Debt can do economic good – that is, if its proceeds are put to productive use such as infrastructure or education. However, Australia’s debt binge since our last recession has gone largely towards rising home valuations. This debt not only has little long term economic benefit, it has made the household and banking sectors less resilient to an inevitable economic downturn. Already the rating agencies are warning of a sovereign downgrade – and we haven’t even had a recession! The economic growth challenges Australia faces are rising. We, however, take some solace in the fact that Australian businesses are only moderately indebted. This means corporate bond default rates should be modest in the medium term. This and the additional returns investors can get over deposits continue to make A$ corporate bonds look relatively attractive.
Read the full report here: Spectrum Insights – What a waste of debt