29.09.2023
REPORT: INFLATION EATS SAVINGS
Gross financial assets of Bulgarian households increased by a modest 2.6% in 2022, far below the record pandemic-induced increase in the previous year (29%).
This is according to Allianz's Global Wealth Report, which tracks the state of household assets and liabilities in nearly 60 countries.
The main driver in our country was bank deposits, which grew by 10%. The insurance/retirement savings asset class, on the other hand, lost -3.0% in value, while equities were unchanged (-0.1%). Changing saving behavior plays an important role in this. While in 2021 new savings grew and most of them were invested in the capital markets, in 2022 the old patterns returned: savers reduced their purchases of securities to zero (after buying €20 billion worth of securities in the previous year) and used all fresh savings, which fell by 86%, on bank deposits, reaching 28%. Compared to pre-pandemic 2019, financial assets are 40.3% higher, but only in nominal terms. Adjusted for inflation, growth has halved – by 19.2% over three years. Liabilities growth remained high at 11.1% (10.1% for 2021).
However, thanks to high nominal growth, the debt-to-GDP ratio fell by 2 percentage points to 27.4%; it is now 7 percentage points below its peak in 2009. In the end, net financial assets increased by just 0.8%. With net financial assets per capita of 14,510 euros, Bulgaria remains in 35th position in the ranking of the richest countries.
A difficult year
2022 was a weak year for savers. Following the worst-case scenario, asset prices across the board fell. The result was a 2.7% decline in global financial assets of private households, the largest since the Global Financial Crisis in 2008. However, the growth rates of the three main asset classes differed significantly. While securities (-7.3%) and insurance/retirement savings posted strong declines, bank deposits recorded steady growth of 6.0%. Overall, €6.6 trillion worth of financial assets were lost, and total financial assets stood at €233 trillion at the end of 2022. The decline was most pronounced in North America (-6.2%), followed by Western Europe (- 4.8%). Asia, on the other hand, excluding Japan, continues to post strong growth rates. China's financial assets grew significantly, registering a growth of 6.9%. Compared to the previous year (+13.3%) and the long-term average for the last 20 years (+15.9%), this is a rather disappointing development – the lockdowns have had their say.
No nominal profits
Despite bitter losses in nominal terms, at the end of last year global household financial assets were nearly 19% above pre-Covid-19 levels. Adjusted for inflation, almost two-thirds of nominal growth fell victim to price increases, reducing real growth to a paltry 6.6% over three years. While most regions can at least maintain some real wealth growth, the situation in Western Europe is different: all nominal gains were wiped out and real wealth fell by 2.6% in 2019.
"For many years, savers have been complaining about zero interest rates," commented Ludovic Subran, chief economist at Allianz. "But the real enemy of savers is inflation, and not just its surge during Covid-19. Globally, three-quarters of the nominal growth in financial assets over the past 20 years has been eaten up by inflation. This emphasizes the need for prudent saving and high financial literacy. Inflation is a beast that is hard to beat. Without incentives and subsidies for long-term saving, most savers may struggle.”
No good prospects
After the downturn in 2022, global financial assets should return to growth in 2023. For now, this is primarily supported by positive stock market developments. Overall, Allianz expects global financial assets to increase by around 6%, taking into account the further "normalization" of saving behaviour. Given a global inflation rate of around 6% in 2023, savers should be spared another year of real losses on their financial assets.
"The medium-term outlook is quite mixed," said Patricia Pelayo Romero, co-author of the report. "There is no good monetary and economic outlook. Over the next three years, average growth in financial assets is likely to be between 4% and 5%, assuming average stock market returns. But like weather becoming more extreme amid climate change, more market volatility is to be expected in the new geopolitical and economic landscape. The 'normal' years may soon become the exception."
Tightening seat belts
The reversal of interest rates was also felt in the liabilities of private households. After global private debt rose by 7.8% in 2021, growth weakened significantly to 5.7% last year. The sharpest decline was recorded in China: last year's growth of 5.4% was the lowest ever. Overall, global household debt stood at €55.8 trillion by the end of 2022. With the gap between debt and economic growth widening to 3.9 percentage points, the global debt-to-GDP ratio (liabilities as a percentage of GDP) declined significantly – by more than 2 percentage points – up to 66.1% in 2022.
This means that the global private household debt ratio is back to roughly the same level as it was at the turn of the millennium – a remarkable level of stability that hardly fits into the widespread narrative of a world drowning in debt. However, there have been major changes in the state of global debt. First of all, stability characterizes development in advanced economies. On the other hand, most emerging markets have seen a sharp rise in debt ratios over the past two decades. China tops the list with a ratio that has more than tripled to 61%.
