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Much of the 2.4 per cent decline in global wealth in 2022 - the second-biggest this century - stemmed from US dollar appreciation, but even controlling for exchange rates it was the slowest wealth increase since the GFC, UBS and Credit Suisse said in a new report. And for the first time, Australia did not record the highest median wealth in the developed world.

Global wealth is expected to reach US$629 trillion by 2027 after declining in 2022 for the first time since 2008, according to a new UBS report. Australia saw one of the biggest falls in wealth, losing 363,000 millionaires and, for the first time ever, its top ranking in median wealth per adult.

For the first time ever, Australia fell out of top spot in median wealth rankings, as Belgium overtook it with a medium wealth per adult of $249,940 compared with $247,450 for Australian adults.

In the ranking of mean wealth per adult, Australia came in fourth, after Switzerland, the US and Hong Kong.

While much of the wealth lost last year across the board stemmed from appreciation of the US dollar, even holding exchange rates constant at 2021 levels resulted in the slowest increase of wealth since 2008, UBS said in its Global Wealth Report 2023 released Tuesday, the first conducted jointly with new acquisition Credit Suisse. Inflation was the other major driver of decreased wealth levels.

“Wealth evolution proved resilient during the COVID-19 era and grew at a record pace during 2021,” said Nannette Hechler-Fayd’herbe (pictured), global head of economics and research at Credit Suisse. “But inflation, rising interest rates and currency depreciation caused a reversal in 2022.”

This has resulted in a “significant setback in what had been a consistent uptrend in the accumulation of wealth in the household sector”, according to the report. Expressed in US dollars at fixed exchange rates, total global wealth fell by 2.6 per cent in 2022, while wealth per adult fell by 3.8 per cent.

Financial assets suffer

Since the global financial crisis (GFC), growth in total wealth has mostly come from financial assets. This contributed to 2022’s declines when share prices declined generally against a backdrop of rising interest rates, prompting lower financial asset valuations and a $19 trillion, or 6.8 per cent, decrease in total financial wealth; in Australia, share prices dropped 4.7 per cent in 2022 after rising 12.4 per cent the year before.

In contrast, non-financial assets rose in value by $7.9 trillion in 2022.

“Financial assets contributed most to wealth declines, while non-financial assets (mostly real estate) stayed resilient, despite rapidly rising interest rates,” said economist Anthony Shorrocks, one of the report’s authors. “But the relative contributions of financial and non-financial assets may reverse in 2023 if house prices decline in response to higher interest rates.”

Despite the loss in financial wealth, the report noted that today’s markets benefit from a “core difference” from the conditions that preceded the GFC. Non-financial assets have also grown, and while these accounted for a quarter of the real wealth loss in 2008, they made a positive contribution in 2022.

US dollar appreciation, inflation bite

The $11.3 trillion fall in total global private wealth to $454.4 trillion in 2022 was the second-largest reduction since 2000. US dollar appreciation against other currencies accounted for a total 5.8 per cent decline in global wealth, although that was offset by inflation, the report explained.

The loss of global wealth was concentrated in wealthier regions such as North America and Europe, which lost $10.9 trillion in total. Australia saw the fifth-largest loss of wealth in 2022; Russia, Mexico, India and Brazil saw some of the largest increases.

Australia lost $1 trillion in wealth in 2022, although the fall was less than the increase experienced in 2021. UBS found $496,820 in wealth per adult in Australia (down from $554,480 in 2021). And Australians lost more than $55,000 in wealth per adult in nominal US dollars after experiencing growth the year before – in real terms, the loss was more than $80,000.

As wealth fell, so did wealth inequality

Global median wealth, which the report noted is “arguably a more meaningful indicator of how the typical person is faring” than mean wealth, rose by 3 per cent in 2022, in contrast to a 3.6 per cent fall in mean wealth, as overall wealth inequality declined with aggregate wealth.

Australia had 3.1 per cent of the world’s millionaires in 2022, putting it in eighth position globally. It had the 10th most ultra-high-net-worth individuals (those with more than $100 million) at the end of 2022, with 3,780.

Despite the 2022 setback, UBS said it expects global wealth to rise by 38 per cent over the next five years to hit $629 trillion, largely driven by growth in middle-income countries.