Using nominal gross domestic product, Barclays estimates household debt at 130 per cent of GDP, which is the highest level on record. Photo: Rob Homer
Australian households are the most indebted in the world, according to research by Barclays, which warns that the country would be vulnerable in the event of another global financial shock.
Barclays chief economist for Australia Kieran Davies says private sector debt-to-income gearing is currently at an all-time high of 206 per cent, up from a pre-global financial crisis (GFC) level of 191 per cent. This put Australia just within the top 25 per cent of the world when it comes to leverage.
However, when it comes to household debt - which includes mortgages, credit cards, overdrafts and personal loans - Australia leads the global field, according to Mr Davies, with credit continuing to pile up while the rest of the developed world is paying it down.
Using nominal gross domestic product, the bank estimates household debt at 130 per cent of GDP, which is the highest level on record.
The ratio compares with 78 per cent globally, down from an all-time high of 81 per cent in 2010. However, Australia is not too far ahead of a range of European countries.
"Examining the distribution of household debt, Australia has the highest gearing of our large sample of countries, although it was practically a tie with Denmark (129 per cent of GDP)," Mr Davies said.
"Switzerland (120 per cent) [and] the Netherlands (115 per cent ) were the next closest countries."
Mr Davies, however, cautions that it has used nominal GDP instead of household disposable income to calculate its ratios, because of the difficulty of finding historical data for all the countries surveyed.
It also includes lending to small businesses, which takes in the self-employed, in its measurement of household debt.
Mr Davies also found that while consumers and mortgagees are busy racking up debts, Australian companies have become more thrifty.
It said that non-financial corporations reduced their gearing from 84 per cent of GDP in 2008, as the GFC began to bite, to 67 per cent in 2011. It was the first period in which outright debt levels fell since the early-1990s recession, said Mr Davies.
Companies had since leveraged up again to where debt represents 76 per cent of GDP. Even still, corporate Australia was markedly more prudent than the country's individuals.
"Although Australian corporate leverage is high by past standards, it is surprisingly low compared with other industrialised countries," said Mr Davies.
"That is, world leverage, calculated as the simple average of the sample of countries, is currently 106 per cent of GDP, down modestly from the all-time high of 111 per cent of GDP reached in 2009."
The bank warns that risks continue to build in economy, particular as the Reserve Bank of Australia eases monetary policy.
"With high levels of leverage by world standards, where debt is concentrated in the household sector, we see this as a vulnerability in the event of another global shock," Mr Davies said.
"However, we do not see this as a near-term issue for the economy as we expect leverage to reach new highs over 2015 on the back of lower interest rates."
