Australia’s household wealth slides

The COVID-19 pandemic has had a huge impact on regions all around the globe and affected people’s lives in countless ways. How it has impacted wealth, and the distribution of wealth, is the subject of a special Credit Suisse Global Wealth Report 2020. The Report provides the most comprehensive and up-to-date coverage of information on household wealth worldwide. In this wire, I summarise the key takeaways, looking at wealth levels before and after the COVID-19 pandemic. You can access a full copy of the report at the bottom of the wire. 

2019 was an exceptional year for wealth creation, with total global wealth rising by USD36.3 trillion. The onset of the pandemic, however, resulted in a US$17.5 trillion drop in household wealth between January and March. From March onward, both stock-markets and house prices have rebounded. Estimates for Q2 2020 suggest that total household wealth is slightly up on the the same period a year earlier, while wealth per adult is slightly down.

Andrew McAuley is surprised household wealth hasn't fallen more.

“Given the damage inflicted by COVID-19 on the global economy, it seems remarkable that household wealth has emerged relatively unscathed. Wealth acts as a form of self-insurance that households can draw upon when times are hard.”

While globally, household wealth has held steady, Australia experienced a large fall in household financial net worth. In the first three months of 2020, the nation’s average fell by about 10.7%, comparative to the global average of 4.7%. Australia was one of only four countries to record a loss greater than 9% in term of net household wealth including Denmark, USA and Canada between January and June.

In Australia, wealth per adult in 2020 was USD 419,460. This is USD 16,820 lower than that recorded in 2019, partially due to the exchange-rate depreciation. In terms of wealth per adult, Australia ranked fourth after Switzerland, Hong Kong SAR, and the United States. Australia took the crown for the median wealth per adult at USD 206,480 in 2019.

Immediate impact of COVID-19

The initial impact of the COVID-19 pandemic was felt through asset prices, causing global household net worth to decline by US$17.5 trillion during January-March 2020, a 4.4% reduction. Actions taken by governments and central banks then reversed this fall. By June, global wealth was US$1 trillion above the starting value. However, reduced GDP and rising debt will result in long-term damage, so wealth growth will be depressed for the next couple of years, and likely longer.

Wealth distribution

The worldwide impact on wealth distribution within countries has been remarkably small given the substantial pandemic-related GDP losses. Indeed, there is no firm evidence that the pandemic has systematically favoured higher-wealth over lower-wealth groups or vice versa. Although it is too early to fully assess the impact of the COVID-19 pandemic on global wealth distribution, the latest data indicates that overall wealth inequality has declined in at least one key country – the United States.

Global inequality also depends on differences across countries, for which a full assessment requires the arrival of more data. Impacts on particular groups are easier to see: the low-skilled, women, minorities, the young, and small businesses have all suffered, while those linked with the few industries that have thrived in the pandemic, such as Tech, have benefited.

The impact on women, millennials and minorities

Female workers have suffered disproportionately, partly because of their high representation in businesses and industries such as restaurants, hotels, personal service and retail that have been badly affected by the pandemic.

Similarly, the millennial generation, their age range now 20–40, is sufficiently broad that the oldest members have likely not fared worse than the population as a whole, while the younger ones – especially women and the less educated – may have fared quite poorly. The disadvantage associated with millennials is partly attributable to the consequences of the 2007–08 crisis, which left many unemployed. The COVID-19 pandemic may not only mean a “double whammy” for the millennial generation, but also a repeat experience for the next post-COVID-19 generation as economic activity is reduced, globalisation goes into reverse, and travel is discouraged.

Visible minorities have suffered worse than average in terms of both health and economic shocks during the pandemic. In the United States, for example, rates of infection and hospitalisation for key minorities were much higher than for the white population. With job losses also being higher than for the white population, these groups suffered even more.

Impact on millionaires and UHNW globally

The number of millionaires soared in 2019 to 51.9 million millionaires worldwide but has changed very little overall during the first half of 2020. At the apex of the wealth pyramid, the report estimates that at the start of this year there were 175,690 ultra high net worth (UHNW) adults in the world with net worth exceeding USD 50 million. The total number of UHNW adults rose by 16,760 (11%) in 2019, but 120 members were lost during the first half of 2020, leaving a net gain of 16,640 in UHNW membership since the start of 2019.

Australia’s millionaires and UHNW individuals

The report found Australia to have the eighth-highest number of millionaires, with 1.42 million millionaires at the end of 2019. The nation is also home to 2,557 ultra-high-net-worth adult individuals with net worth exceeding USD 50 million at the conclusion of 2019.

Concluding Comment 

Andrew McAuley, said: 

"Initially, the impact of the pandemic was felt mainly via the sharp worldwide decline in equity prices. When the commitment of governments and central banks became apparent, equity prices began to rise. In some countries, including the United States, the initial losses have now been reversed for equities as a whole, although many countries have not yet rebounded fully. On the non-financial side, there has been no global downward trend in prices for housing or real estate generally.”

Dr Nannette Hechler-Fayd’herbe, Chief Investment Officer International Wealth Management and Global Head of Economics & Research at Credit Suisse, said: 

“Although 2019 was a year of incredible wealth creation, the COVID-19 pandemic has been a sobering reminder of the danger of exogenous shocks to the global economy. Unlike the financial crisis of 2007-08, there is reason for optimism this time around, as the global financial sector is much healthier than it was then. Governments and central banks have also learned the importance of credit arrangements and quantitative easing during a severe crisis.
“So far, the impact of the pandemic on household wealth has been minimal. However, transitorily lower economic growth, coupled with shifts in corporate and consumer behavior, may result in lost output, redundant facilities, and sectoral changes that could hamper household wealth accumulation for some time. These shocks to the global economy lead us to believe that growth of household wealth will, at best, recover slowly from the pandemic throughout 2021. The situation within countries is changing fast and there is the promise of many more surprises to come. Among the major economies, China is likely to be the clear winner.”

To read the full report, click on the pdf below.