A measure of eurozone personal debt is at its lowest since before the financial crisis, making the region’s consumers less vulnerable to the effects of a rise in interest rates or an economic downturn.
The debt held by eurozone households fell in the third quarter of 2018 to 57.6 per cent, the lowest level since 2006, according to a global debt monitor database produced by the Institute of International Finance.
The figure for the eurozone is lower than for the US, where household debt is 75 per cent of GDP, and significantly below the 86 per cent in the UK. The figures include both secured and unsecured lending such as mortgages, car finance or student loans.
Economists increasingly see household spending as an underpinning for economic growth at a time when a series of tariff disputes between China and the US threaten any expansion in global trade, and when the eurozone economy shows signs of slowing.
The eurozone unemployment rate dropped to 7.9 per cent in November 2018, the lowest rate since 2008. Job vacancy rates are at their highest since 2009 and eurozone households have been able to save more of their income.
“Eurozone households’ balance sheets remain healthy in most countries with overall levels of debt having declined in recent years,” said Ángel Talavera at Oxford Economics.
However, households with a high level of debt could struggle to maintain spending levels if debt repayment increases when interest rates normalise after nearly a decade of record low rates.
The European Central Bank — which has not raised rates since March 2016 — remains well behind other leading central banks in normalising its monetary policy. Markets largely expect eurozone policy rates to remain unchanged this year.
Filippo Gori, economist at the OECD, said eurozone household debt remained high by historical standards, with pockets of higher debt vulnerability in some countries.
However, “with a deteriorating growth environment, households are also exposed to a stalling job market recovery that may negatively affect their income and ability to repay debt”, said Mr Gori.
At 103 per cent of GDP, Dutch families are the most indebted in the region despite a reduction by 16 percentage points from a peak in 2010. The high ratio largely reflecting high mortgage debt accumulated in previous credit booms.
However Christophe André, economist at the OECD, said Dutch families “do not seem the most at risk of financial distress” because of their relatively high level of assets.
Economists argue that a rapid rise in debt is a better measure of affordability risk. For example in the run-up to the financial crisis, household debt nearly doubled in Spain to a peak of 85 per cent in 2010, largely driven by a property bubble. Spanish household debt has since fallen to 59.6 per cent of GDP in the third quarter of 2018.
At 40 per cent of GDP, Italians have the lowest ratio of debt-to-GDP among larger eurozone economies. Nearly 60 per cent of Italians own their homes outright — about double the rate in Germany, France and the UK.
However, Italy’s house prices are still falling, reducing wealth and the value of mortgage collateral, and economists expect high government debt yields to push the costs of new borrowing higher, while sluggish economic growth is limiting increases in incomes.