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US households far outstrip us in terms of “bad debt” or debt used to fund lifestyle such as cars and credit cards. Finder. com says non-housing debt makes up more than 23% of US personal debt compared with around 8% here.
Australia’s economy needs to keep growing to cushion the impact of falling house prices and tighter borrowing. There are positive signs for the economy in the non-consumer sectors that could help to offset any fall in consumer spending as debt is wound back.
The Morgan Stanley scenario assumes a 10%-15% fall in real house prices combined with a 20% reduction in debt levels. That 10%-15% fall in house prices is in line with many other forecasts but there is obviously a risk of bigger falls.
THE WILD CARD
Australia remains vulnerable to what happens in the global economy and financial markets. Global debt has also been rising so any shock to the global economy could trigger wider problems for borrowers.