The Credit Suisse Research Institute recently released its third annual Global Wealth Report 2012, which finds that from mid-2011 to mid-2012 aggregate global household wealth fell by 5.2% in current dollar terms to USD 223 trillion due to the economic uncertainties of the past year – particularly those affecting the Eurozone. Furthermore, the relative stability of the US economy has led to an appreciation of the USD against most currencies, but the impact is especially apparent in Europe, raising the aggregate wealth loss to USD 10.9 trn, by far the largest contribution to the total global loss of USD 12.3 trn. Asia-Pacific was the other big regional loser, shedding USD 1.4 trn.
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Against the backdrop of the Eurozone crisis, Credit Suisse in its report also details the rise in household debt, which has risen in aggregate by 81% from 2000-2012, and analyses household debt as a fraction of net worth, i.e., typically 20-30% of wealth in advanced economies.
In addition, Credit Suisse’s research highlights household wealth forecasts, including that it expects:
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- Wealth to rise by almost 50% in the next five years from USD 223 trillion in 2012 to USD 330 trillion in 2017
- The number of millionaires worldwide to increase by about 18 million reaching 46 million in 2017
- China to add a total of USD 18 trillion to the stock of global wealth in the next five years and surpass Japan as the second wealthiest country in the world
- The USA to remain on top of the wealth league with USD 89 trillion by 2017
- The Eurozone’s total wealth in the next 5 years to only equal today’s level of wealth in the USA, despite that the Eurozone counts 16 million more adults
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Giles Keating, Global Head of Research for Private Banking and Asset Management, Credit Suisse, said: “The third annual Credit Suisse Global Wealth Report analyses the overall patterns of wealth as one of the pillars of the economic system from which we can extrapolate where economic growth is coming from, assess the accumulation of capital, trends in consumption and asset prices, and understand the drivers of growth in specific industries such as healthcare and banking. This year’s report also includes comprehensive analyses of household debt and government debt, to highlight which countries have sustainable overall debt levels and which ones have the most problems.â€
Credit Suisse Research Institute’s Michael O’Sullivan and Richard Kersley said: “There’s no question that the economic uncertainties of the past year – particularly those affecting the Eurozone – have cast a huge shadow over household wealth. Our research confirms that economic recession in many countries combined with widespread equity price reductions and subdued housing markets have produced the worst environment for wealth creation since the financial crisis.â€
Professor Anthony Shorrocks, Co-author of the Credit Suisse Global Wealth Report 2012, said: “Unlike any other, Credit Suisse’s analysis comprises the wealth holdings of 4.6 billion adults in the world, from those with average wealth of just a few hundred dollars or less in some developing countries, up through the emerging middle classes in Asia and elsewhere, to the billionaires at the top of the “wealth pyramid†and across more than 200 countries; uses a variety of reliable sources; and applies state-of-the-art techniques to estimate the level and pattern of household wealth across individual adults.â€
As the world’s largest democracy with a strong federal structure and vibrant markets, India has seen rapid growth in wealth since the year 2000. Wealth per adult rose from USD 2,000 in 2000 to USD 5,300 in 2011. Given the 29% rise in the adult population, aggregate wealth more than tripled during the same period.
For a copy of the Credit Suisse Research Institute report, “Global Wealth Report 2012,†please click here. Full information on sources and methodology is also provided in the Global Wealth Databook 2012.
Changes in wealth from 2011-12
Total global household wealth fell 5.2% in current dollar terms to USD 223 trillion, equivalent to USD 49,000 per adult in the world, the first decline since the financial crisis of 2007-08.
The relative stability of the US economy has led to an appreciation of the USD against most currencies, but the impact is especially apparent in Europe, raising the aggregate wealth loss to USD 10.9 trn, by far the largest contribution to the total global loss of USD 12.3 trn. Asia-Pacific (including China and India) was the other big regional loser, shedding USD 1.4 trn. North America had a modest gain of USD 882 billion.
Despite the setbacks in 2007 and more recently, household wealth has grown strongly over the past decade, with the global aggregate doubling from the USD 113 trillion recorded at the start of the millennium. Even controlling for the rise in the global population and for exchange rate changes, net worth has increased by 38% since the year 2000, equivalent to 2.7% growth per annum. Using constant USD exchange rates reinforces the view that the underlying trends have been, and continue to be, broadly positive. In fact, aggregate global household wealth still managed to rise by about 1% during the past year when USD exchange rates are held constant.
Top of the wealth pyramid
Credit Suisse estimates suggest that worldwide there are 84,500 UHNW individuals, defined as those with net assets exceeding USD 50 million. Of these, 29,300 are worth at least USD 100 million and 2,700 have assets above USD 500 million. North America dominates the regional ranking, with 40,000 UHNW residents (47%), while Europe hosts 22,000 individuals (26%), and 12,800 (15%) reside in Asia-Pacific countries, excluding China and India.
While the number of millionaires in emerging economies is still well below the level in the USA (16.9 million) and Europe (15.4 million), it is expected to increase substantially in the next few years. China could see its number double by 2017, raising the total to almost two million. Credit Suisse also expects to see a substantial increase (53%) in the number of millionaires in India (84,000) by 2017.
In terms of single countries, the US leads by a huge margin with 37,950 UHNW individuals, equivalent to 45% of the group. The recent fortunes created in China have propelled it into second place with 4,700 representatives (5.6% of the global total), followed by Germany (4,000), Japan (3,400), United Kingdom (3,200) and Switzerland (3,050). Numbers in other BRIC countries are also rising fast, with 1,950 members in Russia and 1,500 in Brazil, and strong showings are evident in Taiwan (1,200), Hong Kong (1,100) and Turkey (1,000). India has around 1,550 UHNW individuals with wealth over USD 50 million and 700 with more than USD 100 million.
