Savers Grapple with Inflation and Asset Declines
Allianz released its 14th edition of the “Global Wealth Report,” offering insights into the financial situations of households in nearly 60 countries. Chief Economist Ludovic Subran emphasized that inflation, not low interest rates, poses the greatest challenge to savers.
In 2022, savers experienced a challenging year, marked by a global “everything slump” that led to a significant decline of -2.7% in private households’ global financial assets, the largest drop since the 2008 Global Financial Crisis. Asset classes displayed varying performance, with securities (-7.3%) and insurance/pensions (-4.6%) facing setbacks, while bank deposits showed strong growth (+6.0%). The total financial asset loss amounted to EUR 6.6 trillion, resulting in a year-end total of EUR 233 trillion. The steepest declines occurred in North America (-6.2%) and Western Europe (-4.8%). In contrast, Asia, except for Japan, continued to record robust growth, with China’s financial assets growing at 6.9%. However, this growth was lower compared to previous years due to repeated lockdowns.
Despite these losses, global household financial assets remained nearly 19% above pre-Covid-19 levels in nominal terms, but after adjusting for inflation, real growth was only 6.6% over three years. Western Europe was an exception, experiencing a -2.6% decrease in real wealth over 2019.
Ludovic Subran emphasized that inflation is the real challenge for savers, as it erodes the real value of assets. While nominal growth may appear substantial, adjusting for inflation reveals a less impressive picture.
Looking ahead to 2023, global financial assets are expected to rebound with positive stock market developments. A growth rate of around 6% is anticipated, factoring in further “normalization” of savings behavior. However, with a global inflation rate of around 6%, savers should expect minimal real returns on their financial assets.
The mid-term outlook remains mixed, with average growth in financial assets likely to hover between 4% and 5% over the next three years, assuming average stock market returns. Economic and geopolitical uncertainties may lead to more market volatility.
The report also highlighted changes in household liabilities. After a 7.8% increase in 2021, global private debt growth slowed to 5.7% in 2022, with China experiencing its lowest debt growth on record at +5.4%. The global debt-to-GDP ratio fell to 66.1%, similar to levels at the beginning of the millennium.
Australia’s gross financial assets declined by -1.3% in 2022, with insurance/pension assets (-6.8%) being the main contributor to losses. Bank deposits and securities saw positive growth. However, adjusted for inflation, the increase in financial assets was modest at 3.5%. Liabilities grew by 5.6%, resulting in a debt-to-GDP ratio of 118%, one of the highest globally. Australia fell to 12th place in the ranking of the 20 richest countries by net financial assets per capita.