Personal wealth rising
The overall global economy may remain sluggish, but this has not prevented personal wealth from surging ahead during the past year. Driven by healthy housing markets and robust equity prices, total wealth grew by 8.3% worldwide to reach USD 263 trillion, the first time household wealth has passed the USD 250 trillion threshold. The annual rise of USD 20.1 trillion is the largest recorded since 2007 and continues a trend which has seen global wealth increase every year since 2008, so that it now stands at 20% above the pre-crisis peak and 39% above the recent low in 2008. When calculated using constant exchange rates, the recent gains are even more impressive. For the calendar year 2013, we estimate that global wealth rose by USD 21.9 trillion. This is more than the amount gained in any other 12-month period since 2000, and it exceeds the total loss resulting from the financial crisis in 2007 8 (USD 21.5 trillion). On that basis, it seems likely that personal wealth has recently been rising at the fastest rate ever recorded.
Change in household wealth 2013-2014, by region
Given population growth, average wealth has grown at a slower pace, but the overall picture is similar. Wealth per adult passed the USD 50,000 benchmark in 2012 and achieved a new record high of USD 56,000 in mid-2014. The rise of USD 3,450 per adult since mid -2013 exceeds the increase in any previous year since the financial crisis, while the rise of USD 3,900 calculated for calendar year 2013 with fixed exchange rates beats all years since 2000, and is probably the highest ever achieved in a single year.
The United States is the engine of growth
While many countries – particularly Western European nations – achieved sizeable increases in household wealth, the United States led the way again with a rise of USD 8.9 trillion for the 12 months ending mid-2014. For the calendar year 2013, we estimate that USD 12.9 trillion was added to the stock of personal wealth. This exceeds the gain in any 12-month period (or by any other country) since our series began in 2000 and trumps the total amount (USD12.3 trillion) lost by residents of the United States during the financial crisis. Thus the United States has recovered in a single year all the assets lost during one of the most serious financial setbacks in history.
This rapid rise in wealth in the United States strongly reinforces the recent trend, which has seen wealth per adult rise every year since 2008. As a consequence, average wealth is now 19% above the pre-crisis peak achieved in 2006, and 50% above the post-crisis low in 2008. In total, USD 31.5 trillion has been added to household wealth in the United States since 2008, equivalent to almost two years’ GDP. By any standards, this is a huge injection of funds for consumption or investment, which is likely to reverberate for many years to come.
Since wealth has grown at a faster pace than income, the ratio of wealth to income has trended upwards recently. Figure 2 reproduces and updates the ratio of wealth to disposable income since 1900, which we presented in the Global Wealth Report for 2011. For more than a century, the wealth income ratio has typically fallen in a narrow interval between 4 and 5. However, the ratio briefly rose above 6 in 1999 during the dot.com bubble and broke that barrier again during 2005-2007. It dropped sharply into the “normal band” following the financial crisis, but the decline has since been reversed, and the ratio is now at a recent record high level of 6.5, matched previously only during the Great Depression. This is a worrying signal given that abnormally high wealth income ratios have always signaled recession in the past.
The rise in wealth recorded in Table 1 for North America reflects strong asset growth in both Canada and the United States, split 2:1 in favor of financial assets, as in the world overall. Europe made the second largest contribution, adding USD 8.1 trillion to the global total. Elsewhere, China gained USD 715 billion (3.5%), and the Asia-Pacific region (excluding China and India) saw a similar percentage improvement, helped by the fact that Japan had a neutral year, unlike 12 months ago when depreciation of the yen caused total household wealth to drop by more than USD 5 trillion. Exchange rate changes had little overall effect this year in China, the Asia-Pacific region and Africa, where the small rise in wealth is slightly higher when exchange rates remain constant. But currency depreciation in India and Latin America was sufficient to transform an increase in wealth, when measured using constant exchange rates, into a small decrease in wealth using current exchange rates.
Winners and losers among countries
The extent to which the United States dominates the global wealth picture this year is evident from Figure 4, which lists the countries with the largest total wealth gains and losses. Currency appreciation combined with higher than average house price and equity price increases account for the USD 2.3 trillion gained by the United Kingdom, while euro appreciation and equity price increases explain why wealth rose by about USD 1 trillion in France, Italy and Germany, and by more than USD 500 billion in Spain. In contrast, wealth losses by individual countries are quite modest and largely attributable to adverse currency movements. The biggest loss was Indonesia (USD 260 billion), while Argentina and Russia each shed USD 135 billion and Turkey was down USD 100 billion.
Expressing the wealth changes in percentage terms produces a more balanced distribution of gains and losses (see Charts Figure 5). In fact, the greatest percentage changes are the losses of more than 30% suffered by Argentina and Ukraine. Elsewhere, declines in wealth were relatively modest, with only Chile, Indonesia, Russia, Thailand and Turkey recording losses above 5%. Among the countries reporting gains, the United Kingdom tops the table with a rise of 19%, while wealth grew by 15-18% in four other countries: Denmark, Greece, Spain and Korea.