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Global Watch June 2003 special issue
Why Is Thai Economy Booming?
Are there any signs of Bubble Economy?
Summary
1. The Thai economy is booming. Economic growth rate for the year 2002 was 5.2% yoy, the highest
level since the currency crisis in 1997.
This is also the third highest growth rate in major East Asian
countries following China and Korea.
Supporting this robust economy is its domestic demand
stemming from healthy consumption and capital expenditure.
Private consumption is especially
buoyant and is working as a major growth driver. In recent months there is even a concern that
consumption is overheated and that the Thai economy is nearing the state of ‘bubble’ economy.
2. The following four factors can be cited as the forces supporting strong consumption; 1) improvement
in employment environment, 2) effect of low interest rates, 3) expansion of personal finance market,
and 4) release of pent-up demand (replacement demand).
3. Although some view that Thai economy has already entered the state of bubble economy, signs of
bubble economy are yet to be seen at this moment.
Asset prices (stocks and land) are rising only
modestly, as speculative investments, which were apparent in the bubble economy period in the first
half of 1990s, are still limited. This is probably because, unlike early 90’s, speculative inflow of
foreign money is decelerating. Current boom is driven by domestic money, and the economy remains
non-speculative.
It should be noted, however, that if consumption continues to grow at the current
pace, it could push the Thai economy into bubble.
4. Growth momentum of consumption will gradually slow down hereafter.
However, it will not be a
rapid and substantial downturn, and overall consumption is expected to stay resilient.
UFJ Institute
Contact: Shingo Takeshima, Economic Research Department (Tokyo)
E-mail: [email protected]
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Global Watch June 2003 special issue
Introduction
The Thai economy is booming. Economic growth rate for the year 2002 was 5.2% yoy, the highest level
since the currency crisis in 1997.
following China and Korea.
This is also the third highest growth rate in major East Asian countries
Supporting this robust economy is its domestic demand stemming from
healthy consumption and capital expenditure.
as a major growth driver.
Private consumption is especially buoyant and is working
In recent months there is even a concern that consumption is overheated and
that the Thai economy is nearing the state of ‘bubble’ economy.
This article aims to analyze the factors and backgrounds supporting brisk consumption and to examine
whether or not the Thai economy is already in bubble territory.
1. Current Economic Trend
1-1. Stable and Modest Growth
The Thai economy since 1990s can be divided into three periods, 1) high growth period in the first half of
the 90s (from 1990 to 1996), 2) currency crisis period (from 1997 to 1998), and 3) the ensuing recovery
period (from 1999 to 2002).
respectively (Chart 1).
The average growth rate for each period was 8.6%, - 6.0%, and 4.0%,
Current Thai economy can be viewed to have reached the moderate growth period
following the high growth period, and the currency crisis period, enjoying stable and modest expansion
(4-5% growth).
In terms of recovery from the crisis, it was only in 2002 that the Thai economy recovered to the pre-crisis
(1996) level.
Its speed of recovery from economic crisis was the slowest among major East Asian
countries, and almost the same level as Indonesia.
Chart 1 From High Growth Through Crisis to Stable Moderate Growth
（yoy, %）
15
High growth period （1990～1996）
8.6％
10
5
Stable moderate growth
period （1999～2002）
4.0％
0
-5
Crisis period
(1997～1998）
minus 6.0％
-10
-15
90
92
94
96
98
00
Source: NESDB (National Economic & Social Development Board)
2
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Global Watch June 2003 special issue
1-2. Economic Trend in 2002
In the fourth quarter of 2002, the real GDP showed a strong growth of 6.1% on a year-on-year basis.
Boosting the economy as a whole were private consumption as well as private capital investments
(including housing and corporate capital expenditure) (Chart 2). Demand from overseas also stayed
strong and the Thai economy is in excellent condition with domestic and overseas demand well balanced.
Overall growth rate for 2002 was 5.2% yoy, the highest level since the currency crisis in 1997.
Chart 2
Growth led by Consumption and Capital Expenditure (Real GDP Growth Rate)
(yoy, %)
10
5
0
Net Export of goods and services
Gross Fixed Capital Formation
Government Consumption Expenditure
Private Consumption Expenditure
ＧＤＰ
-5
-10
00
01
02
Source: NESDB
Reflecting the vigorous economy, both stock prices and exchange rates are trending upward.
