

In the end, we're not saying governments should not stimulate the economy via household debt in a downturn. But household debt should be managed carefully. If fiscal space represents a government's ability to stimulate an economy through public spending, household debt space represents the ability to do so through consumption. All governments must be careful not to lose both spaces at once -- especially during a slowdown such as the one we're experiencing today.

TMB Analytics is the economic analysis unit of TMB Bank. Behind the Numbers is co-authored by Peerawat Samranchit and Benjarong Suwankiri. They can be reached at

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  • additional: more; more than was first mentioned or is usual - ที่เพิ่มขึ้น
  • admittedly: it is true that -
  • aftermath: the effects and results of something bad or important - ผลที่ตามมา
  • amid: at the same time as - ท่ามกลาง
  • amounted to: was the same as .... -
  • amplifier: a piece of electronic equipment that makes sounds louder - เครื่องขยายเสียง
  • amplify: to increase something in strength, especially sound - ขยาย, ทำให้เพิ่มขึ้น
  • approach: a way of doing or dealing with something; a particular way of doing something or thinking about something - การจัดการกับปัญหา วิธีการทำให้ถึงจุดหมาย
  • asset: something owned by a person, company etc., particularly money and property - ทรัพย์สิน
  • associated with: connected with in some way - ที่เชื่อมโยงกัน
  • attention: interest, especially interest that the public has in a person, event, situation etc - ความสนใจ
  • attention: the interest or thought that you give to something you are doing, listening to or watching - ความสนใจ, ความตั้งใจ
  • average: an amount calculated by adding several amounts together, finding a total, and dividing the total by the number of amounts - เฉลี่ย, ค่าเฉลี่ย
  • base: to use an idea, a fact, a situation, etc. as the point from which something can be developed - วางรากฐาน
  • bleak: having little or no hope for the future; cold, empty and not welcoming or attractive - โดยสิ้นหวัง, โดยหมดหวัง, เปล่าเปลี่ยว
  • blunt (adj): not sharp; without a sharp edge or point - ทื่อ, ไม่คม
  • boom: a sudden increase in trade and economic activity; a period of wealth and success - ความเจริญรุ่งเรืองทางเศรษฐกิจ
  • borrow: to take and use something that belongs to somebody else, and return it to them at a later time - ยืม
  • borrowing: taking money from a bank, financial organisation, person, etc. and paying it back over a period of time - การยืม
  • cash: money - เงินสด
  • climb: increase -
  • community: the people living in one particular area - ชุมชน
  • composition: the way that something is formed from separate parts or people - การรวมตัวกัน การประกอบเข้าด้วยกัน
  • concern: a worry - ความกังวล
  • concerned: worried about something   - มีความกังวล
  • conclusion: something that you decide is true after consider all the evidence and thinking about it carefully - การสรุป,บทสรุป
  • consumption: the act of using energy, food or materials; the amount used - การบริโภคพลังงาน, การใช้หมดไป
  • contribute: to help to cause an event or situation - ช่วยก่อให้เกิด
  • corporate: involving large companies - บริษัทใหญ่
  • crisis: an urgent, difficult or dangerous situation - วิกฤตการณ์
  • currently: at this time; now - ในปัจจุบัน
  • debt (noun): an amount of money that you owe - หนี้, นี้สิน
  • deduction: the process of taking an amount of something, especially money, away from a total, in this case taxes; the amount that is taken away - การหักลบ
  • depreciate: when an asset, such as a machine, becomes old and loses its value over time -
  • developed country (noun): a rich industrialized country - ประเทศพัฒนา
  • developer (noun): real estate developer, a person or company that builds new "real estate developments" including buildings, houses, shopping centers, etc - นักพัฒนาที่ดิน
  • devote: to spend a lot of time or effort doing something - อุทิศ,สละ,ใส่ใจ
  • downturn (noun): a time when an economy or industry is weaker than normal; a fall in the amount of business that is done, lower incomes and employment - แนวโน้มที่ตกต่ำลง เช่นในกิจกรรมทางธุรกิจ
  • driven (verb): caused - ก่อให้เกิด
  • economist: a person who studies or writes about economics - นักเศรษฐศาสตร์
  • effective: producing the result that was intended - ได้ผลดี
  • effectively: in reality - ตามความเป็นจริง
