Since the turn of the century, household wealth in Australia has grown at an average annual rate of 11%. That may sound impressive, but hold the cigars writes Alan Austin.
Australia remains the richest country in the world according to the annual wealth report from Credit Suisse released this week. The ascendancy Australia gained during the global financial crisis (GFC) has been easily maintained, although fortunes have varied widely elsewhere.
The median wealth of Aussie adults increased from US$219,500 last year to $225,300. Belgium is second, well back on $173,000. Then follow Italy, France, the UK, Switzerland, Japan and Singapore.
Wealth per adult includes houses, farms, businesses, shares, other investments and cash in the bank minus debts. Median wealth is the preferred measure – as distinct from mean wealth which is also shown in the report – as it reduces the distortions of either extreme poverty or wealth. (Australia is second in the world on mean wealth, behind Switzerland.)
Most countries enjoyed greater household wealth this year with higher house values, recovering stock markets and businesses turning stronger profits. Nations which did best are the UK, South Korea, Denmark, Greece and Spain. Countries to have declined in wealth include Argentina, Indonesia, Turkey and, not surprisingly, Russia and the Ukraine.
Australia’s rate of increase in median wealth was less than 3.0%, which is below average for the developed world. And well below Australia’s average. This reflects the success of other countries, but it may also denote danger Downunder.
Australia has not always been the richest nation. It topped the table during the global financial crisis, thus bolstering the view of Joseph Stiglitz, Tim Harcourt and others that Australia handled the GFC particularly well.
Credit Suisse has provided data to this writer for the period before its first annual wealth report in 2010 which reveals Australia’s dramatic surge. In 2008, Australia ranked sixth in the world on median wealth behind Luxembourg, Iceland, Belgium, Italy and France. Through 2009, as the global financial crisis devastated most developed economies, Australia rose to second behind clear leader Luxembourg, with Belgium a close third. The others fell well back.
By 2010, Australia was within a fraction of a percentage point of Luxembourg, which it overtook to lead the world in 2011. Through 2012 Australia moved further ahead, leading Luxembourg, Japan, Italy, Belgium and the UK. By 2013 Australia’s median wealth had rocketed to US$219,500 per adult, leaving Luxembourg, France, Italy, the UK and Norway well behind.
Over the 14 years since the turn of the century, Credit Suisse calculates household wealth in Australia grew at an average annual rate of 11%, despite the GFC.
That sounds impressive, but there are caveats to consider before popping the champagne. First, the report notes that ‘the composition of household wealth in Australia is heavily skewed towards real assets, which … form 60% of gross household assets. This average level of real assets is the second highest in the world after Norway. In part, it reflects a large endowment of land and natural resources relative to population, but it is also a result of high urban real estate prices.’ In other words, Australia’s impressive wealth is not entirely from enterprise, diligence and genius. The authors don’t say ‘property bubble’, but they are thinking it.
Second, a significant part of that growth – about a third, in fact – is due to exchange rate appreciation. And just in the last few weeks, since data for the report was collected, the Aussie dollar has fallen from above 94 US cents to below 87. Will that fall continue, or be reversed?
And finally, stock holdings are greater in Australia than most other countries which renders wealth per adult more vulnerable to share price fluctuations. In recent weeks, also since sourcing data for the report, the ASX all ordinaries have tumbled in value to the lowest point in seven months.
So, hey, yes, let’s open the bubbly. A win is a win. But perhaps save the cigars until next year.
Alan Austin is an Australian freelance journalist now living near Nîmes in the South of France. His special interests are the news media, religious affairs and economic and social issues which impact the disadvantaged.