Performance
of share prices was especially outstanding in 2002, which was the best among the Asian countries (Chart 3).
Since the terrorist attack in the US in 2001, Thai stock market has increased its relative attractiveness
within the region because of stability of Thaksin administration.
Chart 3 Best Stock Price Performance in Asia (2002)
Thailand
Indonesia
Malaysia
South Korea
Philippines
Singapore
Hong Kong
Taiwan
China (Shanghai B)
Source: CEIC
Change during the year (%)
17.3
8.4
-6.8
-9.5
-12.8
-18.0
-18.6
-19.7
-33.2
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Global Watch June 2003 special issue
2. Factors Sustaining Robust Consumption
2-1. Current Situation
Consumption remains robust and brisk. Composite Private Consumption Index, which reflects overall
trend of consumption, has been showing accelerating upward trend since the third quarter of 2002 (Chart 4).
In January and February of 2003, the index significantly rose by 7.3% relative to the same period of the
previous year.
This is the highest growth rate since 1993 when statistical data first became available.
In
terms of consumption trend by product, automobile, motorcycle, consumer electronics and mobile phone
are showing vigorous growth.
Particularly outstanding were automobile sales, which increased to approx.
410,000 units in 2002, or 70% of the peak level (Chart 5).
Chart 4 Consumption Currently Accelerating
（yoy, %）
10
Composite Private
Consumption Index
5
(R-H)
(1995=100)
140
qoq growth rate (L-H)
120
0
100
-5
80
-10
60
97
98
99
Source: Bank of Thailand
00
01
02
Chart 5 Car Sales Remaining High
（yoy, %）
100
80
60
40
20
0
-20
-40
-60
-80
-100
97
Commercial Car
Passenger Car
Total Car Sales
98
99
00
Source: CEIC
4
01
02
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Global Watch June 2003 special issue
2-2. Factors Supporting Robust Consumption
What is behind the vigorous consumption?
The following four factors can be cited as the forces
supporting strong consumption; 1) improvement in employment environment, 2) effect of low interest rates,
3) expansion of personal finance market, and 4) release of pent-up demand (replacement demand).
1) Improvement in Employment Environment
Unemployment rate is declining.
previous year (Chart 6).
The rate was 2.4% in 2002, down 0.9 percentage point from the
This is below the level observed before the currency crisis (2.6% in 1994).
Chart 6 Unemployment Rate Declining
(%)
8
Unemployment rate = [ Unemployed person (looking for work)+
Unemployed person (not looking for work)]/ labor force
2002/4Q
1.8
6
4
1998:　4.4％
1999:　4.2％
2000:　3.6％
2001:　3.3％
2002:　2.4％
2
0
98
99
00
01
02
Source: Bank of Thailand
As the unemployment rate goes down, wage levels are seen going up.
Real wages showed solid hike in
2002, up 4.6% yoy (Chart 7), although it is moderate compared to the rise seen in the high growth period in
the first half of 1990s.
Chart 7 Increasing Wages (Household Monthly Income)
（yoy, %)
15
（Baht)
16,000
Real wage growth rate (R-H)
Real wage (L-H)
12,000
10
8,000
5
4,000
0
0
-5
90
92
94
96
98
00
Note: Real wages are calculated excluding imputed rent (1996 as base year)
Source: Report of the Household Socio-Economic Survey
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Global Watch June 2003 special issue
Income from agricultural products (such as rubber and rice) is also increasing. Although agricultural
output shrank in the latter half of 2002 due to the influence of flood, increased product price offset the
volume decrease and notably pushed up agricultural income overall (Chart 8).
It is estimated that
purchasing power has also gone up in the rural areas1 in the wake of the rise in agricultural income2.
Chart 8 Expanding Agricultural Income
（qoq, %)
25
20
15
Farm Price
Farm Production
Farm Income
10
5
0
-5
01
02
03
Source: Bank of Thailand
Improvement in employment environment is positively influencing consumer confidence. Job situation
index, a component of consumer confidence index, is already beyond the peak level recorded in the past,
indicating that consumers’ concern for unemployment has been receding (Chart 9).
