Australia has undergone the largest natural de-leveraging of any developed economy in the last five years, according to Colonial First State Global Asset Management senior analyst, economics and market research, James White.
Writing in an economic research paper, White said the savings improvement in Australia had been nothing short of remarkable and pointed to the natural deleveraging which had occurred.
"By natural, I mean through savings rather than default. Australians are saving more than their counterparts in the United Kingdom, the US and Canada — all economies with the same household debt issues," he said.
White pointed to the high value of the Australian dollar as having been an important factor in helping drive up savings in Australia until more recently.
"Savings are, while very necessary, a discretionary activity and curtailed by higher costs for the basics," he wrote. "The dollar, in Australia, has played an important role in keeping these basic costs down and allowing more savings plus additional expenditure on services."
"I think dollar concerns are also evident in weaker consumer confidence," White said. "As much as the economics profession may see a weaker dollar as a good thing, capable of creating business investment and employment in export and import-competing sectors, households immediately see weaker purchasing power and concerns about external perceptions of Australia."
He said that the worst of the forecasts on the declining value of the Australian dollar — Professor Ross Garnaut's US70 cents — "would represent such a decline in Australian purchasing power that a recession in a household-driven economy would seem inevitable".
"In recent weeks, much has been made of recession forecasts in Australia. Generally, I would disregard these forecasts. There's a lot that's right about the Australian economy and I remain very confident in the China story," White said.
He said that, specifically, corporate, household and government balance sheets were in very good shape in Australia, but added that Australia ran the risk of a recession in a period of prolonged Australian dollar weakness.
