Aussies face high debt, sickly wages

sydney — Australians may soon be struggling to make ends meet.

With real wages going backward in the first quarter and the developed world’s highest debt-to-GDP ratio after Switzerland, consumers are setting aside less cash for a rainy day: their savings levels have more than halved in five years. Further intensifying the squeeze is a rising cost of living, with electricity prices climbing as much as 20 per cent in New South Wales state next month.

At stake is the economy’s trajectory: consumption accounts for more than half of gross domestic product, and any longterm weakness in spending will weigh on growth. As to ballooning debt, while the central bank can’t say how high is sustainable, it warns that the deeply indebted can be more sensitive to declines in income “and may respond by reducing consumption sharply.”

“We’re starting to see signs the consumer is looking to see where they can take cheaper options,” said Daniel Blake, an interest rate strategist at Morgan Stanley in Sydney, who also notes a rare drop in private health insurance participation as households scale back. “There’s likely to be another meaningful slowdown in consumption.”

Australia’s household debt to GDP ratio has climbed almost 15 percentage points in four years, to 123.1 per cent in 2016, data from Bank for International Settlements show. Known as the central bankers’ bank, its annual report released on Sunday said household debt outpacing GDP growth over prolonged periods is a “robust early warning” signal of financial stress.