However, the income
situation index is rising more modestly compared with the job index, which indicates that consumers have
less concern over unemployment but remain cautious in terms of prospect for future increase in income.
Chart 9 Strong Consumer Confidence
130
99/11
114.4
Terrorist Attacks
110
90
70
00/01
74.6
50
03/03
104.1
79.2
Income situation
Job situation
30
99
Source: CEIC
00
01
02
03
1
Household survey report divides the total land of Thailand into three areas; Bangkok metropolitan area, urban
areas (with the population of more than 10 thousand and the population density of more than 3 thousand per
square kilometer), and rural areas.
2 Households engaged in agriculture in rural areas (some 45% of total households) earn approximately 60% of
income from agricultural production.
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Global Watch June 2003 special issue
2) Effect of Low Interest Rate
Bank of Thailand eased its monetary policy in the middle of 1998, and has maintained the low interest rate
policy to date. Real interest rate dropped from some 10% in 1997 to 1% level at the end of 1998, and
currently stays at almost the same level. Comparing the movement of real interest rate with that of private
consumption in Chart 10, it can be observed that consumption has accelerated in accordance with the
decline in real interest rate.
Brisk consumption is observed especially for consumer electronics,
presumably owing to promotional campaigns such as zero-interest rate finance offered by large-scale
discount stores3.
Chart 10 Lower Real Interest Rate Supporting Consumption
(qoq, %)
(%)
15
10
5
0
-5
-10
-15
-20
-25
-6
-4
-2
0
2
4
6
8
10
97
98
99
00
01
02
Private consumption (L-H)
Source: CEIC
Real interest rates (inverted R-H, 1 year advanced)
3 These large-scale discount stores often offer zero interest rate finance for the installment plan of up to six or
ten months for consumer electronics such as TV and video machines.
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Global Watch June 2003 special issue
3) Expanding Personal Finance Market
After the currency crisis, many of the personal finance companies (so-called non-banks) went bankrupt due
to the deterioration in business environment.
This opened a window of opportunities for banks and other
finance companies to expand businesses in the household finance market.
Gradual easing of credit card
issuance standards by the central bank since January 2000 triggered sharp increase in the number of cards
issued, which in turn resulted in substantial growth in the amount of purchases made with credit cards
(Chart 11)4.
Recent increases in the sales of mobile telephone are supposedly supported by the increased
use of credit by consumers5.
Chart 11 Continuing Expansion of Credit Card Market
（000）
3,500
3,000 Number of
2,500 credit card (L-H)
2,000
1,500
1,000
500
0
97
98
（qoq, %)
50
Credit card spending (R-H)
40
30
20
10
0
-10
-20
99
00
01
02
Source: Bank of Thailand
On top of the historically low interest rate level, there are also some other factors favoring personal finance
market, such as longer repayment period and lower down payment ratio (Chart 12).
When purchasing
relatively expensive items such as consumer electronics, use of installment plan has become very popular
in recent years and consumers tend to be more concerned with the amount of monthly payment rather than
the total amount of payment.
of monthly payments.
Lower interest rates and longer repayment period have reduced the amount
As a result, consumers have in effect increased their purchasing power.
This is
one of the factors supporting the vigorous consumption in Thailand.
Chart 12 Example of Auto Loan Repayment Schedule - 60 Installments Available Now – (Baht)
Total price down payment down payment ratio installments installments installments installments
144,000
20%
25,992
17,992
13,992
11,712
720,000
180,000
25%
24,255
16,755
13,005
10,868
Source: A Local Major Auto Dealer
4 The minimum monthly income required for credit card application was originally 20 thousand bahts but was
subsequently lowered to 15 thousand bahts, and the minimum criteria itself was abolished in April 2002.
However, it was re-established at 15 thousand bahts in November 2002 (exchange rate as of April 2003 is 2.8
yen for a baht).
5 Mobile phone prices are declining, but the lowest price range is around 3,000 bahts, which is still
expensive relative to the average income of Thai consumers.
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Global Watch June 2003 special issue
4) Release of Pent-Up Demand (Replacement Demand)
After the currency crisis, the upper middle class with high purchasing power has sharply dropped their
consumption propensity (Chart 13) 6. This is arguably due to their reduced expenditure on non-necessities
such as automobile.
