Archives of “household debt” tag

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Surging household debt clouds Asia’s growth outlook

  
Analysis, Economy
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The rapid expansion of household debt in emerging Asian countries, particularly China, has become a risk to the global economy.

In Thailand and Malaysia, debt has ballooned due to booms in the auto and housing markets, and the growing repayment burden has dampened consumer sentiment. In China, household debt as a percentage of nominal GDP is now over 50%. Countries such as Thailand have begun curbing their consumption in response to rising debt levels.

The U.S. Federal Reserve is expected to cut interest rates at the end of this month. Emerging economies also have room for interest rate cuts, which would boost growth in the short run but could deepen the scars from indebtedness over the long term.

Somprawin Manprasert, chief economist at Bank of Ayudhya, pointed out that household debts have ballooned as a result of incentives for the purchase of cars and other items introduced by the Thai government in 2011. This is a structural factor that will weigh on future consumption, Somprawin said.

Thailand’s household debt ratio is close to 70%. That is higher than in Japan and other advanced economies, which have ratios of about 58%, and well above that of the eurozone. The main reason is auto loans. To support the car industry, the Thai government introduced tax incentives to encourage purchases, which took off in 2012. As a result of the higher debt load, personal consumption has been sluggish and inflation has been weak.

(more…)

‘If you really want a fiscal problem, look at the UK’

  
Analysis, Economy, Education
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uk crisisInvestors are asking if Britain may soon face its own sovereign debt crisis if the government fails to slash its growing budget deficits quickly enough to escape the contagious fears of financial markets.…

“If you really want a fiscal problem, look at the U.K.,” said Mark Schofield, a fixed-income strategist at Citigroup. “In Europe, the average deficit is about 6 percent of G.D.P. and in the U.K. it’s 12 percent. It is only just beginning.”

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the government and its citizens have been able to continue to borrow at interest rates that do not reflect their true financial situation.

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As for the British government, it has been able to finance a budget deficit of 12.5 percent of G.D.P. — equal to Greece’s — at an interest rate more than two full percentage points lower only because the Bank of England bought the majority of the bonds it issued last year.

David Rosenberg of Gluskin Sheff also referred to the piece in his morning missive, noting:

Britain is probably one of the few countries in the world where political uncertainty, a renewed round of house price deflation and a sinking currency can manage to elicit a bounce in consumer sentiment (the country has a Greek-like 12.5% deficit-to-GDP ratio, which is double the European average and a household debt-to-GDP ratio that, at 170%, makes the U.S. household sector downright frugal at 130%

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