Australia has the highest level of mortgage stress in the developed world, according to figures from the International Monetary Fund, with 15% of income devoted to paying off loans.
Borrowers have been floored by a series of rate rises by the Reserve Bank of Australia starting in May last year and continuing for eight months in a row until December 2022 when the IMF compiled its figures.
The increased cost of borrowing has left Australia at the top of the league for debt with Canada second followed by Norway and the Netherlands.
Another four rate rises since December are likely to have pushed Australian’s exposure to debts even further with the cash rate now at 4.1%.
In July, the Australian National University calculated that if the rate increased by another 50 basis points to 4.6%, Australians would be paying 40% of their income into their mortgages and other loans.
The figures were released on Tuesday in the IMF’s semi-annual global financial stability report, and came with a warning that about 5% of banks globally are vulnerable to stress if central bank interest rates remain higher for longer.
A further 30% of banks – including some of the world’s largest – would be vulnerable if the global economy enters a period of low growth and high inflation, or “stagflation”, the IMF said.
The IMF also launched its World Economic Outlook in Marrakech in Morocco with a slightly more upbeat note about global growth than some had expected a few months ago.
It said the global economy has a better chance of dodging a hard landing, based on fresh forecasts, though advanced economies like Australia can still expect a stretch of subdued growth.
The fund said the likelihood of a soft landing, where inflation is wrangled under control without a major downturn in activity, has improved.
World economic growth is tipped to slow to 3% this year and 2.9% in 2024, which is a modest 0.1 percentage point downgrade from the agency’s July predictions.
Australia is expected to chart a similar pattern to other advanced economies and record a few years of weak activity.
The IMF has Australia’s real GDP growing 1.8% in 2023 and 1.2% in 2024. Next year’s figure is half a percentage point lower than in the previous forecast.
IMF director of research Pierre-Olivier Gourinchas said the global economy had displayed “remarkable resilience” as it recovered from the pandemic, the conflict in Ukraine and an inflation surge.
“Despite war-disrupted energy and food markets and unprecedented monetary tightening to combat decades-high inflation, economic activity has slowed but not stalled,” he said.
“Even so, growth remains slow and uneven, with widening divergences.”
Inflation is starting to weaken around the world but most countries, Australia included, were not expected to have it back within target until 2025.
