Households In Australia Have The 'Most Debt' In The World

Households in Australia have the most debt in the world. Barclays’ research warned of the country becoming vulnerable to a possible global financial crisis.

Kieran Davies, chief economist at Barclays, said the debt-to-income ratio of the private sector is currently at a record high of 206 percent from the previous 191 percent before the global financial crisis. When it comes to leverage, economists said Australia is one of the countries included in the top 25 percent of the world.

Davies said Australia is leading the rest of the world in household debt, which includes credit cards, mortgages and personal loans. He added that the country’s credit continues to increase while other nations’ debts are dwindling.

The current level of household debt is higher than in any other period in the history of Australia since records started in the 1850s, reports news.com.au. Reserve Bank of Australia governor Glenn Stevens has warned of the dangers of accumulating excessive debt in 2014. He said Australians would be “asking for trouble” if the debt becomes too big.

Davies said promoting leverage would be the key factor in transmitting lower rates to the rest of the economy. An analysis of the distribution of household debt shows Australia having the highest gearing among the large sample countries.

The economist cautioned that it used nominal GDP instead of household disposable income to determine its rations. The data also considered the lending to small businesses including the self-employed as part of household debt calculations.

Davies noted that Australian companies have limited their spending while consumers have accumulated debt. “Although Australian corporate leverage is high by past standards, it is surprisingly low compared with other industrialised countries,” said Davies. He added that Australia’s high levels of leverage with debt mostly concentrated in households makes the country vulnerable to another “global shock.”

Barclays has warned that risks continue to build in Australia’s economy as the Reserve Bank eases its monetary policy, reports SMH. The bank expects leverage to soar to new highs in 2015 amid lower interest rates.

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