Global wealth falls but inequality on the up

For the first time since the economic crisis, global wealth has decreased, but wealth inequality has continued to widen. 

According to a recent study from Credit Suisse Research Institute, household wealth at current dollar exchange rates fell by five per cent to $250tn (€220tn) from mid-2014 to mid-2015. The decline, however, was due to dollar appreciation and was felt around the world, apart from in North America, where wealth grew by $4.6tn, half the amount gained the previous year. 

If measured at constant exchange rates, global wealth would have risen by $13tn.

On the other hand, wealth has become more concentrated, with the top 1 per cent of wealth holders now owning half of all household wealth. Arguably, the rich got richer also because they benefited from the market run of the past few years, and the share of financial assets as a percentage of total wealth has been increasing since 2008.

Reversing the pre-crisis trend, when size and wealth of the middle class grew quickly, over the past seven years rising inequality has squeezed the middle class share of wealth, which declined by 9 and 13 per cent in every region of the world since its peak in 2007. 

“Middle class wealth has grown at a slower pace than wealth at the top end,” comments Tidjane Thiam, CEO at Credit Suisse. 

In fact, the increase of the middle class has not kept pace with population growth in the developing world. Also the distribution of wealth gains has shifted in favour of those at higher wealth levels. 

However, more encouraging findings have emerged. Global middle class wealth, held by individuals with assets between $50,000 and $500,000, has been expanding rapidly. It has almost doubled to $80.7tn since 2000, and now represents 32 per cent of global wealth. Emerging countries, in particular China (330 per cent) and India (150 per cent) have experienced triple digit growth rate of middle class wealth. 

Today, 46 per cent of the 664m global middle class adults are in Asia Pacific, and the Chinese middle class ranks largest in the world with 109m individuals. Europe contains 194m middle class residents (29 per cent of global total).

“The middle class is often at the heart of new consumption trends, and the major source of demand and funding for entrepreneurs and their business,” says John Woods, CIO Asia Pacific at Credit Suisse. 

However, around 71 per cent of adults worldwide, 3.4bn of individuals, have wealth below $10,000.

Growth projections

The global economic outlook, weaker than previously expected, has led the Swiss institution to revise projections of global wealth growth to 2020 downwards to 6.6 per cent, from last year’s estimate of 7.1 per cent. 

Nevertheless, global wealth is forecast to reach $345tn in five years, and the number of millionaires could nudge 50m adults.

 “We are clearly in a growth industry and wealth is set to continue its upward trajectory, with China likely to see the largest percentage increase of dollar millionaires and Africa the next performing region,” says Michael O’Sullivan, CIO for the UK and Eemea at the Swiss private bank. 

In geographical terms, US wealth will continue to dominate and is expected to reach $113tn by 2020. 

In China, total household wealth, which recorded the second highest growth globally after the US, partly thanks to the currency link to the dollar, is expected to rise to $36tn by 2020. 

Regionally, both Europe and Asia-Pacific (excluding China and India) experienced decline in global wealth over the past year, by 12.4 per cent and 10.4 per cent respectively, below the 17.1 per cent reduction in Latin America.

In Asia-Pacific, household wealth is forecast to reach $107tn in five years, overtaking Europe ($102tn).