Report calculates that the surge boosts the wealth of the wealthiest while contributing to tougher conditions for average people
The last two decades have seen global wealth surge but is it productive and driving our economies?
According to a new analysis of ten countries that make up 60% of global GDP - Australia, Canada, China, France, Germany, Japan, Mexico, Sweden, the United Kingdom, and the United States – the McKinsey Institute found that the historic link between net worth growth and GDP growth has been broken.
While GDP growth since the start of the 21st century has been tepid in advanced economies, net worth has tripled, driven largely by asset value increases (accounting for 77% of net worth growth) while saving and investment made up only 28%.
Asset prices are almost 50% above their long-run average relative to income, raising questions about the sustainability of the wealth boom.
The surge in wealth has not been focused on driving technological transformation but on real estate assets. In 2020, more than two thirds of global net worth was in real estate.
Just 20% of savings were held in other fixed assets that can drive economic growth.
Asset values are now nearly 50% higher than the long-run average relative to income. And for every $1 in net new investment over the past 20 years, overall liabilities have grown by almost $4, of which about $2 is debt.
China overtakes US
The report found that global net worth worldwide jumped to $514 trillion in 2020 from $156 trillion in 2000, with almost one third of this attributed to China where wealth skyrocketed to $120 trillion from a mere $7 trillion in 2000.
Net worth in the United States increased to $90 trillion over the same period.
In both countries, it was the top 10% of households that held more than two thirds of the wealth.
With so much of net worth tied to real estate, this is contributing to the pain of those lower down the wealth scale with housing markets increasingly unaffordable.
The big risk is that asset prices collapse, wiping around one third off the value of global net worth. Better would be a scenario where wealth finds its way into productive investments that grow economies.
