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Just over a quarter of Aussies have amassed debts equal to three times their income.
Just over a quarter of Aussies have amassed debts equal to three times their income.

Stagnating Household Income Puts Aussies in Debt Trap

Stagnating Household Income Puts Aussies in Debt Trap

Australians’ average weekly household income grew by A$213 ($170) between 2004 and 2008. Since then, it’s increased by a total A$27.
The extremes roughly reflect a surge and fall in export income—as industrializing China sent demand for iron ore and coal rocketing. But despite their stagnant wages, just over a quarter of Aussies have amassed debts equal to three times their income—mostly as housing surged during a central bank easing cycle designed to cushion the end of the mining investment boom, Star online reported.
 “Wages growth was very, very strong, but there weren’t the productivity gains to match it, so now it’s very weak because we’re simply not competitive,” said Alex Joiner, chief economist at IFM Investors. “So there needs to be a longer adjustment period, and that’s why you’re probably going to see wage growth only start to bottom out in the next few quarters.” Currency depreciation has helped, he said, but not enough to restore competitiveness.
That suggests little prospect of relief for debt-laden households and puts a cloud over the outlook for consumption that accounts for more than half of gross domestic product—despite a powerful recent labor market performance. In addition to the pincer effect of record debt and low wage growth, households are in line for sharp increases in utilities prices.
In this environment, a Reserve Bank of Australia interest-rate increase remains some way off. In minutes of this month’s policy meeting released Tuesday, the RBA acknowledged risks “from growth in housing debt having outpaced the slow growth in household incomes” in recent years.
“Growth in wages and inflation had remained low but stable,” it said.
A psychological boost may be in the offing. When third-quarter GDP is released in December, the absence of the contraction from a year earlier could lift annual growth close to 3%, compared with 1.8% in the second quarter. The next wage-price index will also incorporate a 3.3% hike in the minimum rate and may lift the gauge above the 1.9% record low it’s held at for the past year.
But as sunshine has spread across major economies, leading to the biggest coordinated upswing in seven years, Australia has fallen back to the middle of the pack. Its growth is behind the US and eurozone’s respective 3% and 2.3%, Canada’s 4.3% and Germany’s 2.1%. Australia is still ahead of the UK, France, Italy and Japan.

 

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