Global financial assets are set to fall by more than two per cent this year in the “first significant destruction” of wealth since the 2008 financial crisis, a new report by financial services giant Allianz SE said.
In real terms, households could lose a tenth of their wealth, according to Allianz’s 2022 global wealth report that studies the assets and debt of households in almost 60 countries.
Unlike the financial crisis, which was followed by a fairly swift rebound, the recovery this time, at least in the mid-term, looks “rather bleak,” Allianz said.
It expects average nominal growth of financial assets to remain at 4.6 per cent until 2025, less than half the 10.4-per-cent growth during the past three years.
“2022 marks a turning point. The war in Ukraine choked the recovery post COVID-19 and turned the world upside down: Inflation is rampant, energy and food are scarce, and monetary tightening squeezes economies and markets. Households’ wealth will feel the pinch,” the report said.
In retrospect, 2021 is looking like the “last hurrah” for global wealth, with its bull stock market powered by monetary policy, Allianz said.
During the three years ending in 2021, global financial assets grew by US$58 trillion to reach US$225 trillion, which Allianz said is akin to adding two eurozones to the global financial pile.
North America’s wealth growth of 12.5 per cent led the way, followed by Eastern Europe (12.2 per cent) and Japan (11.3 per cent). The stock-market boom contributed about two-thirds of this growth.
However, debt also grew during these heady years. At the end of 2021, global household debt was about US$50 trillion. The 7.6 per cent increase from 2020 is the biggest spike since 2006.
Allianz said the geographical allocation of debt has also changed since 2008, with the share declining in advanced markets and increasing in emerging markets. Excluding Japan, Asia’s share of global debt has doubled over the past decade to 27.6 per cent.
“The sharp increase in debt at the onset of a global recession is worrying,” Allianz said.
Household debt in emerging markets over the past decade has ballooned at five times the speed of advanced economies.
Overall debt levels still appear manageable, but the report said “given the strong structural headwinds these markets are facing, there is a real threat of a debt crisis.”
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