The Credit Suisse Group, a Switzerland-based multinational investment bank, has released the 10th edition of its annual Global Wealth Report. The report typically tracks both the growth and distribution of wealth – in terms of the numbers of millionaires and billionaires and the proportion of wealth that they hold – as well as the status of inequality around the world.
What are the key findings?
A key finding of 2019’s report is that China has overtaken the United States this year to become “the country with most people in the top 10% of global wealth distribution”. As things stand, just 47 million people – accounting for merely 0.9% of the world’s adult population – owned $158.3 trillion, which is almost 44% of the world’s total wealth.
At the other end of the spectrum are 2.88 billion people – accounting for almost 57% of the world’s adult population – who owned just $6.3 trillion or 1.8% of the world’s wealth.
The other way to look at this distribution of wealth is from the prism of inequality. “The bottom half of wealth holders collectively accounted for less than 1% of total global wealth in mid-2019, while the richest 10% own 82% of global wealth and the top 1% alone own 45%,” states the report.
What’s more, the global financial crisis of 2008-09 seems to decidedly hurt those at the bottom of the pyramid more than the wealthiest as inequalities within countries grew in the wake of the GFC. “As a result, the top 1% of wealth holders increased their share of world wealth,” states the report.
How is wealth defined?
Wealth is defined in terms of “net worth” of an individual. This, in turn, is calculated by adding up the value of financial assets (such as money) and real assets (such as houses) and then subtracting any debts an individual may have.
What are the drivers of the wealth of nations?
Several factors can explain why wealth per adult follows a different path in different countries.
For instance, the overall size of the population is one possible factor that drives wealth per adult in the country. For a country with a huge population, in terms of final calculation, this factor reduces the wealth per adult. But there is a flip side as well. A big population also provides a huge domestic market and this creates more opportunities for economic growth and wealth creation.
Another important factor is the country’s saving behaviour. A higher savings rate translates into higher wealth. The two variables share a strong positive relationship. “Overall, a percentage point rise in the savings rate raises the growth rate of wealth per adult by 0.13% each year on average. Thus, for example, household wealth in Poland (with an 18% savings rate) would be expected to be 27% higher in mid-2019 if it had matched the savings rate of Sweden (28%),” states the Credit Suisse report.
But by far the most important factor in determining the different trends in household wealth among countries is the general level of economic activity as represented by aggregate income, aggregate consumption or GDP. That’s because the expansion of economic activity increases savings and investment by households and businesses, and raises the value of household-owned assets, both financial and non-financial. But wealth and GDP do not always move in tandem, cautions the report. This is especially so when asset prices fluctuate markedly as they did during the financial crisis.
Yet, “In the longer term, the most successful countries are those that succeed in raising wealth as a multiple of Gross Domestic Product (GDP) by addressing institutional and financial-sector deficiencies. This can result in a virtuous cycle in which higher wealth stimulates GDP growth, which in turn raises aggregate wealth,” states the report. It further states that China, India and Vietnam provide examples of this virtuous cycle in action.
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