Global household wealth drops for first time since 2008 crisis
ZURICH: For the first time since 2008, global household wealth in US dollar terms decreased on aggregate as well as on a per adult basis, both in nominal and real terms.
Wealth per adult also recorded the second-largest reduction since 2000, according to the Global Wealth Report issued jointly by Credit Suisse and UBS. The 3.4 percent household wealth growth in 2022 was the lowest rate recorded in any year this century apart from 2008. It was also the only year this century, other than 2008, in which the total value of household financial assets declined even when exchange rate changes are discounted.
The key contributors to this situation were the reduced value of financial assets, a stronger US dollar and elevated inflation. During the COVID-19 era, household wealth proved resilient and grew at a record pace during 2021, reinforced as macroeconomic activity recovered in a low-interest environment. This produced advantageous conditions for wealth growth, resulting in the most rapid rise recorded, the report said.
The financial support given to households by central governments in many advanced countries, coupled with lower interest rates and limitations on consumption opportunities, raised household savings and led to widespread increases in share and house prices. But inflation, rising interest rates and currency depreciation caused a reversal in 2022.
Inflation effect
Fiscal and monetary policies undertaken in response to the COVID-19 pandemic, combined with the Russia-Ukraine war and other factors, have resulted in a rise in global inflation. This persistent inflation has consequences for both global gross domestic product (GDP) and global wealth. In fact, in 2022 inflation reduced wealth growth by 6.0 percent, turning a nominal wealth gain of 3.4 percent into a real wealth loss of 2.6 percent.
Also, inflation reduced debt growth to roughly zero and increased the (negative) contribution of the reduced value of financial assets to –4.6 percent in 2022. And, while 2022 is expected to be the peak year for inflation, predicted future levels have been subject to a sequence of upward revisions.
Exchange rates
Measured in current nominal US dollars, total net private wealth fell 2.4 percent to $454.4 trillion, while wealth per adult dropped 3.6 percent to $84,718 at end-2022. Much of the 2022 decline in wealth came from the appreciation of the US dollar against many other currencies, which caused global wealth to decline by 5.8 percent.
But this was offset by inflation, which raised nominal USD values by a similar amount. If exchange rates are held constant at 2021 rates, then total wealth increased by 3.4 percent and wealth per adult by 2.2 percent during 2022. Nevertheless, the 3.4 percent growth in 2022 is the lowest rate recorded in any year this century except 2008. Apart from exchange rate effects, financial assets were the main contributors to wealth declines in 2022. On the other hand, non-financial assets (mostly real estate) stayed resilient, despite rapidly rising interest rates.
However, this may change in 2023 as generally higher interest rates take their toll on house prices. Wealth increases among countries were more common overall than wealth losses, but the gains were generally small in magnitude. Rare exceptions included Russia, Mexico, India and Brazil, which all saw higher aggregate private wealth in 2022.
On a per adult basis, Norway, Singapore and the United Arab Emirates stood out with higher increases of average private wealth. Interestingly, the countries that lost substantial wealth in 2022 were often those that made sizeable gains the year before. The number of US dollar millionaires worldwide fell by 3.5 million during 2022 to total 59.4 million at year-end.
This number includes 4.4 million “inflation millionaires” who would no longer qualify if the millionaire threshold were adjusted for inflation during 2022. The ultra-high-net-worth (UHNW) group with wealth above USD 50 million had 22,490 fewer members by our estimate. The data shows that the rise in wealth inequality during the pandemic was reversed in 2022. This reduction can be traced to the relative decline in financial wealth during 2022. Over the longer term, global wealth inequality has fallen this century due to the faster growth achieved in emerging markets.
Global median wealth has risen in tandem at roughly twice the pace of mean wealth. The 6.1 percent inflation rate for household consumption in the United States raises the 2022 “millionaire benchmark” from $1 million to $1,061,044, so those below the new higher standard no longer qualify as millionaires. The impact varies across countries depending on the pattern of wealth holdings in the vicinity of $1 million.
According to our projections, global wealth will rise by 38 percent over the next five years, reaching $629 trillion by 2027. Growth by middle-income countries will be the primary driver of global trends. We estimate wealth per adult to reach $110,270 in 2027 and the number of millionaires to reach 86 million while the number of ultra-high-net-worth individuals is likely to rise to 372,000, the report said.
