Put the brakes on
US authorities are concerned that too much saving might threaten the economic recovery
Analysis of the fundamental drivers of debt – demographics, interest rates and credit availability – suggest US households will continue to pay down debt in coming years. But that does not mean the global debt party is over. The volume is being turned up in many emerging markets. Car sales recently reached record highs in Brazil, India and China for example. Home sales have also jumped.
In general, Asia and Latin America look best placed for a secular rise in household debt over the next decade. Russia and Eastern Europe look more problematic. Not only are demographics worse, but credit conditions are tighter. Interest rates are actually higher than in recent years because many central banks in the region have had to raise rates to defend their currencies. By contrast, interest rates in Latin America and Asia are generally at record lows. But it remains to be seen how long policymakers in these regions will let the party go on for. Arguably, the US authorities were too slow to remove the punchbowl and the hangover is proving more painful than they hoped.
James Carrick is an economist of Legal & General Investment Management