Wealth of nations: Top 10 countries with the highest average wealth per adult in mid-2012 (USD)
The richest nations, with wealth per adult over USD 100,000, are found in North America, Western Europe, and among the rich Asia-Pacific and Middle East countries. They are headed by Switzerland, which in 2011 became the first country in which average wealth exceeded USD 500,000. Exchange rate changes have reduced its wealth per adult from USD 540,000 in 2011 to USD 470,000 in 2012; but this still remains considerably higher than the level in Australia (USD 354,986) and Norway (USD 325,989), which retain second and third places despite falls of about 10%. Close behind are a group of nations with average wealth above USD 200,000, many of which have experienced double digit depreciation against the US dollar, such as France, Sweden, Belgium, Denmark and Italy.
Household debt
Recent concern with debt sustainability has focused almost exclusively on sovereign debt and the vulnerability of the banking sector. Yet the degree to which governments can finance external debt in times of difficulty depends in part on the net assets of the household sector. More importantly, when considering whether their assets are sufficient to meet future consumption needs and emergencies, households should take account of the debts that governments are accumulating on their behalf.
Controlling for exchange rate changes, total household debt in the world grew by 8% per annum during 2000-7, and then flattened out. Over the whole period 2000-2012, aggregate debt rose by 81%, equivalent to 5% growth per annum. Expressed as a fraction of net worth, household debt is typically 20-30% of wealth in advanced economies, but much higher levels are sometime recorded, for example in Ireland (44%), the Netherlands (45%) and Denmark (51%).
Debt in proportion to wealth
Despite the rise in wealth, in most countries where household debt exceeds USD 1 trillion the ratio of debt to net worth rose during the period 2000‑8, on average by about 50%. Debt in the United States increased from 18.7% of net worth in 2000 to peak at 30.5% in 2008 before falling back to 21.7% in 2011. The United Kingdom exhibited a very similar pattern, with the debt ratio climbing from 15.2% to 23.4% between 2000 and 2008, then dropping to 20% in 2012.The rise in the debt-wealth ratio was even more precipitous in the Netherlands and Spain, and although the increase abated slightly to 71% in the Netherlands, no reduction is evident in Spain, for which the ratio is now 90% higher than in 2000. Debt growth was also high in Italy, but from a much lower base, so that the debt-wealth ratio of 11.1% in 2012 is not just the lowest among the countries depicted, but actually below the average for the world as a whole, which is 17.7%. France (12.8%), Germany (16.4%) and Japan (16.6%) now also fall below the global average.
In the developing world, the absolute level of debt is seldom more than USD 1,000 per adult, but exceptionally high levels – above USD 5,000 per adult – are evident in Brazil, Chile and South Africa.
The most persistent feature is the rise in the relative importance of both financial assets and liabilities with the level of development. For instance, financial assets account for 43.1% of gross assets in Europe and 67.1% in North America, but just 15.9% of gross assets in India. Household debt as a percentage of gross assets is 16% in Europe and 18.1% in North America, but only 3.7% in India and 8.7% in Africa.
Countries with government debt problems
Among the countries with the highest levels of net government debt relative to household financial assets, the situation in Japan, Poland and Spain appears to be manageable, at least from the evidence up to 2011. In Hungary, government debt rose between 2000 and 2010, almost wiping out the total value of household financial assets, but pulled back from the brink in 2011. Ireland appears more problematic. Net government debt was close to zero in 2007, but has since grown faster than any other country, and reached 92% of household net financial assets in 2011.
Surprising findings
Credit Suisse’s analysis of household debt has highlighted a number of facts that may come as a surprise. For example, Canada now has the highest debt to income ratio among G7 countries, and Italy has the lowest. The countries with the highest levels of household debt per adult – Denmark, Norway and Switzerland – are among the wealthiest and most successful; average debt in Greece, Italy, Portugal and Spain is much lower. Debt has risen significantly in advanced countries during the past decade, but on nothing like the scale of the developing world, where almost every country has surpassed the global average of 45% growth during 2000-2012.
Inheritance as a source of wealth differs by region
Inherited wealth likely accounts for 30-50% of total household wealth in OECD countries based on reasonable assumptions. In low growth or traditional societies, the share is likely to be higher while in transition economies extremely low. Of the total 1,226 billionaires in 2012 on the Forbes list, 842 or 69% were self-made. China, Russia, and Eastern European countries account for 209 billionaires of the total, but only two owe their fortune to inheritance.
Wealth in the Future
Credit Suisse estimates suggests that the number of global millionaires could exceed 46 million in the year 2017, a rise of more than 18 million. While the number of millionaires in emerging economies is still far below the levels in the USA (16.9 million) or Europe (15.4 million), it is expected to increase substantially in the next few years. China could see its number doubling by 2017, raising the total to almost 2 million. Credit Suisse also expects to see a substantial increase in the number of millionaires in various countries and in transition economies.
India’s extreme wealth inequality and immense population means that it also has a significant number of members in the top wealth echelons. The self-made billionaire percentage for the Asia-Pacific region, which (excluding China) has an overall figure of 58%, while India and Indonesia, at 42% and 53% respectively, are on the low side. An interesting contrast is that 95% of adults in India have less than USD 10,000, whereas this percentage is only 60% in China.
