Liabilities: Long-term stability
Figure 13: Slow down
At the same time, nominal growth in global economic activity remained at a high level (+9.6%) – "thanks" to inflation. The gap between debt and economic growth widened to 3.9pps in 2022 – only in 2010, in the immediate aftermath of the GFC, it was ever larger. As a result, the debt-to-GDP ratio (liabilities as a percentage of GDP) has fallen significantly by more than 2pps. Compared to 2020, the pandemic-related peak, the decline is even more than 4pps (Figure 14). This means that the global debt ratio for private households is back at about the same level as at the beginning of the millennium – a remarkable level of stability that hardly fits the widespread narrative of a world drowning in debt.
However, there are major differences between the regions. In advanced economies such as North America, Japan or Western Europe, the debt ratio has remained stable (despite temporary outliers during the GFC). In North America and Japan, the debt-to-GDP ratio even fell slightly (-1pp and -4pps, respectively), while the ratio in Western Europe rose by almost 8pps. At 72%, however, it is still below the levels in Japan (74%) and North America (79%). The exceptions among the advanced economies are Australia and New Zealand, where the debt ratio rose by almost 30pps to a world record of 113%. At least this value is again below the previous highs in 2016 and 2020, when it hit 122%.
In the majority of emerging markets, on the other hand, the debt ratio has risen sharply over the last two decades. China is at the top of the list, with its ratio more than tripling to a good 61%; in the other emerging market regions of Latin America and Eastern Europe, it "only" doubled and also at a relatively moderate level. A word about the rest of Asia, whose stability is perhaps somewhat surprising in this context. This is primarily a statistical phenomenon: Over the years, the weight of the poorer and less indebted countries has increased, which dampens the regional increase; in addition, there was a strong decline in Singapore. At the country level, the picture is different: In many emerging economies of the region such as India, Indonesia or the Philippines, the ratio has developed rapidly from very low starting points, as in China, and has tripled over the last few years. Moreover, in some countries of the region, the debt ratio has reached alarming levels, not only in the richer ones such as South Korea (108%) or Taiwan (92%), but also in Thailand (87%) and Malaysia (81%).
Figure 14: Long-term stability
Figure 15: More wealth than debt
The music stops in China
Figure 16: The music stops in China
Figure 17: De-Westernization
Figure 18: Under the yoke
A bad year
Declining assets and rising liabilities mean that net financial assets (financial assets minus liabilities) fell significantly in 2022 by -5.1%, the worst growth rate since the GFC in 2008 (-11.8%). Overall, global net financial assets amounted to just under EUR177trn at the end of 2022; this means a decline of EUR9.6trn compared to the previous year.
The development in the individual regions varied greatly. The strongest declines were recorded in the advanced regions such as North America and Western Europe – and in Latin America. Here, a moderate decline in assets (especially in Brazil) met with unabatedly high demand for credit; as a result, the decline in 2022 even exceeded that of 2008 (Figure 19). In other regions, however, especially in Asia and Eastern Europe, assets continued to grow faster than debt in 2022, resulting in rising net financial assets. In China, for example, net financial assets climbed to EUR22.8trn – about three quarters of the Western European value; at the beginning of the millennium, it was just one tenth.
Figure 19: A bad year – but not for all
Figure 20: China remains on top – by a wide margin
Figure 21: The one chart that Japan tops: private austerity
Figure 22: Leadership change
Real estate in selected countries
What would the net financial assets per capita ranking look like if real estate values were also taken into account? Due to insufficient data, we have previously refrained from systematically including real estate in our report. But over the years, the statistical recording of house and land values has also made progress. Reliable and comparable data series on the real estate assets of private households are now available for a number of countries, especially advanced economies. In the following analysis, we refer to the following regions and countries: North America, Japan, Australia and Western and Eastern Europe2.
Overall, the real estate assets (value of land and dwellings) of private households in this group of countries amounted to around EUR140trn at the end of 2022. This was 19% less than gross financial assets (EUR177trn.). This is quite surprising, since real estate assets – usually the owner-occupied house – are generally regarded as the largest asset item on the household balance sheet. This is also true for Australia, Eastern and Western Europe: On average, property values were 49%, 23% and 27% higher than financial assets, respectively. In Germany and France, for example, they were even more than 50% higher. But this was not the case in Japan (-37%) and in North America – which accounts for almost half of all real estate values included here. In the US alone, the value of real estate holdings was 39% lower than that of financial assets.
On the other hand, property owners were still able to enjoy strong increases in value in 2022. Overall, the increase was +8.8%. The collapse in demand for real estate caused by the turnaround in interest rates and inflation will only be reflected in a decline in house prices across the board this year. Last year, it was only Australian households that already suffered the first setbacks (Figure 23). In contrast to financial assets, the long-term development is much more synchronous, with average growth rates of between +4% and +8% over the past ten years. Only Japan, with an annual growth rate of less than +2%, stands out somewhat. The development was even worse only in Italy, where prices fell by -0.5% per year on average. On the other hand, there is only one country among those surveyed that can boast a double-digit growth rate over the long term: Hungary with +11.9%.
Figure 23: Before the storm
Figure 24: Not much change
Sources: Eurostat, national central banks, financial supervisory authorities, financial associations and statistical offices, IMF, OECD, Refinitiv Eikon, Allianz Research.