Sluggish consumption growth despite robust exports

Without a surprise, Thai economic growth is mainly driven by exports of goods and services (mostly tourism). So, it’s clearly a narrow-based growth. Thus, no wonder why only few Thais feel any positive impact from the waves of vigorous economic data.
A more broad-based growth may be inferred from strong household consumption. However, a consensus forecast of private consumption growth in 2017 and even in 2018, both by public and private research houses, still hover around 3.0-3.2 per cent, similar to growth from the past few years. Why is that?
The root of prolonged-stagnation in private consumption could be traced back to the main supporting factors of private consumption which is people’s purchasing power. And this ability to purchase is fundamentally determined by employment. Thai employment decomposition by firm size indicates that the biggest portion of labour force, ie 55 per cent (21 million employees) is employed by small firms, while another 32 per cent (12 million employees) is employed in the agricultural sector. Only 13 per cent (5 million employees) is hired by big corporates. This uneven distribution of Thai employment structure ominously attenuate positive impact from ample exports growth. 
Why? Because Thai exporters are mostly big firms. To be more precise, almost 90 per cent of export value are contributed by big companies which consist roughly 70 per cent of multinational corporations. Therefore, even with substantially strong export figures, the growth is sluggishly transmitted to more employment and higher consumption.
Additionally, increasing trend of utilising “automation” will surely replace human labours and eventually squeeze available budgets for consumption. According to “Robots and Jobs: Evidence from US Labour Markets” by Daron Acemoglu and Pascual Restrepo, their study shows that for each additional robot in the US economy, about 6 workers will be unemployed. Furthermore, a robot could potentially slash down wage by 0.25-0.50 per cent when added to the workforce per 1,000 employees. Numbers of Thai companies, usually big firms, have begun to import more automated systems to increase productivity, efficiency and reduce human errors. Without a doubt, rising era of robot will eventually be a headwind for private consumption. 
Unfortunately, Thai SMEs and agricultural sector are not as strong and efficient as the big corporates. Evidently, Thai SMEs and agricultural sector contributed around 42 and 8 per cent of total GDP while employing more than 80 per cent of the total labour force. Such low productivity is obviously in contrast to that in developed countries such as United Kingdom where SMEs and agricultural sector produce 51 per cent of total output while employing only 53 per cent of the total labour force. 
The outlook for SME employments is also dim since most of Thai SMEs are facing problems with low R&D, resulting in a lack of innovative products. Amid harsh competition from big corporates, without innovations, these SMEs will be out of business which will ultimately drag down consumption. 
As 32 per cent of labour is in agricultural sector, a large portion of people’s purchasing power rely heavily on agricultural prices. Since the supporting factors of agricultural price improvement, such as oil price increase and excess demands, remain fragile, slothful increase in agricultural price is expected in 2018. Thus, agricultural prices will not be a tail wind to support private consumption in near future. 
Moreover, most of major Thai crops - such as rice, sugarcane, rubber, and tapioca face the problem of export market concentration, making them vulnerable to external factors. For example, previously more than 70 per cent of tapioca produced in Thailand was exported to China. But once the Chinese government had changed their price support policy for corns in late 2015, tapioca demand from China dropped significantly leading to price plunge from Bt2.1 per kilogramme in 2015 to just Bt1.3 in 2017. 
Undoubtedly, private consumption will keep growing, though without acceleration. Nevertheless, we could start tackling sluggish-household consumption problem by focusing on Thai SMEs and agricultural sector first as they represent more than 80 per cent of employment. For sustainable long-term growth in private consumption, competitiveness of both SMEs and agricultural sector must be enhanced through innovations and technology. In addition, training and skills development in labour force will be vital to elevate wages and purchasing power. 

Co-authored by DUANGRAT PRAJAKSILPTHAI and POON PANICHPIBOOL. They can be reached at [email protected] expressed in this article are those of the authors and not necessarily of TMB Bank or its executives.