Global debt-wealth ratio lower in 2012 despite rise in wealth

0

RISING DEBT: The fact that the wealthiest and most economically successful countries tend to have relatively high levels of household debt suggests that debt is both a blessing and a curse — Reuters photo

KUCHING: Rising household debt has been one of the leading indicators in the economic health of nations with regional composition of household debt dominated by North America, Europe and Asia pacific.

According to Credit Suisse Research Institute’s Global Wealth Report 2012, despite the rise in global wealth, in most countries where household debt exceeded US$1 trillion, the ratio of debt to net worth rose on average by about 50 per cent during the period 2000 to 2008.

Debt in the US increased from 18.7 per cent of net worth in 2000 to peak at 30.5 per cent in 2008 before falling back to 21.7 per cent in 2011.

The UK exhibited a very similar pattern, with the debt ratio climbing from 15.2 per cent to 23.4 per cent between 2000 and 2008, subsequently dropping to 20 per cent in 2012.

“The rise in the debt-wealth ratio was even more precipitous in the Netherlands and Spain, and although the increase abated slightly to 71 per cent in the Netherlands, no reduction is evident in Spain, whose ratio is now 90 per cent higher than it was in 2000,” mentioned the report.

Looking at Europe, debt growth was high in Italy, but started from a much lower base, with the result that the debt-wealth ratio of 11.1 per cent in 2012 was not just the lowest among the countries but also below the average for the world as a whole, which is 17.7 per cent.

France (12.8 per cent), Germany (16.4 per cent) and Japan (16.6 per cent) have now also fallen below the global average, with wealth in France growing robustly enough to reduce the debt ratio by about 10 per cent during the past decade, and Germany managing to reduce the ratio by one-third, from 24.3 per cent in 2000 to 16.4 per cent in 2012.

At a more regional note, Singapore almost matched Germany’s performance in reducing the debt burden. Credit Suisse Research Institute’s estimates indicated that Malaysia and the Philippines might have done even better, although the data for these countries were less reliable.

Although it was thought that low absolute debt would sometimes appear in developing countries that escaped the trend of rising household debt, the report noted that based on estimates only Malaysia and the Philippines managed to pull off  debt per adult levels lower than the global average of 45 per cent.

Taking note that the effects of high household debt would mean more disposable income being spent to pay off the debt, the fact that the wealthiest and most economically successful countries tended to have relatively high levels of household debt suggested that debt was both a blessing and a curse.

The problem, according to the report, was understanding how much household debt was needed to oil the wheels of economic progress without precipitating the crises of confidence seen in several European nations.”