Debt ridden Malaysia may stall when easy money dries up – analysts
(WIKISABAH) – More Malaysians are borrowing to buy anything from houses and cars to daily essentials, prompting global banking giant HSBC to label the country’s household debt level as “troubling” in a research note.
HSBC also pointed out that Malaysia’s household debt relative to its gross domestic product (GDP) is — along with that of Thailand and Taiwan — higher than that of the United States.
According to a report in the Wall Street Journal (WSJ) today, asset prices have been buoyed while the cost of borrowings have fallen due to the huge amounts of capital flowing into emerging Asian economies like Malaysia.
But the report pointed out that when the flow ends, Malaysia and others like it will find it hard to cushion the blow because of high household debt and government borrowings.
With interest rates lower than inflation, the number of people borrowing money has spiked in Malaysia, Hong Kong, Indonesia, the Philippines, Singapore and Thailand.
Much of the borrowed money has ended up in property investment.
This, in turn, has caused property prices to spiral upwards, forcing Malaysians to borrow more in a vicious loop.
“The issue is troubling,” WSJ quoted Frederic Neumann, co-head of Asian economic research at HSBC, as saying.
“It implies that consumer spending is to a large extent driven by leverage, and hence, sensitive to a tightening in financial conditions, whether because of regulatory scrutiny or a broader rise in funding costs.”
In a warning of the worst-case scenario, it was noted that rapid capital outflows could cause currency devaluations, push up interest rates and trigger credit defaults.
