Thailand’s Current Economic Data
A country’s GDP (Gross Domestic Product) is typically calculated by totalling all the goods and services produced by that country in a single year, although some organisations use the cumulative annual incomes of all working citizens to calculate GDP.
A steadily increasing GDP usually translates into a rising standard of living, which is accompanied by greater demand for property. This has certainly been the case in Thailand.
Compared with many countries in the region, Thailand has achieved satisfactory GDP growth. In the fourth quarter of 2018, Thailand’s GDP grew at 3.7% year-on-year.
GDP PER CAPITA
This measurement takes the total GDP of a country and divides it by the population of that country. As the standard of living in a country rises, so too does GDP per capita, making it a good indicator of a country’s economic performance.
Thailand’s Per Capita GDP has more than doubled in the last two decades, and for long-term residents of Thailand, certainly those of us in Phuket, the dramatic rise in the wealth of Thai nationals has been noticeable. Distribution of wealth is never perfect, but overall the Thai population has certainly benefited from the increase in GDP.
Household debt measures the sum total of home mortgage debt, car loans, student loans, credit card debt, etc. relative to the size of the economy. High levels of household debt can lead to or coincide with economic difficulties, and excessive levels must be addressed.
As an economy matures and incomes rise, debt levels will increase. The ratio of household debt to GDP serves as an early warning sign that the burden of interest payments on debt is becoming too much for a country’s citizens to handle.
Thailand currently has the 27th highest GDP in the world, the 92nd highest Per Capita GDP, but the 14th largest household debt to GDP ratio in the world.
Household debt in Thailand inched up to 68.3% in Q3 2018.
GOVERNMENT DEBT TO GDP
Government debt, also called public debt (or sovereign debt), refers to money borrowed by a national government and owed to parties inside or outside that country. The debt usually consists of government bonds which are purchased by individuals, corporations or by other foreign governments.
A government that borrows and spends less than it generates in revenue runs a surplus. A country that borrows and spends more than it generates in revenue runs a deficit.
As long as it remains manageable, public debt is a great way for governments to fuel growth and keep their economic engine running. Problems can arise, however, when a country’s borrowing reaches levels that make it difficult to keep up with the interest payments.
If that happens, the perceived risk to investors increases, and they may begin to demand higher yields on the money they have lent the government. So when debt becomes excessively large it generally pushes up interest rates and in extreme cases, when a country can no longer service its debt, it defaults.
Most countries aim for a perfect equilibrium between debt issued and stimulus achieved, meaning the debt must be large enough to achieve the desired economic benefits, while remaining small enough to keep the serving costs as a percentage of GDP manageable, which in turn keeps interest rates in check.
Thailand’s Debt to GDP ratio rose during the financial crisis, but good management over the last 20 years has kept the ratio down to less than 50% (41.8% in 2017, the most recent figure available). This is perfectly acceptable for an emerging country such as Thailand.
Rising unemployment has never been good for the property market. New property purchases, especially in developments targeting Thai buyers, need a vibrant local economy with good employment prospects. Without income, people are unable to keep up mortgage payments, or even pay for the upkeep on their property. If rising unemployment forces property sales, then there is downward pressure on prices.
Unemployment in Thailand is low (0.8% as of February 2019). January 2001 saw a high of 5.73%, but unemployment has averaged around 1.42% from 2001 to the present.
The inflation rate gives us an idea of the pace of any increase in the cost of living.
It is important to keep inflation in check because when inflation is high people tend to spend less. They may also delay or completely put off major purchasing decisions, which slows the economy. Because consumer spending is important for overall economic health, governments want to make sure inflation is contained sufficiently enough to keep people spending.
Global real estate suffers during periods of high inflation because people have less money to spend, and may delay their home purchase. Even though the price of real assets (e.g. precious metals) is going up, any owner trying to sell during a period of high inflation will likely be forced to lower their asking price due to a lack of buyers. High-end properties may partially avoid this scenario.
Inflation in Thailand is currently well under control at 1.24% (March 2019).
MANUFACTURING PRODUCTION INDEX (MPI)
For emerging markets such as Thailand, with its huge manufacturing base, the MPI is an important gauge. This metric usually moves hand-in-hand with others indices, but even on its own the MPI offers clear indications of whether an economy is moving forward. Certainly in Thailand, it is a useful tool for tracking local economic activity.
Growth in the MPI in Thailand today is slightly lower year-on-year, but industrial production remains historically strong.
FOREIGN EXCHANGE RESERVES
Foreign exchange reserves are the foreign currency held by a central bank, which take the form of paper assets or government securities from other countries, denominated in another currency. Foreign reserves are important insofar as they provide governments with resilience during periods of turmoil, whether internal or in other countries/regions around the world.
Central banks usually diversify their holdings, but the tendency is to hold more US Dollars than other currencies. As China’s economy grows, central banks are increasing their exposure to the Chinese Yuan, instead of the traditional currencies such as the Euro, British Pound, Japanese Yen and the Swiss Franc.
It is generally accepted that the more foreign reserves a country holds, the better it is able to withstand any economic shocks that may transpire. Thailand has seen a steady growth in its foreign currency reserves over the last 20 years, and these currently stand at US$ 212.2 billion.
THAILAND GOLD RESERVES (IN TONS)
Most central banks stock up on gold in the same way they accumulate foreign reserves.
Generally speaking, a central bank increasing gold reserves points to a stronger economy. Gold has for millennia been regarded as imperishable, and a true store of wealth, so the greater the reserves of a nation, the stronger its tangible wealth and the more likely it is to be resilient in the face of any economic shocks.
When the 1997 Asia Crisis struck, Thailand had $914 million in gold reserves, which had been reduced to $713 million by the following year. Since then, Thailand has been gradually increasing its gold reserves.
The dollar value of the country’s gold holdings peaked in 2012 at US$ 8.8 billion, and currently stands at approximately US$ 6.4 billion. Thailand has continued to add to its reserves, so the drop in the dollar value is more a result of a lower gold price, than gold sales on the part of the Thai government. Thailand is obviously in a vastly stronger position today than in the run up to the Asia Crisis.