Higher Rates May Spell Private Debt Trouble, Study Finds

(Bloomberg) -- Hong Kong, Sweden, China and Australia could all find themselves in hot water over private-sector debt if borrowing costs rise, according to research by Oxford Economics.

That’s because those countries all have a particularly high share of floating-rate debt in relation to economic output. If interest rates increase, households and companies are likely to feel the pinch, the study of 16 economies found.

With global economic momentum picking up, several major central banks are weighing steps to tighten policy, though the pace of movement varies significantly. The Federal Reserve is expected to raise interest rates again next week and economists also predict that Sweden’s Riksbank will tighten policy later this year.

Oxford Economics estimated that an interest rate rise of 100 basis points would raise Hong Kong’s debt service ratio by around 2.5 percent of gross domestic product after a year, while Sweden, China and Australia would experience increases of between 1.5 percent and 1.7 percent of GDP.

By contrast, Germany, where debt levels are moderate, as well as France and the U.S. are less likely to suffer. For the latter two, that’s because mortgages are typically of fixed rate.

To contact the reporter on this story: Catherine Bosley in Zurich at cbosley1@bloomberg.net.

To contact the editors responsible for this story: Fergal O'Brien at fobrien@bloomberg.net, Zoe Schneeweiss

©2018 Bloomberg L.P.