Thailand is facing an array of economic challenges that will take radical and strong leadership to even keep at bay in the next twenty years as the number of Thai people over 65 years of age expands to record levels with a diminishing workforce. On top of this, even as the vast majority of the hard-working Thai population adjusts to their lot, there is an emerging generation on track to aggravate the problem by borrowing without restraint while turning their backs on traditional family life.
Thailand’s economy is faltering despite having strong economic fundamentals and the outlook is far from encouraging. The stubbornly high baht and the US-China trade war are trotted out as the major causes of this year’s setback but there are deeper, underlying problems that are increasingly impacting the situation.
One of them is escalating household debt which the Bank of Thailand governor continuously warns about. The other and even more powerful reason for the malaise in the Thai economy is that the kingdom has begun to feel the very real and powerful effects of a now rapidly ageing population which in the next twenty years will leave the country facing serious challenges beyond the realms of economics itself.
The contradiction in terms that is the Thai economy continues with data released this week by the University of the Thai Chamber of Commerce showing that household debt has risen so far this year by 7.4% reaching the highest level ever.
Country narrowly avoided falling into recession
In the same week, Kasikornbank bank analysts pointed out that Thailand very narrowly avoided falling technically into recession in the third quarter of this year which showed the faintest level of growth possible at 0.1% against a second quarter 0.2% drop in GDP. This might be news to the market but not to most people on the ground in Thailand who have felt the downturn since early March.
Warning from the central bank of a threat to financial stability from high levels of household debt
In an economy which the IMF, World Bank and the key rating agencies say is fundamentally sound, we also have had regular warnings from the Governor of the Bank of Thailand, Veerathai Santiprabhob, who again in recent days has warned that there are risks to financial stability to be guarded against including household debt.
The Governor has promised to decide by the end of the year if stronger curbs are needed to deal with the problem.
Personal borrowing has risen to record levels
The Bank of Thailand boss highlighted a range of issues that are of concern to the institution whose primary remit is to preserve Thailand from the dangers or threat of an economic shock to financial stability.
Chief among the concerns of Mr Veerathai is Thailand’s chronic demographics problem and the issue of escalating concern over the level of personal borrowing and household debt which has continued to grow in spite of a decline in consumer confidence.
It appears that many Thai people are now borrowing to meet current expenditure requirements.
Informal lending – a story of a stolen buffalo
It should also be remembered that a large proportion of borrowing in Thailand is from informal lenders or loan sharks. The scale and extent of this sector is so vast that all Thai government can do is try to keep it in check and encourage banks to assist qualified borrowers.
On Thursday in Buriram province, Thai police recovered a buffalo owned by a local village chief which had been stolen by a Thai man in desperate straits to meet debt repayment on a ฿24,000 loan on which he was forced to pay ฿1,200 per month.
The story illustrates how much of the Thai economy is outside the control of authorities.
It is still estimated that up to 45% of the Thai economy may be off the books. The story also illustrates the obvious reality that life on the ground in the kingdom may not reflect accurately the statistics, data and analysis of world financial institutions.
2019 a year when the sale of luxury cars surged and a survey showed 69% of people tightening their belts
It is something difficult to get a fix on.
Thailand’s curious economic situation means that in spite of an economic downturn there has been a surge in the purchase of luxury cars while a recent consumer survey showed that 69% of the Thai public were cutting back on expenditure and living on a hair shirt budget.
Economy must also be seen through the experience of the ordinary man and not just economic data
The Bangkok elite or super-rich a represent a distortion of the economic reality and by the economic reality we mean not only the economic fundamentals which the World Bank and the IMF assure us for Thailand are very healthy, but the economic experience for the vast majority of Thais which is something vastly different.
Not railing about economic inequality in Thailand
Neither are we simply railing against economic inequality. Thailand is certainly economically one of the most unequal societies in the world.
However, Thailand’s leading business families in many ways represent an opportunity for the dynamic development of the economy just as we have seen in South Korea.
On the other hand, they can also be an obstacle to innovation or change where monopolies or unfair trading practices have developed over time.
Reducing inequality a key government policy
The current Thai government claims to be redressing economic inequality as an urgent priority and all Thai governments since the 1980s have managed to reduce poverty in the kingdom from 69% to below 8% today in a country with only 1% unemployment.
It has been an impressive performance for a country bedevilled by political instability.
Technology is changing the game in 2019
But things are changing or the game is changing.
In 2019, while luxury car importers in Bangkok are reporting a bumper year, ordinary Thai are cutting their cloth to measure and the country’s millennials have thrown caution to the wind altogether in a world transformed economically, politically and socially by technology.
The problem with Generation Y educated Millenials
And then there is another economic subset, these are Generation Y Millennials.
The more data we have about this young mainly educated group of Thai young people born between 1990 and 2005 the more we have cause for concern.
For starters and in the short term, they are living well beyond their means and driving the spiralling levels of debt in the economy.
50% of these young Thais are already in debt to banks with 20% having defaulted on loans
A study produced this week from TMB analytics showed that Generation Y now represents 14. 4 million Thais.
Already 50% of them are in hock to the banks, astoundingly, nearly 20% of this group have already defaulted on loans repayments in respect of financial commitments.
Social values of these young adults pose a test to society and the business economy as we know it
What is even more concerning is the social and economic attitudes of this younger generation.
We know from a media survey last week that they have already disrupted the once comfortable lives of media planners by turning their back on traditional media outlets opting instead for online media.
We are also told significantly that this new generation has less loyalty to regular TV programmes or channels in general. To them, the different media are simply utilities to be used when required.
In this respect, Thailand’s Generation Y is not unlike this generation throughout the world but for Thailand, the impact of how this new internet fed generation performs could have a more significant bearing on long term future of the country.
