An Expanding Debt: Falling Profits Hits the Ability to Repay

The Bank of Thailand leader, a growing under-employment rate led by the Covid-19 crisis would further aggravate the country’s swelling household debt and the debt-servicing woes of borrowers.

Although the coronavirus outbreak has not significantly impacted the unemployment rate, the pandemic has caused an increase in underemployment due to a decrease in working hours, said Governor Sethaput Suthiwartnarueput, due to staff moving from the service sector to the farm sector in their hometowns.

The situation has led to lower household income and decreased consumers’ capacity to repay debt. According to central bank data, the household debt to GDP ratio grew to 84 percent in the second quarter, an 18-year high, with a value of 13.6 trillion baht, up from 13.5 trillion baht or 80.3 percent of GDP in the first quarter.

In particular, the higher under-employment rate would come from the tourism sector, which has suffered a serious impact from the pandemic, he said. While exports are another sector affected by the pandemic, because 50 percent of the country’s shipments come from the three core industries, namely automotive, electronics and petrochemicals, this segment has suffered a lower impact than the tourism industry.

As the economic recovery is poised to remain erratic, according to the central bank, it will take at least two years for the economy to return to its pre-Covid growth trajectory. In this case, it would take more time for the job market and employment conditions to return to normalcy.

The central bank forecasts that this year the economy will contract by 7.8 percent, with the figure expected to improve next year to 3.6 percent. In the second quarter of 2021, the Bank of Thailand predicts that Thailand ‘s economy will begin to display a positive growth rate and return to a normal growth trajectory in the third quarter of 2022.