  • effectively: producing the result that was intended - ได้ผลดี
  • effectiveness: the ability to produce the result that is intended - ประสิทธิผล
  • encourage: to cause someone to want to do something - กระตุ้น ให้การสนับสนุน
  • experience (verb): to have something happen to you or to live through some event - ประสบ
  • factor: a fact or situation which influences the result of something - ปัจจัย
  • fee: an amount of money that someone pays to be allowed to do something, or in this case, to hire someone - ค่าธรรมเนียม, ค่าจ้าง
  • figure: a number representing a particular amount, especially one given in official information - ตัวเลข, จำนวนเลข
  • financial institution: a business which helps its customers manage money, e.g., a bank, insurance company, etc. - สถาบันการเงิน
  • fiscal (adj.): connected with a budget; connected with the government budget, i.e., public money - เกี่ยวกับงบประมาณ
  • foreign debt: loans from other countries in other currencies than the baht -
  • former: used to refer to the first of two things or people mentioned - อย่างแรก,ตัวแรก(ของที่พูดถึงก่อน)
  • fund (noun): investment fund, money collected together to invest in companies or projects -
  • GDP: gross domestic product, the total value of all goods and services produced in a country in a year, except for income received from money invested in other countries ผลิตภัณฑ์มวลรวมภายในประเทศ -
  • generous: giving people more of your time or money than is usual or expected - มีน้ำใจ, เอื้อเฟื้อ
  • growth (noun): economic growth, an increase in economic activity - การเติบโต
  • hailed: said publicly how good something is; praised - โห่ร้องสนับสนุน
  • household: a group of people, often a family, who live together - ครัวเรือน
  • in contrast: different from - ตรงข้ามกับ
  • incentive: something that makes you want to do something or work harder, because you know that you will benefit by doing this - สิ่งกระตุ้น
  • income: money that someone gets from working or from investing money - รายได้
  • indebted (adj.): have debt; owing money - ติดหนี้, เป็นหนี้
  • inject: to introduce something new that is necessary or helpful to a situation or process - ฉีด
  • interest rate: the percentage that a bank or other financial company charges you when you borrow money, or the percentage it pays you when you keep money in an account - อัตราดอกเบี้ย
  • inversely: in the opposite way, if it goes up, this will go down; if up, then down -
  • investment (noun): the act of investing money in something - การลงทุน
  • leverage (noun): borrowing money - การยืมเงิน, การลงทุนโดยใช้วิธียืมเงินผู้อื่น
  • liquidity: a situation in which an organisation, company, business, etc. has the money it needs to pay its bills - สภาพคล่อง
  • loan: an amount of money that a person, business, or country borrows, especially from a bank - เงินกู้
  • measure: a firm action taken to solve a problem or stop a dangerous unpleasant situation - มาตราการ
  • minimum wage: the lowest wage, daily or hourly, allowed by law - ค่าจ้างขั้นต่ำ
  • mortgage: a legal agreement in which you borrow money from a bank in order to buy a house, build something, develop a piece of land, etc - การจำนอง
  • negligible: very small or unimportant - ซึ่งไม่สลักสำคัญ
  • nominal: when a number or statistic is not adjusted for inflation by reducing it, so it cannot be compared across years; the opposite of "real" -
  • not necessarily: possibly true but not definitely or always true -
  • outlook: an idea about what a situation will be like in the future - อนาคตที่คาดหวังไว้, ทัศนคติ
  • oversupply (noun): having too much of something; having a supply beyond what is needed or can be used effectively -
  • owe: to be required to give someone money for something you have bought or money that you have borrowed from them - เป็นหนี้
  • period: a length of time in the life of a particular person or in the history of a particular country - ยุค, ช่วง, กาล
  • personal loan (noun): a loan for an individual person or people, not a company -
  • policy (noun): a set of plans or action agreed on by a government, political party, business, or other group - นโยบาย
  • population (noun): all the people who live in a particular area, city or country; the total number of people who live there - ประชากร, พลเมือง, จำนวนประชากร
  • previous: happening or existing before the event or object that you are talking about - แต่ก่อน, เมื่อก่อน