Demographics challenge is about to loom starkly
The Bank of Thailand estimates that over 65s by 2020 will be 13% of the Thai population.
The chilling reality, however, is that by 2040 this figure will be over 25%. This is will be a mind-boggling transformation not only for the Thai economy but also for Thai society which will become a hyper aged one.
Thailand uniquely in the Pacific region and Asia, stands to lose 11% of its current workforce by 2040 according to the World Bank. The kingdom’s ageing crisis is second only to Japan. On current trends, over 34.1% of the Thai population will be lost to the country by 2100 according to Bloomberg data.
What makes the crisis unique is that Thailand, unlike Japan, has never been a developed economy and does not possess the same level of wealth as its eastern neighbour.
Neither does it have the same levels of education or history of innovation.
Far more consequential than climate change
This phenomenon will be far more significant and real than climate change in the day to day life of Thailand yet one that is only mentioned in the broader context and blurred out amid the minutiae of other challenges.
The reason for this, of course, is that it is bordering on politically incorrect because it challenges the kind of progressive politics espoused by millennials and the international groups outside Thailand.
However, no efforts at censorship or denial will change the fact of what is coming down the road. We may be already experiencing its effects as the lights dim on the formerly vibrant economy of the past.
Today’s up and coming generation has a new outlook
In the meantime, the generation who we should be counting on to turn around the situation is pursuing a course that is altogether a less constructive path than generations that have gone before them including Generation X (born 1965 to 1980) the much-maligned baby boomers (1950 to 1965).
฿1.37 trillion spent on clothes, accessories and smartphones – less inclined to save for cars or homes
This section of the Thai population already accounts for 7% of non-performing debt and the research shows that they are less inclined than previous generations to purchase homes or even cars.
The figures released this week by TMB in Thailand shows that millennials spend on average ฿100,000 of their annual salary on things like cosmetics, designer clothes, accessories and smartphones. The group currently spends a massive ฿1.37 trillion a year of such items.
The new modes of behaviours also extend beyond financial considerations.
For starters, this new generation is not going to do anything about the impending demographics crisis anytime soon.
Mahidol University survey on sex habits for Generation Y identifies a rise in porn viewing
A study compiled in association with Mahidol University last week showed that millennials are very engaged with sexual activity starting at the young age of 15.
STDs and more sexual partners are now part of a lifestyle for this group. Interestingly, those conducting the survey excluded Patyaya from its scope.
Thai men and pointedly women from Generation Y are more likely to watch porn and see sex as a leisure or social pursuit. Chalermpol Chamchan is one of the authors of the study into the social habits of this up and coming generation.
Group thinking and unprotected sex
Generation Y in Thailand as in western countries are more likely to think as groups and conduct their social activity in the connected world where peer pressure has been re-energised and the individual is less important.
A trend that bothers researchers is that this generation engages in more unprotected sex. ‘Trying to stop the youngsters from having sex is impossible because the world is moving fast. You can’t catch up with them,”’ says Mr Chalermpol.
Less interested in having children
However, for all this, Generation Y adults are distinctly less interested in having children or settling down to build a family. They are men who marry later by Thai standards at 29 to 30 years of age while for Generation Y women, this age is 28.
Rise of western feminism and zeitgeist in Thailand
In this generation, the rise of western feminism has left its mark and 36% the younger women from this group see children as an obstacle to their careers.
A further 20% of Thai women in this generation opine that they would not want to bring children into this world because of its social problems.
Only 12% of Generation Y has begun to save money to buy a house, 10% for cars and 9% as savings.
Not only Thailand but the world facing social devastation if the real issues are not tackled
These trends are challenging for economic planners not only in Thailand but the western or developed world which may be heading for not only a massive economic crisis but also a more devastating social one.
It is clear that in Thailand and the world, there needs to be a new approach to politics and not just between the right and left or progressive or conservative policies but ones which treat effectively with the realities of today and the next twenty years.
All this despite excess liquidity in the financial system
This week, while discussing the possible threats to economic stability, the Governor of the Bank of Thailand Veerathai pointed out, ironically, that there is currently excess cash liquidity in the financial system.
Part of the solution to the current challenge might be progressive economic policies to reinject these funds into enterprise and solid employment opportunities allowing future generations to think about building families which will require a rediscovery of more traditional, family centred social values.
Pope Francis asked the Thai people to cherish their own traditional values on his recent visit
Pope Francis left Thailand’s shores last week and used the occasion to urge Thai people to hold on their own distinct identity, cultural and traditional ethos. Part of that ethos has always been a commitment to family.
It may well be that to tackle the huge demographic challenge, Thai leaders may ultimately have to turn their backs on an emphasis on GDP growth led solutions proposed by international agencies who have fostered the same international policies that have led worldwide to the greatest challenge now facing developed economies and those in Asia which is declining birth rates.
Flies in the face of western liberal values
Of course, this flies in the face of the current modern zeitgeist which is almost exclusively now driven by both feminism and the environmental awareness, both worthy causes in themselves but which combined will drive the birth rate even lower again.
That is until the day comes when the economic and social consequences of this trend may no longer be ignored.
For now, it is the working classes in the developed world and in Asia who are beginning to feel this pain. However, there is no escaping the consequences and the widening of this pain unless things are practically reappraised.
Thailand and the world needs a new message
It may well be that the next generation beyond Generation Y or even Generation Z may grasp a newer, deeper and more fruitful message or perhaps we have come to the end of the alphabet altogether.
There are some signs of this happening, particularly in the United States.
Thailand would be fertile for such a renaissance if the government would adopt an even more sustainable economic model that prioritised families, small business through progressive, economic policies.
In the meantime, however, without addressing these problems, the prospects for Thailand and the world look exceedingly dim from this point in 2019. The path we are on at least until 2040 is not a hopeful one.