Generally speaking, consumption propensity does not dramatically change in the
short-term and tends to revert back to the level of historical average over the mid-term period. Recent
increase in consumption is likely to have been caused by the recovery in consumption propensity (higher
consumption propensity), or, in other words, the release of pent-up demand for replacement that have been
restrained after the currency crisis.
Chart 13 Consumption Propensity Recovering
(%)
120
110
Forecast
Lower middle class
100
90
80
Upper middle class
70
60
86
88
90
92
94
96
98
00
02
04
Note: Upper middle class includes specialists, engineers and management staff in Bagkok.
Lower middle class includes administration, sales and service staff in Bangkok.
Source: Report of the Household Socio-Economic Survey
Thai consumers continue to have strong willingness to purchase goods, and their demand is not limited to
replacement needs. Latent demand for new goods is also estimated to be substantial. While consumer
electronics are rapidly spreading into Thai households, penetration ratio, in terms of absolute level, is still
low for many goods (Chart 14).
For example, color television is now owned by almost 90% of Thai
households, but many of them own only one unit. Demand for extra unit is therefore very strong.
Low
interest rates and increased availability of personal finance are considered to be the factors behind the
robust demand for additional spending.
Chart 14 Consumer Electronics Penetration Ratio
Color TV
Radio
90
35.8
7.4
92
47.5
9.8
94
58.7
12.6
96
70.9
16.2
98
88.7
20.9
2000
89.3
22.5
Source: Report of the Household Socio-Economic Survey
Refrigerator
31.6
38.9
49.2
58.9
68.6
71.5
Air conditioner
2.2
3.1
3.7
4.7
7.2
7.3
(%)
Auto
Personal Computer
8.3
10.5
13.2
16.4
20.5
19.9
2.3
4.3
6 Thai income class can be classified into 4 groups; 1) the affluent/upper middle class, 2) lower middle class, 3)
middle/low income, 4) low income. For details, please refer to another research report titled “Why Has Thai
Consumption Recovered?” dated July 9, 2002. The report (in Japanese) is available for download at
our website (http://www.ujji.co.jp)
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Global Watch June 2003 special issue
Summary: Factors Supporting Robust Consumption
-
Factors underlying the robust consumption include, 1) improvement in employment environment
(increased income), 2) effect of historically low interest rates, 3) expansion of personal finance market
(such as credit cards and personal loans), and 4) release of pent-up demand (replacement demand) seen
mainly in the middle income class.
-
Historically low interest rates and the expansion of personal finance market have in effect increased the
purchasing power of Thai consumers.
Looking at the demand trend by income class, middle class is
releasing their pent-up demand and accelerating their consumption.
-
As for the pent-up demand, it is prominent especially in automobile market.
automobile is generally 4 to 5 years in Thailand.
Replacement cycle of
This means that cars purchased before the currency
crisis have been already in use for some 6 years, which is the factor behind the current expansion in the
demand for replacement.
Launch of new models by manufacturers seen recently is also pushing up
the replacement demand.
-
Large-scale discount stores, especially in the field of consumer electronics, are rolling out promotional
campaigns such as zero-interest rate finance (zero interest rate offered for the installment plan of up to
six to ten months, for example).
Interest rates for auto and housing loans are also low at 3 to 4%.
The combination of lower interest rates and longer repayment period has allowed consumers to pay
lower amount for monthly repayment.
As a result, expensive items became affordable for consumers.
3. Is This a Bubble Economy?
Some view that Thai economy has already entered the state of bubble economy.
justify such a view?
Are there signs that
Let us try to answer this question from asset bubble and consumption bubble points
of view.
3-1.
Possibility of Asset Bubble – Comparison with First Half of 1990’s
1) Asset Prices (Securities Markets)
In terms of relative size to GDP, total market capitalization of the securities market recorded irregularly
high and rapid growth rates in the first half of 1990’s.
This period can be justifiably characterized as a
“bubble” period. It was in the beginning of 1996, before the currency crisis, that stock prices peaked out
and began to fall.
Then, the stock price bubble burst and the market capitalization has decreased to
30-40% of GDP thereafter.
