What is the significance of national savings? (1 Viewer)

[seano77]

Australia has a low level of national savings. So what does mean and what impact does it have?

Any help would be appreciated.

 

[munchiecrunchie]

basically means that we have a large amount of consumption and a low MPS

it causes a savings-investment gap - the amount of investment within the Australian economy exceeds the amount of domestic savings to undertake it

this savings investment gap is thought to be responsible for our net income deficit on the current account, a structural problem

thats all i can think of atm

 

[Smeegen999]

Australia has one of the lowest levels of national savings compared to other OECD countries.
This means businesses undertaking investment (alot of big mining companies atm) need to do borrow funds from overseas, contributing to the level of foreign debt (I think 68% of GDP now) and worsening the CAD (interest payments sent overseas).

 

[bazza159]

national saving refers to the sum of both private and public savings. It's often said that "Australians are poor savers". Basically it means that we spend beyond our means and therefore there are insufficient savings domestically to fund domestic investment.

So where do we turn to? Foreign savings - we make up for the shortfall in national savings by borrowing from foreigners. This is a big deal because it leads to an accumulation of foreign liabilities which must be serviced through interest repayments. These are recorded on the net income section of the current account which forms the structural component of Australia's ongoing CAD.

With a large CAD and foreign debt we face a debt sustainability problem as well as lower levels of international confidence in the australian economy, which could lead to higher interest rates when we borrow from overseas as well as a downgrading of australia's credit rating.

so basically thats why national savings are a big deal..