IMF warns Australia on household debt vulnerability

http://www.abc.net.au/news/2017-10-04/imf-warns-australia-on-household-debt/9013634

Australia’s high levels of household debt leave it potentially exposed to a global economic shock or a banking crisis, the International Monetary Fund has warned.

An IMF study into highly leveraged households and financial stability singles out Australia, where household debt has risen to 100 per cent of GDP, well ahead of other advanced economies where the ratio is much lower at 63 per cent.

“Higher growth in household debt is associated with a greater probability of banking crises,” according to the IMF’s latest Global Financial Stability Report.

“New empirical studies — as well as recent experience from the global financial crisis — have shown that increases in private sector credit, including household debt, may raise the likelihood of a financial crisis and could lead to lower growth.”

The IMF warns the global level of household debt “remains high by historical standards” and “has kept growing in other advanced economies such as Australia and Canada”.

While the report noted that debt can be positive in the long term, it cited research showing that high household indebtedness can cause “a significant debt overhang when a country faces extreme negative shocks”.

In addition to Australia and Canada, the study observed that Cyprus, Denmark, Switzerland and the Netherlands are also exposed to significantly higher levels of household debt.

The Reserve Bank of Australia has repeatedly warned that rising levels of household debt and slowing wages growth mean some consumers could struggle to meet mortgage repayments when interest rates start rising.

As expected, the RBA board left the cash rate on hold at 1.5 per cent yesterday, while noting its ongoing concerns.

“Growth in housing debt has been outpacing the slow growth in household incomes for some time,” RBA governor Dr Philip Lowe said.

———-

bubbles dont deflate in an orderly fashion..they go pop..

“The IMF warns the global level of household debt “remains high by historical standards” and “has kept growing in other advanced economies such as Australia and Canada”.

sadly they are right..stay ready..

401

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~ by seeker401 on October 9, 2017.

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