Australia tops the charts in the Asian region for household debt as a percentage of GDP.
While the extent of household leverage in Australia is nothing new, HSBC analysts Frederic Neumann and Abanit Bhaumik have run the numbers across Asia for total household debt, as well as growth in debt, over the last two years.
Australia tops the list, and we’re the only country in the region where total household debt is more than 100% of GDP:
The figures show that over the last eight years, not much has changed with Australia’s household leverage – the country’s household debt to GDP ratio was above 100% in 2008 as well.
That being said, other countries in the region are closing in on the 100% debt-to-GDP ratio. New Zealand runs a relatively close second, while Malaysia, Taiwan, South Korea and Thailand households are leveraged at a ratio above 80%.
Neumann and Bhaumik also looked at the recent growth of credit in the region.
They noted that between 2015 and 2016, Singapore and China experienced the most rapid expansion of household debt, with Australia ranking third.
Although Malaysia ranks third in the Asian region for total household debt, its total leverage was actually reduced over the last two years.
Despite all that debt, Neumann and Bhaumik said that systemic risk in the region was relatively low.
Contrasting Asia’s economies with the defaults in US household debt that led to the global financial crisis in 2008, they said that the amount of low quality sub-prime debt in the Asian region was relatively low.
In addition, some of the current pressure on households is being alleviated by the current low interest rate environment.
Although there’s some risk that an interest rate rise in the future will put further pressure on indebted households, the current interest rate evironment is most likely here to stay for the time being.
While stopping short of predicting a doomsday scenario, the two analysts highlighted the risks to consumption as households pay down all that debt – a theme that’s certainly been central recently in the Australian economic outlook.
In the words of Neumann and Bhaumik, “mo’ credit, mo’ problems”.