The economy is facing a liquidity crisis as the real estate and manufacturing sectors are in steep decline, hampering growth

As the real estate and manufacturing sectors plummet, access to credit tightens and economic leaders warn of worsening conditions. Analysts doubt GDP growth of 2.6% in 2024 amid rising household debt and falling vehicle sales.

There are growing signs that the country’s economic leaders are in a tough spot, as the real estate and manufacturing sectors continue to head south. Meanwhile, access to credit is becoming increasingly difficult as the banking sector pulls in its horns. Earlier, both Finance Minister Pichai Chunhavajira and the new chairman of the National Economic and Social Development Council (NESDC) made it clear that all is not well. Analysts are starting to predict that even the paltry 2.6% GDP growth target may not be met in 2024. In short, Thailand is in the midst of a very tight liquidity crisis.

economy-in-slump-liquidity-crisis-as-real-estate-and-manufacturing-skyrocket-growth — (Right) Finance Minister Pichai Chunhavajira chaired an economic cabinet meeting Tuesday. The meeting focused on the country’s chronic household debt problem and efforts to resolve a liquidity crisis that has hampered economic growth. (*Source: Ministry of Finance*)

There were clear signs that the country’s economic outlook was getting worse after an economic cabinet meeting on Tuesday. The meeting came after Finance Minister Pichai Chunhavajira told reporters that economic growth was slowing.

This happened on Wednesday last week. Then the newly appointed chairman of the National Economic and Social Development Council (NESDC), Supavud Saicheua, warned that the economic data and assumptions of the Bank of Thailand may be flawed.

In short, Mr Supavud expressed doubt that there would be more growth in the third and fourth quarters of 2024.

The economic outlook is bleak, economic growth is declining and debt is rising to alarming levels. Purchasing power is falling

Indeed, this will be needed, as the first quarter of 2024 saw growth of just 1.5%. At the same time, even this exceeded expectations.

On Tuesday, the government’s economic team heard that household debt stood at ฿16.4 trillion, or 90% of GDP. The ministry examined ฿13.6 trillion owed by licensed financial institutions and banks.

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Reporters later learned that at least ฿1 trillion of that amount is confirmed as bad debt. In addition, most of it falls into the Special Mentions category.

In short, this means that the loans are in default. Of course, both principal and interest payments are delayed by 30 to 90 days.

Household debt crisis deepens as mass defaults and vehicle sales plummet

Earlier in February, the Bank of Thailand highlighted a decline in household debt in the first three months of 2024. In short, it fell only slightly from 91% to 90.9%.

In the meantime, the central bank had hoped that stronger GDP growth would ease the situation. However, the current credit crisis and measures taken to restrict lending appear to be hampering growth.

Tellingly, new vehicle sales fell sharply in the first half of 2024. They fell by almost 24% from January to May 2024. So much so that even the price of used cars fell by a whopping 40%.

Meanwhile, the government’s much-vaunted electric car drive has also stalled. In the short term, that’s certainly being blamed on price discounts. In other words, deep discounts have caused buyers to put off making decisions.

Despite this, electric car sales in Western markets have fallen sharply in the past few months. Furthermore, according to a global study, existing electric car owners in large numbers McMckinsey & Co. respondents expressed their desire not to purchase another electric vehicle.

Thailand’s auto industry hit by perfect storm as electric vehicle sales slump and credit crunch collide

Meanwhile, Thailand’s auto industry has been hit by a perfect storm. In short, a failed subsidized electric car effort, a faltering economy and a credit blackout imposed by the Bank of Thailand.

Honda’s recent decision to close a second manufacturing plant was another blow. It comes after Subaru and Suzuki withdrew from production in Thailand.

Thailand’s economy is also badly affected by industrial dumping. The country’s steel industry is particularly affected, in addition to the small business sector.

As a result, Thailand has become extremely dependent on foreign tourism. Meanwhile, while the kingdom is set to see at least a 40% increase in visitors this year, questions have been raised about tourist spending. Furthermore, the finance minister’s hopes of hitting 37 million arrivals seem unlikely.

Ultimately, some 35 million tourists will visit the kingdom this year.

Property market in free fall as number of foreign buyers in Bangkok shrinks and GDP growth is revised down

At the same time, real estate development in the kingdom began to slow in the second quarter of 2024. A key obstacle was a drought among buyers from Russia and China in the kingdom’s most important market, Bangkok. At the same time, the Myanmar junta closed the outflow of capital to Thailand.

This was a key market that kept the show going.

Meanwhile, analysts are starting to lower the Bank of Thailand’s projected growth rate of 2.6% this year. We are currently still waiting for the GDP growth rate for the second quarter of 2024. It is expected to be known in August.

However, comments by the chairman of the National Economic and Social Development Council (NESDC), the body responsible for measuring Thailand’s GDP, seem worrying.

Household debt and a mediocre GDP result dominated Tuesday’s discussions at the Economy Cabinet meeting

Meanwhile, at Tuesday’s meeting, the minister and heads of economics focused on household debt. This is undoubtedly a key obstacle.

Even Finance Minister Pichai acknowledged last week that Thailand’s growth prospects were being held back by too much debt in the system. Meanwhile, industrial production fell again in May. Thai came after a brief rally in April, fueled by short-term demand.

The measure agreed by the government and announced by Deputy Finance Minister Paophum Rojanasakul is a ฿100 billion fund for cheap loans. As a result, the Government Savings Bank will lend money to the banking sector at a loss. In fact, the lending rate is 0.01%.

On Tuesday, Minister Paophum suggested that this funding is targeted at vulnerable SMEs and small businesses. However, there are reports that ฿65 million of this amount is being directed to real estate development companies.

Digital wallet giveaway plan raises concerns among watchdogs as government pushes for it

Even as the government confirms its controversial ฿500 billion Digital Wallet giveaway, many analysts are uneasy about the plan, not least the Bank of Thailand, which has called on the government to scale back the plan.

The project aims to provide a digital loan of 10,000 baht to all Thai adults whose income is below a certain threshold and those who do not have access to large financing.

In short, the government is now funding this from its annual budget. ฿122 billion is being taken from the 2024 budget and ฿152 billion from the 2025 budget. In the meantime, only 42 million people are expected to sign up for the program.

Not only the Bank of Thailand but also the National Anti-Corruption Commission (NACC) expressed its reservations.

Concerns about the broader economy are growing as access to credit and liquidity remain key concerns, and perhaps even threats

Still, concerns about the broader economic picture are growing. In particular, the lack of access to credit and the lack of liquidity in the Thai financial system.

Tuesday’s measures to further address the problem included expanding loan facilities and repayment periods for older borrowers. For example, the current 60-70 age bracket is to be expanded to 85.

At the same time, banks are being asked to lower repayment amounts. In addition, credit card companies are to be asked to lower their minimum repayment rates to 5%. Only recently did the Bank of Thailand raise them back to 8% after the pandemic-related state of emergency was declared over.

In short, the Thai economy is in a state of chronic crisis. All eyes must now wait for growth rates in the second quarter and later third quarter. There is concern that the economy may be losing steam and liquidity.