Australia Central Bank Warns “High Debt Levels Are Affecting Household Spending”
For those wondering why despite global markets trading at all time highs, consumer spending has yet to show a substantial pick up, Reserve Bank of Australia governor Philip Lowe has some ideas. Speaking at the Asutralia-Canada Economic Leadership Forum, in which he provided various comaprisons between the Australian and Canadian economies and monetary policies, the central banker warned that, “there are some signs that debt levels are affecting household spending” and notes that “the household sector is coping reasonably well with the high levels of debt. But there are some signs that debt levels are affecting household spending.”
In Australia, the household sector is coping reasonably well with the high levels of debt. But there are some signs that debt levels are affecting household spending. In aggregate, households are carrying more debt than they have before and, at the same time, they are experiencing slower growth in their nominal incomes than they have for some decades. For many, this is a sobering combination.
As a result, Lowe says that the RBA’s latest forecasts “were prepared on the basis that growth in consumption was unlikely to run ahead of growth in household income over the next couple of years; in other words the household saving rate was likely to remain constant. This is a bit different from recent years, over which the saving rate had trended down slowly.”
He adds that “in relation to the risks from additional borrowing, it is possible that continuing rises in indebtedness, partly as a result of low interest rates, increase the fragility of household balance sheets.
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