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The Fate of the Global Balance Sheet

In 2022, global wealth shrank relative to GDP for the first time in decades. Whether this trend continues in 2023 will depend significantly on two factors: the effectiveness of Chinese policy and the strength of international economic cooperation.

HONG KONG – Just as a corporate balance sheet can provide insights into a company’s financial health, a “global balance sheet” (GBS), tallying the assets and liabilities of governments, corporations, households, and financial institutions, can do the same for the world economy. That logic drove the McKinsey Global Institute (MGI) to begin compiling, and regularly updating, a GBS covering ten countries that together represent more than 60% of world GDP.

MGI’s first GBS, released in late 2021, showed that during the first 20 years of this century, global assets grew faster than output. In 2020, assets on the world’s balance sheet totaled more than $1.5 quadrillion (about 18.1 times their GDP) – about triple the total in 2000 (when assets amounted to about 13.2 times GDP). The growth of global wealth also outpaced (rather tepid) GDP growth, implying that wealth became increasingly concentrated among those with real estate and financial assets.

In 2020 and 2021 – the first two years of the COVID-19 pandemic – these trends accelerated, with the global balance sheet swelling even as GDP growth stalled. In fact, despite billions of dollars in income losses, $100 trillion was added to global wealth during this period, fueled largely by unprecedented fiscal and monetary expansion. As $39 trillion in new currency and deposits were minted, asset prices skyrocketed. Meanwhile, debt liabilities grew by about $50 trillion, and equity liabilities by $75 trillion.

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