Impact of the downturn on the wealthy

  • Written by 
Add to my collection

This has been a challenging few years for investors generally, and the wealthy have not emerged unscathed. Quantifying the scale of the losses is difficult, but our survey provides an interesting snapshot into how wealthy individuals believe they have been affected. 38% of respondents report that the recession has had a "negative" or "quite negative" impact on their net worth; a rather larger share (42%) report a marginal impact. A fortunate minority (6%) report a positive impact, with 14% claiming no change.This has been a challenging few years for investors generally, and the wealthy have not emerged unscathed. Quantifying the scale of the losses is difficult, but our survey provides an interesting snapshot into how wealthy individuals believe they have been affected. 38% of respondents report that the recession has had a "negative" or "quite negative" impact on their net worth; a rather larger share (42%) report a marginal impact. A fortunate minority (6%) report a positive impact, with 14% claiming no change.

Global and local economic prospects 4 of 17 Executive summary 2 of 17

Residents of the United States, please read this important information before proceeding

Please read this important information before proceeding.

This impact on personal wealth varies considerably by region. Europe fares the worst, with 46% reporting a quite or very negative impact on their net worth. At the other end of the scale, only 33% of respondents in Asia Pacific say this - and when respondents in Japan are removed from the calculation, this share falls to just 30%.

At an individual country level, the variations are more extreme. Some 65% of respondents in both Spain and Ireland declare that the downturn has had a "negative" or "quite negative" impact on their net wealth; at the other end of the scale were respondents in Singapore (15%). Respondents from the UK and US fall in the middle of the range - 43% and 37% respectively reporting a "negative" or "quite negative" impact.

These regional and country-by-country variations on the impact of the downturn open up a number of questions. Are the variations primarily due to differing overall performances of local economies and markets, or to wealthy individuals' varying investment preferences? A quick look at property prices helps illustrate the complexities here. Property investments in Ireland and Spain played a large part in generating wealth over the last decade - so the abrupt fall in property prices in these two countries has hit the wealthy hard, as reflected in the numbers above. But the wealthy in other countries which have experienced a sharp fall in property prices (e.g. the US) don't appear to have been hurt so much. Surprisingly, of the respondents who indicate property as a source of wealth, only 34% indicate that their net wealth has been "negatively" or "quite negatively" impacted by recession, rather below the 38% average. This relatively upbeat view is difficult to explain, over a period when property prices (in the developed world at least) have been depressed. It may reflect an unwillingness amongst investors to face up to the full extent of their losses.

Similarly, the survey's findings of a relatively small fall in respondents' income levels can be interpreted in different ways. A large proportion of respondents in some countries (e.g. Ireland) report falls in income and bonuses. But, in contrast, only 16% of those in the UK think that the recession has had a quite or very negative impact on their salaries and bonuses - and only 19% of those in the US think likewise.

Corporate profitability also appears to have held up well in many countries. Overall, some 25% of survey respondents say that the profitability of their company has been quite or very negatively affected by the recession - exactly the same proportion who thought that the recession had had no impact or a positive impact on profitability. Again, this sits oddly with the falls in profits recorded by national accounts statistics or by publicly-reported companies.

Part of the reason for this discrepancy may be suggested by the substantial country-by-country variations. Corporate profitability has been badly hit in Ireland, South Africa and Spain (54%, 48% and 40% respectively) but has held up well in the UAE, Switzerland, Singapore and Australia. Australian respondents' upbeat assessment can be linked (for this and several other survey questions) to the Australian economy's apparent ability to profit from continued Asian economic growth.