Wednesday, July 6

Posthaste: Canadian millionaires are multiplying in the weirdest recession ever


Good Morning!

We have all heard how the pandemic recession was unlike any we have ever seen.

Now a new report affirms just how deeply weird this crisis has been.

The Credit Suisse Global Wealth Report, which claims to be the most comprehensive source of information on global household wealth, says as far as the world’s wealth goes it is almost as if the worst recession in recent memory had never happened.

“The contrast between what has happened to household wealth and what is happening in the wider economy can never have been more stark,” says the report.

“Stranger still, countries most affected by the COVID-19 pandemic have often been those recording the greatest gains in wealth per adult.”

Total global wealth grew 7.4% in 2020, with wealth per adult climbing 6% to reach a record high of US$79,952. That is two and a half times the average wealth in 2000.

In the financial crisis of 2008, wealth per adult plunged 13.9% in the US and 22.9% in Canada.

The reasons for this are clear, said Credit Suisse. Governments and central banks, anxious not to repeat the mistakes of the financial crisis, quickly pumped money to businesses and individuals and lowered interest rates, making it clear rates would stay low for some time.

“The lowering of interest rates by central banks has probably had the greatest impact,” Credit Suisse said.

Lower rates, along with unplanned savings, lit a fire under housing markets, not just in Canada, but around the world. In Russia, home prices rose 22%, in Turkey 31%, along with Austria, Canada, Czechia, Denmark, Germany , Poland and Sweden, which saw increases of between 8% and 11%.

It was the combination of rising asset prices, along with currency appreciation against the US dollar (the loonie was trading at 81.33 US cents today) that boosted wealth around the world.

Canada ranks in the top 10 countries for wealth gains per adult in 2020, with Switzerland and Australia topping the list.

This is another surprising feature of this recession: the countries that saw the biggest hits to their GDP have done disproportionately well in wealth growth. Credit Suisse cites Canada, Belgium, Singapore and the UK as examples.

“Despite being among the worst-affected countries, with an average GDP loss of 7.1%, they achieved unusually high wealth gains averaging 7.7% net of exchange rate considerations. Thus the size of the wealth gain exceeded the magnitude of the GDP loss.”

The ranks of global millionaires swelled by 5.2 million to 56.1 million in 2020. Canada gained 246,000 millionaires, the eighth highest gain in the world.

Globally, you now need more than US$1 million for entry into the world’s top 1%.

“2020 marks the year when, for the first time, more than 1% of all global adults are dollar millionaires,” said Credit Suisse.

But while wealth inequality in the US has widened, it has narrowed in Canada. Since 2007, the wealth share of the top 10% of wealth holders has risen from 71.6% to 75.7% in the United States, but has fallen in Canada from 57.1 % to 56.5%.

Credit Suisse says one reason for this is that stock prices in the US have risen more than in Canada, increasing the wealth of the top groups. In Canada, home prices have risen faster, lifting the wealth of the middle class.



financialpost.com