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Rise & Rise of the global Balance Sheet

As the world looks to rebound from the COVID-19 pandemic, an understanding of the health and resilience of the global economy can help inform the decisions of business leaders and policy makers as they work to shape the recovery.

While the state of economies is usually measured by GDP or other metrics of economic flows, this research examines the balance sheets of 10 countries representing more than 60 % of global income: Australia, Canada, China, France, Germany, Japan, Mexico, Sweden, the United Kingdom, and the United States. This view highlights a dual paradox: bricks and mortar make up most of net worth, even as economies turn digital and intangible, and balance sheets have expanded rapidly over the past two decades, even as economic growth has been tepid.

1. The market value of the global balance sheet tripled in the first two decades of this century

2. Real estate makes up two-thirds of global real assets or net worth

3. Asset values are now nearly 50 % higher than the long-run average relative to income

4. Financial assets and liabilities also grew faster than GDP, vastly exceeding net investment

5. Several scenarios are possible, with an imperative to deploy wealth more productively for critical investment needs

Net worth has tripled since 2000, but the increase mainly reflects valuation gains in real assets, especially real estate, rather than investment in productive assets that drive our economies.

Is this an asset price bubble economy?

The state of the global economy

These findings raise important questions for policy makers and business leaders. Foremost among them:

Is the global economy undergoing a paradigm shift as the world finds new sources of wealth?

What might some of those new stores of value be? Or are we at risk of reversion to the historic mean that could result in a decline in net worth? And

What will it take to rebalance the global economy?

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