That’s one of the takeaways from the latest report by the research arm of consultants McKinsey & Co. saddled with the responsibility of examining the national balance sheets of ten countries representing more than 60% of world income. See the stat. below:
Following the latest global wealth statistics, Mr Jan Mischke, a partner at the McKinsey Global Institute in Zurich, said in an interview.
“We are now wealthier than we have ever been,”.
The global wealth net worth worldwide rose to $514 trillion in 2020, from $156 trillion in 2000, according to the study. However, China accounted for almost one-third of the increase making it the undisputed wealthiest nation in the world. China’s wealth skyrocketed to $120 trillion from a paltry $7 trillion in 2000, the year before it joined the World Trade Organisation, speeding its economic ascent.
The US, drawback by extra muted increases in property prices, saw its net worth more than double over the period, to $90 trillion.
Within both countries — though the world’s biggest economies — greater than two-thirds of the wealth is held by the richest 10% of private citizens households, and their share has been increasing, the report said.
Real estate seem to be the honey pot for about 68% of global net worth is deeply rooted in real estate as computed by McKinsey. The remaining balance is held in such things as infrastructure, machinery and equipment and, to a much lesser extent, so-called intangibles like intellectual property and patents.
However, financial assets are outrightly excluded in the global wealth calculations for they are potently offset by liabilities: For instance, a corporate bond held by an individual investor, represents an I.O.U. by that company.
The steep increase in net worth in the last 20 years has outstripped the increase in global gross domestic product and has been fueled by ballooning property prices pumped up by declining interest rates, in accordance to McKinsey. It unveiled that asset price values are almost 50% above their long-run average relative to income. That throws questions regarding the sustainability of the wealth boom.
“Net worth via price increases above and beyond inflation is questionable in so many ways,” Mischke said. “It comes with all kinds of side effects.”
Increasing real-estate values can make home ownership unaffordable for many people and increase the risk of a financial crisis — just like the one that hit the US in 2008 after a housing bubble burst. China also might potentially run into similar problem over the debt of property developers like China Evergrande Group, in future.
The befitting decision would be for the world’s wealth to find its way into more productive investments ventures that expand global GDP, according to the report. The nightmare situation would be a collapse in asset prices that could erase as high as one-third of global wealth, bringing it more in line with world revenue.