Europe’s wealth creation under pressure from inflation and US dollar

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The growth of wealth in Europe is slowing down, with the region affected by both higher inflation and stronger US dollar.

This is one of the takeaways from the latest Credit Suisse Global Wealth Report, which found that Europe showed the lowest wealth growth among the regions at 1.5%, which compares to 15% each for North America and China.

Overall 2021 has been a bumper year for wealth growth creation, with the aggregate global wealth increasing by 12.7%, the fastest annual rate ever recorded. However, the Credit Suisse team expects inflation, rising interest rates and declining asset prices to reverse this trend this year.  

Speaking to Citywire, Nannette Hechler-Fayd’herbe, chief investment officer of the wealth management division at the Swiss bank, said the weakening of the euro has contributed to Europe’s challenges. 

‘Europeans have several headaches here, one of which is certainly the fact that growth is slowing,’ she said.

The Credit Suisse team expects a recession to hit the region in 2023, which doesn’t bode well for wealth creation.

Inflation woes

The second trend that Hechler-Fayd’herbe observed is rising inflation levels, which are running very high in several European countries. 

The investment chief said inflation is creating an artificial effect of wealth creation, which is why the team started to show wealth creation in both nominal and real terms.

‘When we look towards 2022, and perhaps another year of higher than usual inflation, we should anticipate that this would slow the growth rates of wealth,’ she added.  

Global wealth distribution is another aspect that the team look at, highlighting that the wealth share of the global top 1% rose for a second year in a row to reach 45.6% in 2021.

The rise of inequality in wealth distribution is likely linked to the value of financial assets rising during the Covid-19 pandemic. This also resulted in the number of ultra-high-net-worth individuals rising at a much faster rate, with a 21% increase last year.

27% of all millionaires globally still reside in Europe, which contrasts with its slower pace of growth compared to other regions.  

Millennials on the rise

The Credit Suisse wealth report also focused on the differences in wealth creation between generations and genders.

The report, for instance, found that in the US and Canada, where such statistics could be gathered in a meaningful way, millennials had some of the strongest increases in wealth creation in the last couple of years. 

‘This may have to do with the fact that they are entering the period when their careers are progressing or maybe when they start migrating to more senior roles,’ Hechler-Fayd’herbe said. 

‘It could also be due to the effect of support measures that have been quite generous during the pandemic, especially in the US but also their investment behaviour and the amount of financial assets they own.’

The growth of millennial wealth in the two countries was observed in particular in 2020 and 2021, when financial assets in many countries were the main drivers behind the wealth creation.

The report also took a closer look at women’s wealth creation. In 15 out of 26 countries, which includes China, Germany and India, women’s wealth came down in percentage terms over the last couple of years.

‘We have some factors like the dropout of women from the labour force that is having an impact, because for wealth generation it is not only important to have capacity to earn income but also to save retirement money,’ Hechler-Fayd’herbe said. 

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