Allianz Global Wealth Report: SA household debt declines

· South Africa’s financial asset growth almost triple over the previous year. The country is ranked37th in the list of 53 of the world’s wealthy countries · Global financial asset growth rises further to 7.7% · Globalization reduces global wealth inequality – but increases domestic one · Investment in securities makes a comeback – return of inflation makes bank deposits even less attractive.

Today, Allianz published the ninth edition of its “Global Wealth Report”, which puts the asset and debt situation of households in more than 50 countries under the microscope. 2017 was an exceptional year. Despite growing political tensions, it was an almost perfect year for investors. The economic recovery following the financial crisis culminated in a synchronous upturn around the globe and financial markets performed strongly, particularly equity markets. As a result, financial assets[1] of households rose significantly by 7.7%. Global gross financial assets increased to EUR 168 trillion.
“Last year was a very good year for savers,” said Michael Heise, chief economist at Allianz. “But it was as good as it gets, the post-crisis era is over for good. Gone are the times when an extremely expansive monetary policy provided for a continuous and steady upward trend on financial markets. The signs are already worrying: rising interest rates, trade conflicts, and increasingly populistic politics cause tensions and turbulences. The first month of this year has already given a bitter foretaste.”
 
South African financial asset growth almost triple over previous year
 
Financial assets of South African households grew by 12.3% in 2017, the fastest increase in four years and almost three times the pace of the year before. At the same time, liabilities increased by 5.1%, broadly in line with last years’ average. As a result, the debt ratio of households remained at 45%; in the last ten years, this ratio declined by almost 10 percentage points, witness to improved debt discipline of South African households; however, it stood still considerably above the emerging countries’ average of 37%.
 
Net financial assets grew by 14.8% in 2017, also tripling the rate of the year before. With net financial asset per capita of EUR 7,770 (ZAR 131 030,99), South Africa came in 37th in the list of the richest countries (financial assets per capita, see table for the top 20), rising one rung over the previous year and swapping places with Bulgaria. At the top of the list, Switzerland re-captured the top spot that it lost the year before to the US. In general, European countries performed better in 2017 than in previous years due to a stronger euro.
 
Investment in securities makes a comeback
 
There was a noticeable shift in investment behavior in 2017. After savers had largely ignored shares and investment funds in the post-crisis years, 2017 saw significant inflows into this asset class. Its share last year reached almost a fifth of fresh funds, even more than in the years preceding the crisis. In the context of booming stock markets, this meant that securities enjoyed by far the strongest growth of all asset classes in 2017, increasing by 12.2% in total and representing over 42% of all savings at the end of 2017. This is followed in second place by receivables from insurance companies and pensions, which account for 29% of the asset portfolio and grew by 5.2% last year.

While investors rediscovered the capital markets, bank deposits fell out of favor with households around the globe. Only 42% of new investments went into banks, compared with 63% the year before. In absolute figures, this meant a drop of over EUR 390 billion. As a consequence, growth in deposits declined by two percentage points to 4.3% (share of asset portfolio almost 27%). “Savers finally recognized the signs of the times,” said Kathrin Brandmeir, co-author of the report. “The withdrawal of love for bank deposits, particularly in the ‘old’ industrialized countries, came not a second too early. Because inflation staged a return. Price increases in these countries tripled in 2017 – albeit still on the low level. As a result, losses in purchasing power of bank deposits shot up, too: they are estimated to add up to EUR 400 billion in 2017 alone.”
 
Industrialized nations catch up – the US overtakes China
 
The years following the crisis were mainly characterized by relatively weak asset growth in industrialized compared to emerging countries. This also changed in 2017. The acceleration in growth was due solely to development in industrialized nations: while growth in these countries increased by more than one percentage point to 6.5%, in emerging countries it slackened by three percentage points to 12.9%. The growth differential between these two groups of countries was thus at its lowest level since 2005, at 6.5 percentage points. The average figure for the past decade was twice as high, at 13 percentage points. This contrasting development when it comes to growth in financial assets was largely due to the respective heavyweights, China (where growth slowed from 18.3% to 14%) and the US (where growth accelerated from 5.8% to 8.5%). The US has thus overtaken China again in terms of absolute growth. In 2017, the US accounted for around 44% of global growth in gross financial assets of households, while China accounted for only about 25%. This ratio has averaged 26% vs. 35% over the last three years – but with China coming out on top.
 
Debt growth accelerates further
 
Worldwide household liabilities rose by 6% in 2017. The growth rate was thus slightly above the previous year's level of 5.5%. Thanks to strong economic growth, however, the global debt ratio (liabilities as a percentage of GDP) increased only minimally to 64.3%. These global averages naturally mask huge differences. In some countries debt levels and dynamics have reached critical figures in the last few years.
 
“In the majority of analyzed countries, private debt dynamics are not worrisome,” commented Michaela Grimm, co-author of the report. “However, in particular, in Asia there are some countries – Thailand, Malaysia, South Korea and China for example – in which supervisory agencies should monitor the development very closely. In these countries, similarities to the credit excesses before the financial crisis can not be overlooked.” Despite the strong growth in liabilities, net financial assets i.e. the difference between gross financial assets and debt reached a new global record high of EUR 128.5 trillion at the close of 2017. This represents an increase of 8.3% compared with the previous year.
 
More inequality in industrialized countries
 
The development of inequality in the national context, however, shows a very heterogeneous picture. Wealth distribution has improved in many countries since the turn of the millennium, but in many others it has deteriorated. The latter group includes a large number of industrialized countries, from the US to the euro crisis countries, and even South Africa, Germany and Japan. The perception that the "old" industrialized nations in particular have been suffering in recent decades from a growing gulf between the rich and the poor therefore seems to match the reality in many cases.
 
A new indicator for the national distribution of wealth
 
To obtain a nuanced picture of national distribution in an international context, we have introduced a new indicator in this report, the Allianz Wealth Equity Indicator (AWEI). Some of the results are surprising. Along with the "usual suspects" of the US, Indonesia and the UK, countries where the distribution of wealth is relatively strongly distorted also include Denmark, Sweden and Germany. South Africa, too, is at the bottom of this ranking, reflecting its legacy of a divided society. In Scandinavia this may be primarily due to high debt levels among large parts of the population; in Germany, the country's delayed reunification and the general shortage of capital-funded pension schemes play a crucial part.
 
On the other hand, those countries where wealth distribution is relatively balanced include many eastern and western European countries, some of which are euro crisis countries such as Italy, Spain and Greece. Even if the last few years of crisis and austerity may have led to greater inequality in the last two countries in particular, they still have a relatively solid base to fall back on, as assets have traditionally been very widely distributed – not least when it comes to real estate assets. “Our new wealth equity indicator shows clearly that we should be wary of drawing hasty or generalized conclusions,” said Michael Heise. “Apart from the US, barely any country conforms to the cliché of wealth distribution that is already extremely distorted but is still getting worse. In most countries, shades of grey prevail.”

Top 20 in 2017 by…

You can find the study on our homepage:
https://www.allianz.com/en/economic_research/ in the Publications/Specials section.
 
An interactive world map on households’ assets and liabilities can be found here:
https://www.allianz.com/en/economic_research/research_data/interactive-wealth-map