Private Consumption: Rising household purchasing power will lift domestic consumption
Published in EIC Outlook Q1/2017 Click here for more detail
Private consumption 2017 continues to face ongoing risks from the previous year. Household debt persists at high level of around 81% of GDP. The slow recovery of the Thai and global economy poses uncertainty to household income. Therefore, people are cautious with their spending. However, EIC expects that some Thai households will gain more purchasing power this year from several supporting factors. Moreover, other government measures will continue to support domestic consumption. throughout the year. Private consumption is projected to grow by 2.9%YOY in 2017 from 2.7%YOY in the previous year.
The purchasing power of households should bounce back this year, for 3 reasons: 1. both non-farm and farm income will recover, 2. personal income taxes will fall, and 3. the debt impact of the firstcar scheme has finally ended. Those factors reflect the recovery in both household income and household expenditure. EIC expects that the restoration of household income still be vulnerable to economic uncertainty. While some households obviously gain purchasing power from lower expenditure, yet the impact on consumption will depend on households’ decision whether to save, repay debt, or consume.
Over-time employment in some service business sectors picks up, signaling a recovery in household income. Last year, various factors suppressed employment, especially for over-time work (more than 50 hours per week) in agriculture, manufacturing and services. However, the growth of over-time workers in some service businesses turned positive in recent quarter (Figure 10). In addition, normal-hour workers in theses service businesses are still rising. These workers will gain higher spending power, which should support domestic consumption in the period ahead. For those in manufacturing sector, research shows that the financial performance of manufacturing companies has a significant impact on their hiring. (Figure 11). The higher a company’s revenues climb, the more likely it is to hire additional workers to expand production. And in late2016, manufacturing companies in Thailand increased their revenue growth, which points toward good prospects for employment growthgoing forward. However, the slow recovery of the Thai economy pose significant risk to Thai companies’ performance, accompanies by a gradual increase in average wage rates (approximately 1% YOY in 3Q2016). The situation reflects that the recovery of labor income still be vulnerable to various risks in the future.
