Although the novel virus has caused significant damage to the globe, for some people, it has been a blessing in disguise. Despite the economic hardship caused by the Covid-19 pandemic, more than five million people became millionaires around the world in 2020.
According to Credit Suisse data, while many impoverished people remained poorer, the number of millionaires increased by 5.2 million to 56.1 million globally. For the first time in history, more than 1% of people worldwide will be millionaires in 2020. Their riches were boosted by the recovering stock markets and rising home values.
What Caused the Boom in Wealth?
According to the study, wealth accumulation looks to be “totally disconnected” from the pandemic’s economic troubles. They said that lower borrowing rates and government assistance programs had resulted in “a massive transfer” of wealth from the public sector to the private sector.
This resulted in a boom in household savings, which “raised household financial assets and led to household obligations being lower than they would have been otherwise.”
In 2020, the number of ultra-high net worth individuals (those with investable assets of more than $30 million) increased by 24% globally, the fastest rate of growth since 2003. Because it included both investable and non-investable assets, such as owner-occupied residences, Credit Suisse believes the overall number of millionaires may be larger than other organizations’ estimations.
According to Anthony Shorrocks, an economist and author of the Global Wealth Report, the pandemic had an acute short-term impact on global markets. But this was mostly reversed by the end of June 2020.
However, wealth disparities across adults grew in 2020, according to Mr. Shorrocks, who added that if asset price increases, such as house price hikes, were taken out of the equation, then global household wealth may well have declined.
Shorrocks further remarks that wealth has tended to stagnate or, in many cases, regress in the lowest wealth bands, where financial assets are less prominent. That is, over time, some of the underlying causes may self-correct. Interest rates, for example, will begin to increase again at some point, dampening asset prices.
A wealth analysis report stated that the global wealth had increased by 7.4%. Since the onset of the 21st Century, the number of people with a wealth of between $10,000 and $100,000 has more than quadrupled since the turn of the century, from 507 million people in 2000 to 1.7 billion people today.
The surge, they added, reflected the increasing wealth of emerging economies, particularly China, and the expansion of the developing world’s middle class.
Could Lower Interest Rates Lead to growth?
“There is no denying that actions taken by governments and central banks to organize massive income transfer programs to assist the individuals and businesses most adversely affected by the pandemic, as well as by lowering interest rates, have successfully averted a full-fledged global crisis,” said Nannette Hechler-Fayd ‘Herbe, chief investment officer at Credit Suisse.
She also added that the reduction of interest rates by the central bank has certainly had the largest impact. As a result, one of the primary reasons why stock and home values have risen is because they are higher.
However, such interventions have equally come at a great cost. That means that global public debt as a percentage of GDP has risen by 20%.
Ms. Hechler-Fayd’herbe also said cutting interest rates by banks was a “key reason” why shares and housing prices had “flourished,” which she said was transferred directly into estimations of household wealth.
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