Sometimes people like to give the impression that New Zealanders are highly indebted. And so this summary chart, which I stumbled on this afternoon, is some helpful context.
Among advanced economies, only in Israel and Germany is total debt/GDP lower than in New Zealand.
And also among advanced economies, only Denmark, Israel, and Germany had less of an increase in economywide debt/GDP over the 10 years to the end of 2017 (encompassing the recession and aftermath and subsequent recovery).
A decade ago, a comparable chart would have looked quite different. I recall getting someone to dig out the data in about 2008 or 2009 which showed that our total debt/GDP ratio had increased in the previous few years about as much as the increase in Japan in the late 1980s (and all the increase was business and household). And with most other advanced countries having materially increased their debt/GDP ratios over the last decade, New Zealand a decade ago would have been nearer the middle of the pack for the stock of debt than it is now.
Total debt to GDP calculations include household, corporate, and government debt. As I showed in a post a couple of weeks ago, household debt to GDP hasn’t changed much here. Government debt to GDP has increased a bit, and corporate debt to GDP also won’t have changed much.
Of course, those who want to remain worried about the New Zealand situation – if I recall rightly the Governor said he was `scared’ – will point out the role that big increases in government debt played in many other advanced countries. Household debt to GDP has not changed very much in some of those other countries either. But who is government but a collection of households? We are the ones who have to service government debt. And in many of these other countries, the total debt/GDP numbers will be understated because public service pension liabilities (contractural obligations) are not typically included in the debt numbers. In New Zealand, there are almost no such liabilities, and those there are are properly accounted for.
Add in the reduction in the ratio of the net international investment position (net liabilities) to GDP over the last decade, and the picture is one in which debt should be much less of a concern here than in almost all advanced economies, and than in many – perhaps most – emerging markets economies. In a better world – more business investment, on a path to more productivity – we might perhaps have hoped there would have been more business debt being taken on.