This is almost the same level as the level seen before the emergence of bubble
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Global Watch June 2003 special issue
economy.
As far as the market capitalization of securities market is concerned, there are no signs of
bubble economy observed at the moment.
Chart 15 Total Market Capitalization (as percentage of GDP) Back to the Pre-Bubble Level
（as of GDP, %)
120
100
80
60
40
20
0
90
91
92
93
94
95
96
97
98
99
00
01
02
Note: Market Cap is as at Year End.
Source: CEIC
2) Asset Prices (Real Estate Market)
There are no official land price statistics in Thailand7. The result of hearings with local real estate
companies concerning current land price trends show that land prices largely fell immediately after the
currency crisis but quickly regained its upward trend, and that current land prices are around 20% of the
level seen in the bubble economy in early 1990s.
In addition, given that demand and supply are well
balanced, current land prices are considered to be remaining at fair levels.
There are no signs indicating
sharp increases in land prices, and the real estate market is showing no signs of turning itself into bubble
market.
Chart 16 Image of Land Price Movement
（bubble period=100）
120
100
80
60
40
20
0
about one fifth of the
level during bubble
period
Bubble period
Present
Source: Presented based on hearing from local majoy real estate
i
7
Thai government plans to conduct a land price survey during the year 2003.
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Global Watch June 2003 special issue
3-2.
Possibility of Consumption Bubble
Is the expansion of personal finance market causing heavier financial burden for households?
From the
household debt ratio shown in the result of household socio-economic survey, it is noted that debt ratio has
consistently followed upward trends since 1994.
However interest rates have been declining during the
same period, which means that interest rate burden on households is being reduced.
Chart 17 Household Debt Ratio Rising
(%)
(%)
80
14
lending rate(MLR、R-H)
70
59.1
60
58.8
63.6
12
50.9
50
13
11
40.3
40
10
30
9
20
8
10
7
0
6
94
96
98
00
02
Note: Debt Ratio = Total debt divided by disposal income, lending rate as at year end applied.
Source: Report of the Household Socio-Economic Survey, Bank of Thailand
While household debt ratio is rising, it is difficult to conclude that Thai households are holding excessive
debt just on the basis of this data.
We therefore tried to compare household debt ratios of Thai, Malaysia
and Korea. The result shows that Thai household debt ratio is relatively lower compared with other two
countries.
It is especially noteworthy that Thai household debt ratio is almost half that of Korea where
personal and household bankruptcy has become a social problem recently.
Relative to other Asian
countries, it can be said that the debt ratio of Thai households is not at an alarming level.
It should be
noted, however, that if consumption continues to grow at the current pace, it could push the Thai economy
into bubble.
Chart 18 Household Debt Ratio Low in Thailand Compared to Korea and Malaysia
(%)
120
100
80
60
40
20
0
109.0
63.6
Thailand
77.0
Malaysia
Korea
Source: Report of the Household Socio-Economic Survey, Bank of Thailand
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Global Watch June 2003 special issue
Summary: Possibility of Bubble Economy
-
Signs of bubble economy are yet to be seen at this moment. Asset prices (stocks and land) are rising
only modestly as speculative investments, which were apparent in the bubble economy in the first half
of 1990s, are still very limited.
This is probably because, unlike early 90’s, speculative inflow of
money from overseas is decelerating.
Current boom is driven by the domestic money, and the
economy remains non-speculative.
-
It should be noted, however, that if consumption continues to grow at the current pace, it could push
the Thai economy into bubble.
Closing Comment – How Long Will the Robust Consumption Continue?
How long will this favorable consumption trend continue?
Our view to this question is that the
momentum of Thai consumption is currently at the peak and it will eventually subside in the future.
But it
will not be a rapid and substantial downturn and the overall consumption is expected to stay resilient in
Thailand.
This is because the fundamental environment surrounding personal consumption, such as the improvement
in employment environment, lower interest rates, expansion of personal finance market and release of
pent-up demand, will stay almost unchanged and remain favorable.
January 2003 could also support the brisk demand.
Tax reduction implemented in
However, the pent-up demand (replacement demand)
will gradually slow down toward the year 2004.
Note: The information and the views contained in this report are formed at the time of writing and are
subject to change without notice in future.
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