The report looks at three financial asset classes – securities, insurance/pensions, and deposits – and 57 markets, from the richest countries such as Switzerland and the US to emerging economies Pakistan and Indonesia. In this line of thought, different assets and markets perform differently, but the general downward trend is there.
Calm before a new storm?
The good news is that, in nominal terms, global household financial assets were nearly 19% above pre-COVID-19 levels at the end of last year. If we calculate inflation, however, almost two-thirds of this disappears, reducing the result to a meager 6.6% over three years. While most regions can at least maintain some real wealth growth, the situation in Western Europe is different: all nominal gains have been wiped out and real wealth is down 2.6% in 2019.
“For many years, savers have been complaining about zero interest rates,” said Ludovic Subran, chief economist at Allianz. “But the real enemy of savers is inflation, and not just its spike during QE19. Globally, three-quarters of the nominal growth in financial assets over the past 20 years has been eaten up by inflation.
This underscores the need for prudent saving and high financial literacy. Inflation is a beast that is hard to beat. Without incentives and subsidies for long-term saving, most savers may face difficulties.”
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The expectation is that global financial assets should return to growth in 2022, following the downturn in the current year, and so far the positive outlook comes primarily from equity markets. Overall, Allianz expects global financial assets to increase by around 6%, given the further “normalization” of savings behavior.
“The medium-term outlook is quite mixed,” said Patricia Pelayo Romero, co-author of the report. “There are no good monetary and economic prospects. Over the next three years, the average growth of financial assets is likely to be between 4% and 5%, with an assumed average return for stock markets.
But like the weather, which is becoming more extreme amid climate change, more market volatility should be expected in the new geopolitical and economic landscape. ‘Normal’ years may sooner become the exception.”
Rates up, debt up
The interest rate turnaround was also clearly felt on the liabilities side of the private household balance sheet. After global private debt had risen by +7.8% in 2021, growth weakened significantly last year to +5.7%. The sharpest fall was seen in China: last year‘s debt growth of +5.4% was not only well below the growth in 2021 (+13.9%) but the lowest rate on record.
Overall, global household liabilities totaled EUR55.8trn at the end of 2022. At the same time, the gap between debt and economic growth widened to 3.9pps in 2022. As a result, the global debt-to-GDP ratio (liabilities as a percentage of GDP) has fallen significantly by more than 2pps to 66.1%.
This means that the global debt ratio for private households is back at about the same level as it was at the beginning of the millennium – a remarkable level of stability that hardly fits the widespread narrative of a world drowning in debt.
Declining assets and rising liabilities mean that global net financial assets (financial assets minus liabilities) fell significantly in 2022 by -5.1%, the worst performance since the GFC (-11.8%). Overall, global net financial assets amount to just under EUR177trn at the end of 2022, down EUR9.6trn compared to the previous year.
However, advanced regions such as North America and Western Europe recorded the strongest declines. In other regions, especially in Asia and Eastern Europe, assets continued to grow faster than debt in 2022, resulting in strongly rising net financial assets.
