In the past year, the nation’s business sector has taken a huge hit, with a $1.1 trillion national debt as a share of GDP, a record high for the economy, according to a new study.
This year the debt is expected to rise to $1,500 trillion.
What’s behind the jump?
The slowdown in the economy is largely due to rising debt and corporate profits, said Michael Bresnahan, head of the Institute for Fiscal Studies, a think-tank in Sydney.
“The big companies that are still paying back debt have also seen their earnings and their profits decline.
It is a pattern that has been building up for quite some time.
So, the fact that the debt has been rising for a number of years is the key driver,” Mr Bresanah said.
And in Australia, the main drivers of the rise are: rising house prices; a decline in labour productivity; and low interest rates, which are at record lows.
Mr Bresnanah said it was not surprising that the boom in the property market in the years ahead would have been driven by rising house values, but that it would not be the only reason why debt is rising.
House prices rose about 5 per cent in the year to the end of March this year, compared with 2 per cent a year earlier.
According to the latest data, the average house price in Sydney’s CBD has increased from $1 million to $3.3 million, compared to an average of $1-2 million in the suburbs.
The increase in house prices in the CBD is partly due to a “boulevard boom” that is expected in the coming years, said Mr Breshanah.
He said that there were some signs of “bubble” in Sydney, which may reflect the boom of the financial sector, such as property investors selling properties and speculators selling off shares.
This is also reflected in higher house prices for people buying apartments, which is also a trend in the rest of Australia, Mr Bretanah noted.
However, he warned that Australia’s property market was in a “very precarious position”.
“I think it’s going to be very difficult to avoid the next big bust, and that’s what’s happened in recent years,” he said.
“The question is whether we can avoid it.
Australia’s debt is the highest in the G20 and it is now projected to be around $1 trillion by the end in 2020.
What do you think?
Are you seeing a slowdown in Australia’s economy, or is this simply a new normal?
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