IMF: Recessions and housing slumps worse when preceded by debt buildup

Recessions and housing slumps are worse when preceded by a buildup of household debt, says the IMF.

An analysis of effects of household debt in the aftermath of housing market downturns also showed that monetary easing can mitigate “excessive contractions” during such slumps, the IMF said in a chapter of its World Economic Outlook report yesterday.

In the five years before 2007, the ratio of household debt to income in advanced economies rose by an average of 39 percentage points to 138%, the IMF said in its report. In Denmark, Iceland, Ireland, the Netherlands and Norway, debt peaked at more than 200% of household income.