Debt Outgrowing Economic Growth

There is a more buoyant mood around the Australian economy at the moment off the back of more stimulus fuelled growth and ‘stability’ out of China, domestic economic growth and more solid employment numbers of late.

However most of this is courtesy of more debt, at a time when the debt burden is starting to show in the global economy.  So when we say courtesy of more debt, what do we mean?  Well, consider that our GDP is growing by about 3% but to achieve that growth we, the private sector of Australia grew our debt by 6.6% over the last year.  To quantify that 6.6%, it is about $165b on top of the already gargantuan $2.5 trillion base – in one year! Aussie GDP is about $2 trillion. Primary school math will tell you that doesn’t add up.  As we’ve mentioned before, Australia has the unenviable title of the highest personal debt to GDP rate in the world.  It’s a bit like watching high flying entrepreneurs living the high life and making ‘rich lists’ with growing ‘wealth’ when behind the façade is debt in excess of this (often just paper) ‘wealth’ before they inevitably fall in a heap, leaving a trail of devastated creditors behind.

The fact is, you can’t continue to collectively borrow more than you collectively earn.

This year gold saw its best quarterly performance in 30 years as the ‘penny is dropping’ with more and more people that this will end badly, and it’s starting to feel a little close and a little GFC Déjà vu-ish…

As we mentioned yesterday, you know when APRA chairman Wayne Byres admits that some bank lending aspects are now “eerily similar” to those observed at the time of the GFC things are getting a bit closer still.  Aussie housing makes up $1.5t of that $2.5t private debt total.  That we are now starting to see real evidence of the property boom ending and the simply epic apartments supply/demand/settlement default setup starting to unwind adds to the potential immediacy.