CHART: The incredible rise in Australia's debt-to-GDP ratio

December 1955: Joey is tormenting Fifi by blowing up a balloon and then waiting for the bang, during the chimps’ Christmas party at London Zoo. (Photo by Fox Photos/Getty Images)

Australia is accumulating a lot of debt, so much so that the nation’s debt-to-GDP ratio hit a fresh high in the first quarter of the year.

According to analysis from UBS’ Australian economics team, comprising of George Tharenou, Scott Haslem and Jim Xu, debt-to-GDP hit 254% in Q1, taking the increase in the ratio since 2010 to 50%.

The figure excludes financial sector debt, and is presented in nominal terms.

The chart below, supplied by UBS, tells the story. The gradient in recent years is so steep that it’d put an uncategorized climb in the Tour de France to shame.

It’s a big figure, and one that looks set to increase even further in the quarter about to end, says UBS.

“Despite some moderation of credit growth, based on recent trends, debt-GDP is still likely to rise further in Q2 to 256%,” it notes. “There are sharp rises across each of public (47% of GDP), household (125%), and business (84%).

While the rapid increase in indebtedness has more than a few people concerned, Tharenou, Haslem, and Xu believe that it will not prevent the RBA from cutting interest rates again, noting that the bank has other priorities at present.

“While credit/debt growth is slowing, it remains relatively fast compared to ongoing weak nominal GDP growth,” they say.

“Notably, household wealth (i.e. assets less debt) actually fell in Q1, which is consistent with a fading of the wealth effect.

“This latter impact, combined with the RBA focus on low inflation/wages, as well as a weaker global growth outlook, means that we still expect the RBA to cut rates by 25bp in August.”

Now listen to this week’s Devils and Details podcast, we’re joined by Michael McCarthy, chief markets strategist at CMC Markets, to discuss the economic backdrop to the decision facing voters at the polls.

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