Levels of consumer debt in the UAE are reaching extreme levels, with research showing it at US$95,000 per household. Periods of high growth in consumer lending, as we are seeing now, will almost always lead to temporary expansions (or inflation) but, as with any other demand shock, this is typically not sustainable.
If the expansion in household borrowing is driven by a combination of poor financial literacy and lack of regulation, then the new level of spending is not sustainable and households will find themselves needing to scale back their debt and/or default on loans. This not only causes a loss in private welfare for those households, but it also will lead to a reduction in aggregate demand and therefore in overall GDP growth.
If the government then has to intervene and bail out troubled households, banks or businesses, this will have its own additional cost on the economy.
You must be a registered user to add a comment here. If you’ve already registered, please log in. If you haven’t registered yet, please register and log in.
Sign up to receive our latest news and business thinking direct to your inbox
London Business School takes your privacy seriously. We may process your personal information for carefully considered, specific purposes which enable us to enhance our services and benefit our customers. Please note that by subscribing now you may from time to time receive other emails from LBS about events or other activities that we think might interest you. View our Privacy Policy to learn more.
Thank you. You're almost ready to start enjoying Think. To verify your email and confirm your subscription please click on the link that we've sent to your email address.
Comments (0)
You must be a registered user to add a comment here. If you’ve already registered, please log in. If you haven’t registered yet, please register and log in.
Login/Create a Profile