Global Wealth Report 2020: Global household wealth holds steady in 2020 despite economic turmoil

2019 was an exceptional year for wealth creation, with total global wealth rising by USD36.3 trillion. The onset of the pandemic, however, resulted in a USD17.5 trillion drop in household wealth between January to March. From March onward, stock-markets have rebounded and house prices have risen. Estimates for Q2 2020 suggest that total household wealth is slightly up on the level at the end of last year, while wealth per adult is slightly down.

Key highlights

• Without the pandemic, the best estimate of global wealth per adult would have risen from USD 77,309 at the start of the year to USD 78,376 at end-June 2020. Instead, the pandemic has caused average wealth to drop to USD 76,984. 
• Last year, total global wealth rose by USD 36.3 trillion and wealth per adult reached USD 77,309, up 8.5% versus 2018. As a consequence, the world has been better placed to absorb any losses from COVID-19 during 2020. 
• For the world as a whole, the report estimates that total mid-year global household wealth was USD 1 trillion above the January level, a rise of 0.25%. This is less than the rise in adult numbers over the same period, so average global wealth fell by 0.4% to USD 76,984. In comparison to what would have been expected before the COVID-19 outbreak, global wealth fell by USD 7.2 trillion, or USD 1,391 per adult worldwide.
• The most adversely affected region was Latin America, where currency devaluations reinforced reductions in Gross Domestic Product (GDP) to result in a 12.8% reduction in total wealth in US dollar terms. The pandemic eradicated the expected growth in North America and caused losses in every other region, except China and India. Among the major global economies, the United Kingdom has seen the biggest relative erosion of wealth.
• A significant development this year has been a rise in the savings rate owing to lockdowns and other pandemic-related constraints on spending, combined with rent and mortgage deferrals which magnified the fall in consumption during the second quarter of 2020. The overall impact on wealth is likely to be modest, since limitations on spending are not expected to persist in the long term.
• Lower interest rates and relaxed credit as a response to the pandemic appear to have succeeded in supporting equity prices and house values.

Immediate impact of COVID-19 on asset prices
The initial impact of the COVID-19 pandemic was felt through asset prices, causing global household net worth to decline by USD 17.5 trillion during January-March 2020, a 4.4% reduction. Actions taken by governments and central banks then reversed this fall. By June, global wealth was USD 1 trillion above the starting value. However, reduced GDP and rising debt will result in long-term damage, so wealth growth will be depressed for the next couple of years, and likely longer.

Impact on wealth distribution not yet finally foreseeable
The worldwide impact on wealth distribution within countries has been remarkably small given the substantial pandemic-related GDP losses. Indeed, there is no firm evidence that the pandemic has systematically favored higher-wealth over lower-wealth groups or vice versa. Although it is too early to fully assess the impact of the COVID-19 pandemic on global wealth distribution, the latest data indicate that overall wealth inequality has declined in at least one key country – the United States.

Global inequality also depends on differences across countries, for which a full assessment requires the arrival of more data. Impacts on particular groups are easier to see: the low-skilled, women, minorities, the young, and small businesses have all suffered, while those linked with the few industries that have thrived in the pandemic, such as Tech, have benefited.

Women, millennials and minorities more affected by pandemic consequences
Female workers have suffered disproportionately, partly because of their high representation in businesses and industries such as restaurants, hotels, personal service and retail that have been badly affected by the pandemic.

Similarly, the millennial generation, their age range now 20–40, is sufficiently broad that the oldest members have likely not fared worse than the population as a whole, while the younger ones – especially women and the less educated – may have fared quite poorly. The disadvantage associated with millennials is partly attributable to the consequences of the 2007–08 crisis, which left many unemployed. The COVID-19 pandemic may not only mean a “double whammy” for the millennial generation, but also a repeat experience for the next post-COVID-19 generation as economic activity is reduced, globalization goes into reverse, and travel is discouraged.

Visible minorities have suffered worse than average in terms of both health and economic shocks during the pandemic. In the United States, for example, rates of infection and hospitalization for key minorities were much higher than for the white population. With job losses also being higher than for the white population, these groups suffered even more.

Impact on millionaires and UHNW
The number of millionaires soared in 2019 to 51.9 million millionaires worldwide but has changed very little overall during the first half of 2020. At the apex of the wealth pyramid, the report estimates that at the start of this year there were 175,690 ultra high net worth (UHNW) adults in the world with net worth exceeding USD 50 million. The total number of UHNW adults rose by 16,760 (11%) in 2019, but 120 members were lost during the first half of 2020, leaving a net gain of 16,640 in UHNW membership since the start of 2019.

Anthony Shorrocks, economist and report author, said: “Given the damage inflicted by COVID-19 on the global economy, it seems remarkable that household wealth has emerged relatively unscathed. Wealth acts as a form of self-insurance that households can draw upon when times are hard. Initially, the impact of the pandemic was felt mainly via the sharp worldwide decline in equity prices. When the commitment of governments and central banks became apparent, equity prices began to rise. In some countries, including the United States, the initial losses have now been reversed for equities as a whole, although many countries have not yet rebounded fully. On the non-financial side, there has been no global downward trend in prices for housing or real estate generally.”

Nannette Hechler-Fayd’herbe, Chief Investment Officer International Wealth Management and Global Head of Economics & Research at Credit Suisse, said: “Although 2019 was a year of incredible wealth creation, the COVID-19 pandemic has been a sobering reminder of the danger of exogenous shocks to the global economy. Unlike the financial crisis of 2007-08, there is reason for optimism this time around, as the global financial sector is much healthier than it was then. Governments and central banks have also learned the importance of credit arrangements and quantitative easing during a severe crisis.

“So far, the impact of the pandemic on household wealth has been minimal. However, transitorily lower economic growth, coupled with shifts in corporate and consumer behavior, may result in lost output, redundant facilities, and sectoral changes that could hamper household wealth accumulation for some time. These shocks to the global economy lead us to believe that growth of household wealth will, at best, recover slowly from the pandemic throughout 2021. The situation within countries is changing fast and there is the promise of many more surprises to come. Among the major economies, China is likely to be the clear winner.”

The Global Wealth Report 2020 is available at:
https://www.credit-suisse.com/ch/en/about-us/research/research-institute.html
 

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