Economy

Asia’s Policy Influence Wanes as Consumers Accumulate Debt, Reports Reuters

By Vidya Ranganathan and Orathai Sriring

SINGAPORE – Puangpeth Urabut, a 40-year-old government employee from Thailand’s northeastern province of Nong Bua Lamphu, exemplifies the typical Thai consumer—burdened by debt and borrowing against future earnings to cover basic necessities.

Puangpeth has a monthly income of about 25,000 baht (approximately $718.18), yet she faces significant debt, including 250,000 baht owed across four credit cards and a 300,000 baht car loan. In a desperate measure, she often takes cash from one credit card to pay off another.

"It’s becoming increasingly difficult to manage my debt," she admits. "I barely make ends meet and will have to keep borrowing."

Consumers like Puangpeth, whose debt-driven spending has supported Asia’s struggling economies, are now presenting challenges for central banks, even as interest rates remain at historic lows. Many consumers and businesses are so deeply indebted that they find it hard to take on more loans, regardless of how affordable they may be.

Finance ministers from the world’s 20 leading economies noted last month that "monetary policy alone cannot lead to balanced growth."

Over the past seven years, borrowing surged as capital flowed into higher-yield emerging markets from major economies, where central banks had reduced interest rates and engaged in money printing in response to the financial crisis.

The Bank of Thailand is aware of the issue. Despite expectations for low inflation and subdued domestic and global demand, it has kept interest rates near record lows for the past 16 months, advocating for more fiscal policy measures and structural reforms.

"Monetary policy has its limits in further stimulating economic growth," stated BOT Governor Veerathai Santiprabhob.

According to data from HSBC, eight of the 14 largest countries in the Asia-Pacific region now have consumer debt that exceeds three-quarters of their annual economic output (GDP).

This situation makes policymakers cautious about reducing interest rates. Frederic Neumann, co-head of economic research at HSBC in Hong Kong, explained, "Even a rate cut is likely to produce only limited acceleration in consumer spending. The effectiveness diminishes."

Fiscal Policy Takes the Lead

Since 2008, significant increases in debt-to-GDP ratios have been observed in countries such as China, Hong Kong, Singapore, Malaysia, and Japan. In Korea, Malaysia, and Australia, the total debt-to-GDP ratio hovers around 250 percent, with even higher levels in China, Hong Kong, and Singapore.

While debt levels in most Asian nations are not currently seen as a threat to economic stability—largely because these debts are held by governments or state-owned entities—rising consumer debt could become a pressing concern if central banks further loosen their policies.

As of March, South Korean household debt reached $1 trillion. The central bank has suggested that the government should utilize fiscal policy to restructure and invigorate the sluggish economy, as additional rate cuts could be both ineffective and hazardous.

Similar to Thailand, the Bank of Korea refrained from reducing rates last month, while the government proposed a substantial 20 trillion won ($18.19 billion) stimulus initiative.

In contrast, Malaysia surprised analysts with a rate cut despite having limited capacity for fiscal stimulus. Most Asian countries, however, still have some room to lower rates. Wellian Wiranto, an economist at OCBC Bank, noted, "But the effectiveness has clearly diminished. The demand for loans is not strong."

Wiranto expressed concerns that household debt levels might remain high for an extended period. "Ultimately, improvements in general growth and household incomes are necessary for individuals to start reducing their debts. Unfortunately, I don’t believe we are in a global or regional environment that will experience a substantial uptick in growth for years to come."

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