2018 was a year of loss. We bid tearful goodbyes to Stephen Hawking, Aretha Franklin, George Bush, Kofi Annan and Stan Lee, to name a few.
As if these sentimental losses weren’t enough, we had financial setbacks too last year.
For the first time since the 2008 crisis, the wealth of households declined globally amid political uncertainties and fears of trade war, according to the latest Allianz Global Wealth Report.
The survey of 53 countries showed a 0.1 percent shrinkage in gross financial assets in 2018, a small but meaningful number when you consider the absolute loss – 254 billion euros!
An uglier devil lurked in the details. For the first time in this century, both developed and emerging countries lost wealth at the same time.
China’s sneeze spread the contagion to the entire emerging world. As its war of trade words with the U.S. intensified, the Red Dragon lost 3.4 percent in household assets, pulling down the combined wealth of the emerging world by 0.4 percent versus 0.1 percent for advanced countries.
Furthermore, the narrowing of the wealth gap between rich and poor nations stalled, as did the expansion in the size of the global middle class, according to the report.
“The increasing uncertainty takes its toll,” said Allianz Chief Economist Michael Heise. “Trade is no zero-sum game. Either all are on the winning side – as in the past – or on the losing side – as happened last year. Aggressive protectionism knows no winners.”
Prudence came in adversity.
The lack of clarity drove households to tighten their purses, boosting fresh savings worldwide by a whopping 22 percent to a record high of over 2.7 trillion euros.
If the stock markets had behaved, this would have increased overall wealth by 2 percent. Unfortunately, equities struggled to ignore the U.S.-China love-hate relationship and the Brexit drama, tanking around 12 percent in 2018. For households, the fall in the price of assets, mainly equities, eroded value by a huge 3 trillion euros.
Surprisingly, the leaders of the frugality brigade were the Americans – a population known for its rather generous approach to money.
Fresh savings by the Americans jumped 46 percent to 1.8 trillion euros, accounting for two-thirds of savings in the industrialized world last year. Whatever extra the U.S. tax reform brought their way, the Americans swept into investments.
However, long-term savings seem to have been put on the backburner. Insurance and pensions accounted for just a quarter of the total fresh savings in 2018, compared with nearly half before and immediately after the crisis.
While the Americans invested, the rest of the world continued to play safe, parking its money mostly in bank deposits for the eighth straight year.
“It is a paradox savings behavior,” says Allianz economist Michaela Grimm. “Many people save more because they expect a longer and more active life in retirement. At the same time, they shun exactly those products that offer effective old-age protection, namely life insurances and annuities. The world needs nothing more than long-term savers and investors to deal with all the upcoming challenges.”
Households didn’t quite stop living on borrowed money in 2018 but the growth in debt slowed slightly to 5.7 percent from 6.0 percent in the preceding year.
However, overall debt ratio – household borrowings expressed as a percentage of economic output – was stable at a little over 65 percent.
An outlier was Asia, excluding Japan. Debt ratio continued its upward trajectory in the region - a worrisome trend of the past three years that is reminiscent of what happened in the U.S. before the subprime crisis. In China, debt ratio stood at 54 percent, somewhat higher than the 52.4 percent for the entire region.
For the first time in over a decade, the global wealth middle class did not enlist new members. 2018 closed with roughly 1,040 million in this category, nearly unchanged from 2017-end.
No surprises there though. China has been leading the emergence of the new global middle class. Almost half of the members of this category – and a quarter of the upper class – are from the country.
However, Allianz economist Arne Holzhausen sees the glass as half-full. “There are still plenty of opportunities for global prosperity. If other heavily populated countries such as Brazil, Russia, Indonesia and in particular India would have had a level and distribution of wealth comparable to China, the global wealth middle class would be boosted by around 350 million people and the global wealth upper class by around 200 million people.” If this happens, continues Arne, wealth would be distributed a little more equally across the world.
At the end of 2018, the world’s richest 10 percent people owned about 82 percent of global wealth. “Questioning globalization and free trade now deprives millions of people around the world of their opportunities for advancement,” he adds.
Still, we are much better off than we were at the beginning of the century.
The past two decades were an equality warrior’s delight. The gap between the rich and the poor narrowed, driven by large strides in income gains in developing nations.
2017 and 2018 were bumps in the road. Wealth in emerging countries grew slower than in advanced markets, keeping the share of developing regions in global wealth flat at around 18 percent last year.
Amid the gloom, who was the richest of them all? Uncle Sam!
The U.S. bumped Switzerland off the top spot in the list of richest countries, reclaiming the position it lost in 2017. Over the last two decades, the biggest losers in the rankings were Italy, France and Belgium while the largest gainers were Singapore, Taiwan, Sweden, Australia and South Korea.
Germany more or less maintained its position.
North America remained the richest region in the world, with average per capita assets of 173,850 euros after accounting for debts. In contrast, Eastern Europe was the poorest with per capita income of 4,430 euros.