Concerns on household solvency have been raised as household debt has reached an all-time record of over $47trn (or 60% of GDP), according to the Institute of International Finance (IIF).
It comes in light of the ongoing coronavirus (COVID-19) pandemic, as job losses mount and work hours have been reduced as part of social distancing measures.
Since 2007, households worldwide have added over $12trn to the mountain of global debt. The corporate and general government sectors have, however, accounted for much more of the build-up ($31trn and $34trn respectively), the IIF said in its recent report.
While the median household-debt-to-GDP for mature markets is now much lower than it was a decade ago, aggregate data masks wide variation both across and within countries. Struggling to fund the gap between earnings and spending, many low-income households could rapidly find debt burdens unsustainable. This would be particularly if a fast “V-shaped” recovery fails to materialise, with unemployment levels elevated over a longer period of time.
The IIF said that most emerging and frontier market households have seen a rise in debt ratios. It added that, even before the coronavirus crisis, most of the 75 countries in its sample had higher household debt-to-GDP ratios than before the 2008 financial crisis.
The report also said that the anticipated job losses due to the coronavirus imply a massive jump in household debt relative to income and assets. This could trigger a sharp drop in private consumption, particularly among lower-income, high-debt households.
A new International Labour Organization (ILO) report estimates global job losses of almost 25 million, with income losses in the range of $860bn to $3.4trn. While much of this will likely be temporary, already-high household debt levels will amplify the adverse impact of the coronavirus and could exacerbate socio-economic and financial vulnerabilities.
Importantly, the IIF revealed that unequal wealth distribution and debt burdens among households could amplify the impact of the coronavirus shock. This could also exacerbate financial and socio-economic vulnerabilities.
Egypt’s household debt accounted for 6.5% of the country’s Nominal GDP in June 2019, compared with the ratio of 6.3% in the previous year.
The country’s household debt to GDP ratio is annually updated, reaching an all-time high of 8.8% in June 2002 and a record low of 1.5 % in June 1991, according to CEIC data.