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Global wealth: asset inflation decouples rich from GDP

The world, according to McKinsey, has never been wealthier. Planet Earth, even when wracked by a pandemic and lockdowns, keeps on ringing up the tills. Totting up the value of real assets — buildings, machinery and so forth — and financial assets for 10 of the biggest countries, gives a global balance sheet of $1,540tn.

That, says McKinsey Global Institute, an offshoot of the management consultancy, is a fourfold increase on 2000. Net of liabilities this wealth equates to about six times gross domestic product also sharply higher than the multiple of 4.5 times two decades ago.

Where has the new wealth come from? Unsurprisingly, the two biggest countries brought in the bulk of the growth in net worth: half from China and almost a quarter from the US. Economist Thomas Piketty is right: at a household level, the rich are getting richer. The top 10 per cent in both countries own more than two-thirds of the wealth. In avowedly capitalist America, the bottom half share out just 1.5 per cent; in China — a country in pursuit of “common prosperity” — the comparable figure was 6 per cent in 2015.

Household wealth is split in roughly equal parts, between real estate and financial assets like savings and equities. But there are huge variations: France and Australia favour land and buildings; Americans pensions and equities. The Japanese have never lost their yen for deposits, which account for more than a third of total household assets.

Those portfolios have fuelled a rise in net worth in the household sector from 4.2 times GDP in 2000 to 5.8 times last year. Low interest rates and easy money also helped.

MGI believes rising asset prices have broken the traditional link between growing GDP and rising net worth. The former has been lacklustre in developed economies. Savings searching value wind up in real estate, two-thirds of net worth.

The anticipated end of easy money should help bring GDP and net worth back into closer sync. Signals from falling bond markets and Chinese asset prices point to that realignment. That may be irksome for the wealthy in the short term — but good for them at a political level. Harvesting gains from state economic support is not a popular get-rich-quick strategy, no matter how unintentionally it has been pursued.

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