Elevated levels of household debt may trigger a slowdown in the Australian economy, says Moody’s Investor Service.
Australian households appear likely to pull back on consumption if a bad income or interest rate shock occurred, according to Moody’s 2018 outlook report.
Australia had the highest level of household debt at 122 per cent of GDP in the second quarter of 2017 among a number of economies in the Asia-Pacific region.
In a presentation to media on Wednesday, 10 January about the report, assistant vice president and analyst Anushka Shah said, “Household debt is a challenge that appears to be peculiar to advanced economies, including Australia, New Zealand, Korea and Hong Kong.”
But “prudent” regulation in some of these countries meant banking systems would be less susceptible to financial instability, she added.
“Prudent banking supervision and regulation have bolstered the resilience of the banking sectors in these countries, thereby limiting the risk that a housing market downturn would threaten financial stability with significant fiscal costs to the government,” the report said.
It also found that “most” economies in the Asia-Pacific were highly leveraged in government, household or corporate sectors, which has come as a result of many years of sluggish revenue, income growth and low interest rates.
A separate statement from Moody’s also indicated high corporate debt in China and high household debt “could constrain growth, blunt the effectiveness of counter-cyclical policies and raise contingent liability risks”.
In November 2016, InvestorDaily reported on a cross-sector report by Moody’s that revealed household, corporate and government debt were at “record highs” driven by the low interest rate environment.