When the International Monetary Fund singles you out, it's worth paying attention. The IMFC's biggest worry is China and the strong link it has to the Australian economy. Australia's household debt is now painfully exposed to any debt bust in China. Australian real estate investors have been allowed to borrow excessively to secure houses and apartments at inflated prices, levels that could prove disastrous. Last month the Bank of International Settlements cautioned that China's credit to GDP ratio is higher than in the rest of Asia before 1997, and the US before 2008.
In a wake-up call about the explosion in private sector debt in many advanced economies and China, the IMF's Fiscal Monitor said history showed it was "very easy to underestimate the risks associated with private debt" during good economic times. In particular, the accumulated gap in the household sector is large and has even grown further in a number of cases (notably Australia and Canada)," the report said. The warning comes amid a debate about whether the Reserve Bank of Australia's record low interest rates are fuelling a risky house price bubble in Sydney and Melbourne.
The International Monetary Fund has warned that Australian households are on a potentially dangerous debt binge in the wake of the global financial crisis. The wakeup call comes as the IMF puts global public and private debt levels at $US152 trillion ($199 trillion), putting some advanced economies now at greater risk in the event of another crisis. The IMF has warned of an unprecedented blow-out in private debt worldwide and identified Australia as one of three nations - alongside Canada and Singapore. ”Private debt has continued to accumulate at a fast pace, notably Australia, Canada and Singapore". The IMF says although private debt is starting to "retrench", public debt has increased by 25 per cent of GDP from 2008 to 2015.
When the International Monetary Fund singles you out, it's worth paying attention. A new report by the fund has warned of an unprecedented blow-out in private debt worldwide and identified Australia as one of three nations - alongside Canada and Singapore - where the binge is growing at "a fast pace”. The IMF's fiscal chief Vitor Gaspar said the record debt burden "constitutes one of the most important headwinds against growth in the global economy”. Over the past 20 years, total household debt in Australia has climbed from about 75 per cent of total disposable income to more than 180 per cent - one of the highest debt-to-income ratios in the developed world.