Covid-19 Threatens to Erase Global Wealth by $16 Trillion

There have been concerns among economic experts that the Covid-19 pandemic could wipe out global wealth than the financial crisis.

The pandemic crisis has created a lasting impression on global economies. Amid the Covid-19 crisis, some businesses continue to thrive even better than they did before, while many businesses have since shut down due to the limitations and restrictions presented by the pandemic. In between these two cases, one thing is certain, there will be a slowdown in the pace of accumulation of global wealth in the coming years.

The current Covid-19 pandemic presents global economies with volatile markets and economic downturns as there are fears that the impact of the virus could cause a $16 trillion wipeout of the global economy this year. It will also hinder economic growth in the next five years. This is in accordance with reports from the Boston Consulting Group (BCG). This is in comparison to the 2008 financial crisis which erased $10 trillion.

If BCG’s worst-case scenario happens, there could slowdown in wealth growth globally to a compound annual growth rate of 1.4% from 2019 through 2024. BCG’s study also showed a model for a quick rebound of a 4.5% rate. Last year, personal financial wealth hit $226 trillion globally, a 9.6% gain from 2018, also the strongest annual growth rate since 2005.

“The segment that will be hit the hardest in the slow recovery and lasting damage scenarios will be the wealthiest, the millionaires and the billionaires, simply because of the high exposure to equity markets and market volatility,” said BCG’s leader of wealth management practice and lead author of the report, Anna Zakrewski.

The Covid-19 pandemic story has become one of the rich getting richer due to the higher share of equities they own in their portfolios and the longest bull market in history. According to BCG’s report, the high-net-worth segment and the ultra-high-net-worth segments had the highest growth rate over the past 10 years. Both segments made a total financial wealth of more than $100 million. The retail segment (made up of assets less than $250,000) invested only about 9% of their assets in equities and investment funds, on average. More than 80% of the investments went into cash, deposits, life insurance, and pensions.

Zakrewski said the BCG considers the Covid-19 pandemic as a “wake-up call” for the global economy. “The last 10 years have fueled quite a confident performance for some of the wealth managers and taken away the pressure to address business models,” she said.