New | A toxic brew of ballooning Asian household debt
Emerging market household debt as a percentage of gross domestic product has risen from 110 per cent in 2007 to 155 per cent last year, Invesco data shows
Asian household debt levels have surged thanks to monetary stimulus programmes designed to buttress economies from the worst of the 2007-2008 financial crisis.
Now that bill is coming due and it is leaving policy makers with a difficult question; how to cut debt levels and grow the economy?
Its a question to which there may be no easy answer. As US and European central bankers have discovered, a painful deleveraging process involving slow or negative growth as loans are paid down and debts written off, is often the only way.
“Slowing growth and slowing inflation and a big stock of debt...it creates a very toxic cocktail,” said Rob Waldner, chief strategist and head of global macro at US fund manager Invesco and who is underweight emerging markets.
Emerging market household debt as a percentage of gross domestic product has risen from 110 per cent in 2007 to 155 per cent last year, Invesco data shows, with domestic credit expanding between 40 and 50 per cent in China and South Korea. By comparison, over the same time frame, household debt has fallen in the US, and is now holding steady in Japan and the Eurozone.
The standard steps is to lower interest rates, export your way out, and where the government is able to, step up spending, but all this kicks the can down the road
Boosted by easier access to credit cards and consumer loans, consumer debt as a share of personal disposable income in now higher in Singapore, South Korean and Malaysia than it was in the US before the financial crisis, Deloitte economist Akrur Barua wrote in a report published this summer.