Australia's high levels of household debt leave it potentially exposed to a global economic shock or a banking crisis, the International Monetary Fund has warned.

Key points: Australia's household debt is amongst the world's highest, around 100pc of GDP

Australia's household debt is amongst the world's highest, around 100pc of GDP Average developed nation household debt is 63pc of GDP

Average developed nation household debt is 63pc of GDP IMF concludes that higher household debt raises the risks of financial crises

An IMF study into highly leveraged households and financial stability singles out Australia, where household debt has risen to 100 per cent of GDP, well ahead of other advanced economies where the ratio is much lower at 63 per cent.

"Higher growth in household debt is associated with a greater probability of banking crises," according to the IMF's latest Global Financial Stability Report.

"New empirical studies — as well as recent experience from the global financial crisis — have shown that increases in private sector credit, including household debt, may raise the likelihood of a financial crisis and could lead to lower growth."

The IMF warns the global level of household debt "remains high by historical standards" and "has kept growing in other advanced economies such as Australia and Canada".

While the report noted that debt can be positive in the long term, it cited research showing that high household indebtedness can cause "a significant debt overhang when a country faces extreme negative shocks".

"The global financial crisis suggests that high household debt can be a source of financial vulnerability and lead to prolonged recessions."

In addition to Australia and Canada, the study observed that Cyprus, Denmark, Switzerland and the Netherlands are also exposed to significantly higher levels of household debt.

The Reserve Bank of Australia has repeatedly warned that rising levels of household debt and slowing wages growth mean some consumers could struggle to meet mortgage repayments when interest rates start rising.

As expected, the RBA board left the cash rate on hold at 1.5 per cent yesterday, while noting its ongoing concerns.

"Growth in housing debt has been outpacing the slow growth in household incomes for some time," RBA governor Dr Philip Lowe said.

Warning not to rely on continued home price gains

Expectations are growing that the RBA could begin raising the cash rate next year, with some economists tipping a move within six months.

While the IMF points to positive effects of higher debt of through higher growth and lower unemployment, it warns the benefits are typically reversed in three to five years.

"There is a trade-off between the short-term benefits of rising household debt to growth and its medium-term costs to macroeconomic and financial stability," it noted.

The IMF also warned that some households increase debt and consumption based on the perceived wealth of their real estate investments.

"Households that base their expectations solely on extrapolations from past events, when house prices have been growing, may increase their borrowing during housing booms because they expect their home equity to continue growing," the research found.

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Household debt rising post-GFC

Globally, the median household debt-to-GDP ratio among emerging market economies increased from 15 per cent in 2008 to 21 per cent in 2016.

Among advanced economies, the ratio increased from 52 per cent to 63 per cent over the same period.

The IMF said the negative medium-term consequences of higher household debt are more pronounced for advanced economies than for emerging market economies, where household debt is lower.

However, the IMF suggested that fallout from high household indebtedness could be softened if countries improve their financial regulation, reduced dependence on external financing, adopted flexible exchange rates and lowered income inequality.

The IMF's report is based on a study of more than 80 advanced and emerging economies, where debt levels are rising a decade after the global financial crisis.

Follow Peter Ryan on Twitter @peter_f_ryan and on his Main Street blog.