Australia must curtail its debt binge in 2017

Australia's highly levered economy could pose serious problems down the road, according to a new Columbia Threadneedle report.

Columbia Threadneedle's head of government and foreign exchange, Matthew Cobon, singled out Australia and New Zealand as countries with low government debt ratios that are nonetheless endangered by highly levered private sector balance sheets.

"A real estate-funded debt binge combined with a very poor productivity record has created problems for both economies," he said.

"Should the focus shift to debt sustainability and away from reflation, these currencies will become vulnerable once more. Both countries could see a significant rebalancing in their currencies in 2017."

His comments echo a recent Auscap report, which found that the conditions driving up real estate prices in Australia - low interest rates, high debt levels, low unemployment and strong economic growth - have led to "excesses in the system."

Auscap said that the risks facing this debt-driven market are interest rates rising in the medium-term; the potential for unemployment to rise; the likelihood that "domestic economic growth probably has more natural headwinds than tailwinds"; and that "debt levels are high in the context of historical household leverage ratios and may fall over time, meaning that any deleveraging would most likely have a negative impact on prices."

Read more: AustraliaColumbia ThreadneedleAuscapMatthew CobonNew Zealand
Editor's Choice
The Bernie Fraser review of industry superannuation fund governance puts the onus of proof back on the government to demonstrate that one-third independent boards are the best way forward.
Russell Investments will sell its actuarial consulting business to a leading global advisory firm.
The Financial Planning Association Conduct Review Commission Disciplinary Panel has expelled financial adviser Darren Tindall and issued a fine of $16,000.
The financial services sector should not be tempted by "shiny new [fintech] toys", and must continue to invest in maintenance of their core technology, says APRA chairman Wayne Byres.
Brought to you by
8 FEB 2017
This year marks the 23rd anniversary of the launch of Hunter Hall's Value Growth Trust, a fund that championed ethically-screened global equities investing in Australia. Since then, the fund manager has ...
Get it Daily
Keep up to date, don't be the last to know! Get the Financial Standard Daily Newsletter.
Pocket investment guides featuring adviser case studies and a glossary.
Investing trends and strategies from the industry’s thought leaders.
Putting the spotlight on investment products that matter.
Expert Feed
Alex Dunnin
Taking the risk out of insurance reform
Dysfunctional arguments Americans have regarding their Affordable Care Act remind us how poorly most people understand insurance. Following ...
Stephen Fay
Reality and perception of super returns
What matters more, the investment return on your superannuation balance or the how you feel about your return? Which does a member ...
Christopher Page
Redefining the family office
While the family office model has traditionally been the preserve of the ultra-rich, this may be changing very soon. Last week, Findex ...
Michelle Baltazar
When the disruptors are getting disrupted
2017 is going to be another year for the disruptors, including managed accounts providers - but their challengers, too, are not too ...
Featured Profile
Professional Subscription for $295
(inc GST) for 1 year.
FS Advice
The Australian Journal of Financial Planning.
Get the free iPad app
Download the Financial Standard iPad app for FREE.
Link to something mq52Bwp9