Allianz Global Wealth Report 2021: Saving from home

From

Ludovic Subran

Allianz has unveiled the twelfth edition of its Global Wealth Report, which puts the asset and debt situation of households in almost 60 countries under the microscope.

Saved from the crisis

2020 was the year of extreme contrasts. Covid-19 destroyed millions of lives and livelihoods and the world economy plunged into its deepest recession since World War II. At the same time, monetary and fiscal policy mobilized unimagined sums to support the economy, markets and people. With success: Incomes were stabilised and stock markets recovered quickly. With this tailwind, household wealth weathered the Covid-19 crisis: Global gross financial assets Financial assets include cash and bank deposits, receivables form insurance companies and pension institutions, securities (shares, bonds and investment funds) and other receivables. increased by 9.7% in 2020, reaching the magic EUR 200 trillion mark for the first time.

Savings were the main driver: As lockdowns drastically reduced consumption opportunities, the global phenomenon of “forced savings” was born. Fresh savings jumped by 78% to EUR 5.2 trillion in 2020, an absolute record. Inflows into bank deposits – the default option of forced savings, simply leaving unspent income in the bank account – almost tripled (+187%). Bank deposits accounted for half or more of fresh savings in all markets considered. As a result, for the first time, bank deposits worldwide grew at a double-digit rate of 11.9%; the previous peak growth was 8% in the financial crisis year 2008. While the asset class securities – buoyed by the strong stock markets – grew by 10.9%, insurance and pension fund assets showed much weaker development, rising by 6.3%.

Vaccinated

Despite a subdued start, despite continued bottlenecks in world trade, and despite new virus variants forcing new restrictions, global GDP will grow strongly in 2021, powered by the vaccination campaign which allows economies to reopen and (partially) return to normality. Moreover, loose monetary policies and generous fiscal support remain in place. The upshot for savers around the world? Bar any major stock market corrections, 2021 should turn out to be another good year for them, with overall growth in financial assets globally of around 7%.

“The head numbers are very impressive”, said Ludovic Subran, chief economist of Allianz.“But we should dig a little deeper. Most households did not really save but simply put their money aside. All this idle money on bank accounts is a wasted opportunity. Instead, households should invest in their retirement and the green transition, enabling societies to master the paramount challenges we face, climate and demographic change. My fear is that if households start eventually to dishoard, money will end up in revenge consumption and will only fuel inflation. We urgently need a new ‘savings culture’.”

Australia: Another bumper year

Gross financial assets of Australian households rose by 5.2% in 2020 (2019: 12.8%), well in line with the region’s average (Oceania: 5.0%). Main drivers were bank deposits which increased by a whopping 12.4%, the fastest increase since the Global Financial Crisis (2008: 19.3%), fueled by record inflows of EUR 18.5 billion, over twice the level seen in 2019. Almost one half of fresh savings for Australian households in 2020 ended up in bank accounts, against a portfolio share of just 22%. Insurance and pension funds asset grew by a modest 3.1%.

Liabilities, grew slightly by 2.0%. Although this is the slowest growth since the beginning of our records, it is miles away from the double-digit leap of the years preceding the GFC. The debt ratio (liabilities as% of GDP) jumped to 129.3%, not as a consequence of the debt growth, but because GDP contracted in 2020. This ratio is well above the average of Advance Economies (82.6%). Net financial assets increased by 7.5% (2019: 21.6%). With net financial assets per capita of 88,740 euros, Australia remained in 13th place in the ranking of the 20 richest countries (financial assets per capita, see table). For 2021, a similar dynamic development can be expected, mainly thanks to a buoyant stock market and generous social transfer in the first half. In the first six months, financial assets of Australian households already rose by around 5.2%.

Long Covid

In 2020, financial assets in emerging markets (+13.9%) grew again faster than in advanced markets (+10.4%), returning to familiar patterns of growth after three years. As a result, the prosperity gap between rich and poor countries has also narrowed somewhat. The trend reversal that we diagnosed last year – the renewed drifting apart of the poorer and richer countries – thus appears to have been halted for the time being. However, it is (much) too early to sound the all-clear. While many developing countries performed surprisingly well in the first year of the pandemic, there are indications that the long-term consequences and challenges – from insufficient vaccination and reconfigured supply chains to the digital and green transformation – could primarily affect the poorer countries.

The same can be said with regard to national wealth distribution. While the national middle class has shrunk in recent years as their share of total national wealth has declined in many countries, for 2020 at least, the immense social transfers seem to have successfully counteracted a further drifting apart of the wealth classes. But this happy affair may not last when state support expires and the direct effects of the crisis – the loss of millions of jobs – will once again be felt. Moreover, the crisis led to a significant impairment in school education. Covid-19 is thus likely to further entrench social immobility. The gradual disappearance of the middle class has only temporarily stopped.

“The pandemic is a much bigger challenge for poorer countries”,commented Patricia Pelayo Romero, co-author of the report. “Very likely, Covid-19 will continue to hold back economic development in this group of countries for much longer than in the advanced markets. But the real challenge comes afterwards: These countries will find themselves in a post-pandemic world that will make it increasingly difficult for them to play out their comparative advantages in a proven way, given the lasting changes in technologies, politics, and life styles. The gradual closing of the global prosperity gap – the defining development over the last decades – can no longer taken for granted.”

Read the report.

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