Australia’s economy said to be among the most vulnerable to the rise in global interests rates according to the the Bank for International Settlements (BIS).
The Reserve Bank of Australia is currently facing issues regarding raising interest rates from the current 1.5% as household debt raises 3% in 2016 to an all time high of 189%. As the expansionary policy of cutting interest rates since the mining boom has boosted consumption (C) in the short-term, it is expected that (C) and (I) will both slow in the long term since the quarter after quarter interest rate cuts comes to a halt. It is expected that if interest rates were to rise now, it would have very damaging affects on the Australian economy due to the high indebtedness ratio and the already falling levels of (C).
As the major end of the housing boom is expected to end in coming months, consumption and investment levels fall as consumers scramble to pay off their loans, and monetary policy has reached its limit, we will likely see a decline in GDP and therefore economic growth in the coming months.
Australia is not alone, with Sweden, Switzerland and Canada facing similar issues. The BIS predicts the high indebtedness of these nations, makes them more a lot more vulnerable to a financial crisis.