  • private: involving groups, businesses or industries that are not owned or controlled by the government - เอกชน
  • proof: information, documents, etc. that show that something is true - การพิสูจน์
  • property: a building or buildings and the surrounding land - อสังหาริมทรัพย์
  • province: one of many divisions of the government of a country into smaller parts - จังหวัด
  • public (adj): belonging to the government -
  • public debt: money owed by the government - หนี้ของรัฐบาล
  • rate: the level or speed at which something happens or changes, or the amount or number of times it happens or changes in a particular period - อัตรา
  • ratio (noun): the relationship between two numbers or amounts, one number over another number, proportion, fraction - อัตราส่วน, สัดส่วน, อัตราเปรียบเทียบ
  • real estate: property - อสังหาริมทรัพย์
  • recover (verb): to become normal and healthy again - ฟื้นฟูสภาพ, ฟื้นฟูร่างกาย
  • reduction: the process or result of making something smaller or less in amount, size, importance etc - การลดลง
  • related (adj): connected with something/somebody; referring to something/somebody - เชื่อมโยงกับ
  • related to (verb): to be connected with something/somebody; to refer to something/somebody - เชื่อมโยงกับ
  • research: a careful study of a subject, especially in order to discover new facts or information about it - การวิจัย
  • respectively: in the order in which they were mentioned - ตามลำดับ
  • result in: cause to happen -
  • reveal: to let something become known - เปิดเผย
  • revive: to come or bring something back to existence or use - ฟื้นฟู, ทำให้เกิดขึ้นอีก
  • roll out (verb): to introduce something new; to introduce a new product or service; launch - เปิดตัว, เริ่มนำ
  • root: a basic cause or idea - รากฐาน, แก่นแท้, ต้นตอ
  • scheme: a plan that is developed by a government or large organisation in order to provide a particular service for people - แผนการ โครงการ
  • seemingly: according to what you know or how something appears, - ตามที่ปรากฏ
  • select (adj): specially chosen - ถูกคัดเลือก
  • sharply: quickly and by a large amount - สูงขึ้นอย่างรวดเร็ว
  • similar: like somebody/something but not exactly the same - คล้ายกัน
  • space: an area or a place that is empty or that can be moved about freely - ที่ว่าง
  • stimulate: to make something develop or become more active; to encourage something - กระตุ้น, ส่งเสริม
  • stimulus: a set of programmes, especially government spending programmes, designed to start an economy growing again - แผนกระตุ้นหรือฟื้นฟูเศรษฐกิจ
  • stimulus package: a set of actions designed to increase economic activity - นโยบายหรือแผนการกระตุ้นเศรษฐกิจ
  • stimulus scheme: a set of programmes, especially government spending programmes, designed to start an economy growing again - แผนกระตุ้นหรือฟื้นฟูเศรษฐกิจ
  • study: a project that looks at some subject in great detail and produces a report to share the information - งานวิจัย
  • support: to give help, encouragement or sympathy to somebody - สนับสนุน, เป็นกำลังใจ
  • surge: a sudden increase in something - การเพิ่มขึ้นอย่างรวดเร็ว
  • take a toll: to cause suffering; to cause damage -
  • tax: money that you have to pay to the government so that it can pay for public services - ภาษี
  • tax deduction: some amount that was spent (expense) that can be used to reduce the taxes you are paid - การหักลดหย่อนภาษี, การลดหย่อนภาษี
  • taxes: money that you have to pay to the government so that it can pay for public services - ภาษี
  • the party ends: when the benefits of something end and the costs and hard times begin -
  • transfer: to officially arrange for someone else to be the owner of something - โอน
  • triple: three times the number or size of something - จำนวนสามเท่า
  • underlying (adj): important in a situation but not always easily noticed or stated clearly; existing under the surface of something else - ที่สำคัญและซ่อนอยู่, ที่อยู่ในตำแหน่งต่ำกว่า
  • unfortunately: making you sad or disappointed, or getting you into a difficult position - น่าเสียดาย
  • unlock: to free up something so it can be used -
  • unrelated (adj.): to not be connected with something - ไม่เชื่อมโยงกับ
  • value: how much something is worth in money or other goods for which it can be exchanged - มูลค่า
  • vulnerable: easily damaged or harmed - ซึ่งถูกทำลายได้ง่าย
  • wealthy: having a large amount of money, land, and other valuable things   - ที่มั่งคั่ง ร่ำรวย
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