Household Debt: A Threat to APAC Growth?
Deloitte's excellent Q3 2015 Asia Pacific Outlook looks in detail at the growth of household debt in the region. Traditionally profiled as thrifty savers with an adversity to credit, data collated by Deloitte show that Asia's citizens have steadily increased their debt holdings during the past thirteen years.
Ratios of Household Debt to Disposable Income, 2002-2014
Source: Deloitte: Q3 2015 Asia Pacific Economic Outlook
Deloitte ascribe the debt build-up to the following key factors:
Income growth has supported higher consumption in Asia. Per-capita incomes (PPP adjusted) grew 8.4% per year between 2004 and 2014, fuelling consumption and comfort with debt financing.
Access to credit has widened. Banks and financial companies have expanded their range of products as economies have liberalized. As such, housing loans, personal loans, credit cards, investment accounts, and insurance products have become increasingly common across the region.
Home ownership has emerged as a necessary status symbol. With limited savings and investment options, homes have emerged as a store of value, driving demand for credit services.
Principally, this is a worrying trend because it has supported rapid inflation in house prices across the region in recent years and also means that dent-holders will be subject to higher interest rates in the future when central banks in the region tighten monetary policy.
However, is this a risk to regional growth and stability? The report's author - Akrur Barua - thinks not, arguing that governments in the region are improving their financial standing, thus leaving them well set to deal with any negative implications from higher rates and increased debt burdening costs. Also, debt levels remain comparatively low in China and India - the region's two largest markets.
That said, the report argues that governments in the region need to do more to ensure that debt build-up doesn't expand unsustainably. In the report's analysis, governments need to seriously look at requiring greater liquidity holdings within the banking sector, enforce administrative policies to limit speculative housing investment and expand social safety net policies to ensure that low-income households don't resort to debt as a poverty alleviator.