Global wealth has tripled in the past two decades, with China leading the way and overtaking the US in first place globally.
That’s one of the findings of a new report from the research arm of consultants McKinsey & Co. that examines the national balance sheets of ten countries that account for more than 60% of world revenues.
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“We are now richer than ever,” Jan Mischke, a partner at the McKinsey Global Institute in Zurich, said in an interview.
Net worth worldwide rose to $ 514 trillion in 2020, from $ 156 trillion in 2000, according to the study. China accounted for almost a third of the increase. His wealth soared to $ 120 trillion from just $ 7 trillion in 2000, the year before he joined the World Trade Organization, accelerating his economic rise.
The United States, held back by more moderate increases in property prices, saw its net worth more than double during the period, to $ 90 trillion.
In both countries, the world’s largest economies, more than two-thirds of wealth is held by the richest 10% of households, and their share has been increasing, according to the report.
As calculated by McKinsey, 68% of global net worth is stored in real estate. The rest is kept in things like infrastructure, machinery and equipment and, to a much lesser extent, in the so-called intangibles like intellectual property and patents.
Financial assets are not counted in global wealth calculations because they are effectively offset by liabilities – a corporate bond held by an individual investor, for example, represents a promissory note from that company.
The sharp rise in net worth over the past two decades has outpaced the rise in global gross domestic product and has been driven by rising property prices due to declining interest rates, according to McKinsey. It found that asset prices are almost 50% above their long-term average relative to income. That raises questions about the sustainability of the wealth boom.
“Net worth through price increases above and beyond inflation is questionable in many ways,” Mischke said. “It comes with all kinds of side effects.”
Rising home values can make home ownership unaffordable for many people and increase the risk of a financial crisis, like the one that hit the US in 2008 after the housing bubble burst. China could have similar debt problems from property developers like China Evergrande Group.
The ideal solution would be for the world’s wealth to find its way to more productive investments that would expand global GDP, according to the report. The nightmare scenario would be a collapse in asset prices that could erase up to a third of global wealth, bringing it closer to world income.
© 2021 Bloomberg