Household debt: The post-crisis era of restraint is over

Household debt: The post-crisis era of restraint is over

  • Debt growth accelerates further to 6.0% in 2017
  • Eight years after the crisis, global deleveraging process has ended
  • Household debt still poses no risk in most – but not all – countries

Worldwide private household liabilities reached a historic high of EUR 39.8 trillion in 2017.

At 6.0%, the growth rate was not only slightly above the previous year's level of 5.5%, but also well above the long-term average annual growth rate of 3.9%.

Debt growth has accelerated noticeably since 2013 and is gradually returning to levels seen before the financial crisis.

Low interest rates make borrowing more attractive while loan volumes have increased, particularly in the case of mortgages, in line with developments in house prices.

According to the Organization for Economic Cooperation and Development (OECD), the nominal house price index for OECD countries has on average risen by 21 percentage points in the last four years.

Emerging regions catch up

In most parts of the world, debts grew faster in 2017 than in the previous year. The growth rate increased over the course of the year from 3.3% to 3.8% in North America, from 5.9% to 6.2% in Oceania, from 2.6% to 3.0% in Western Europe, from 4.8% to 7.4% in Eastern Europe and from 6.7% to 8.4% in Latin America. In contrast, borrowing slowed slightly in Japan (from 2.4% to 1.8%) and the rest of Asia, albeit it remained on a very high level (from 16.5% to 15.8% of GDP).The geographical distribution of liabilities is similar to that of assets. The richer parts of the world accounted for a total of three-quarters of global debt at the end of 2017 (North America 36.4%, Western Europe 27.6%, Oceania 4.2% and Japan 6.6%). However, their total share came to around 90% at the beginning of the last decade, which means that the emerging regions of Latin America, Eastern Europe and Asia (excluding Japan) have significantly increased in importance. Private liabilities in these three regions more than quadrupled to around EUR 10 trillion in total in the period from 2007 to 2017, with average annual growth rates of 11.5% in Eastern Europe, 12.6% in Latin America and as much as 14.8% in Asia (excluding Japan).

However, in Latin America and Eastern Europe, the impact of the financial crisis can clearly be detected. Households have been considerably more cautious when it comes to borrowing in the past five years than in the first half of the last decade: Average growth rates almost halved.

Figure 1  Development of global household’s debt