UBS: Savings May Be Up, But Australians Are Still Borrowing 1.5 Times What They Earn

Australia’s household savings rate may have reached 20-year highs since the GFC, but families are still borrowing close to 1.5 times what they earn.

In a note to clients today, UBS economist Scott Haslem said the Australian household debt-to-income ratio had been “glacially drifting higher” since a modest fall during the GFC.

From Haslem’s report:

Australian household leverage fell about 8 percentage points to 145 per cent in the six years to mid-2012, compared to a fall of 20-30 percentage points per cent to 105 per cent in the US and 138 per cent in the UK.

Australia’s debt-to-income ratio ceased falling about a year ago, “despite a relatively patchy domestic economy”, Haslem noted, pinning part of the turnaround on weak income growth of 2.3 per cent since mid-2012.

Credit grew 4 per cent during that period and with interest rates at a record low, Australians may decide to borrow more still.

From the report:

“Credit growth is now showing signs of accelerating further, with economy wide loan approvals near a 20% pace. Indeed, economy-wide leverage (including business and government) is now on a solid upward trend.

Australia’s ongoing soft jobs data (despite stabilising leading indicators) continues to raise the risk the RBA may trim the cash rate further from its 2.5% record low.

However, the rise in household leverage from an already elevated level – and rising economy-wide leverage generally – questions why Australia needs lower rates.”

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