How COVID affected our wealth. Women, millennials, and low-skilled workers hit hardest.
The COVID-19 pandemic has thrown the world into a recession as severe as the 2008 global financial crisis. Surprisingly, household wealth has resisted so far. We look at what has kept households in good shape, who has suffered most, and whether our power to create wealth truly remains undiminished.
2019 was a good year in terms of wealth creation. Total global wealth rose by USD 36.3 trillion, while wealth per adult increased by 8.5% compared with 2018 – thus helping to cushion the blow caused by the COVID-19 pandemic. Despite the stock-market turmoil seen in the spring, household wealth is now slightly above the level at the start of the year. Extensive government emergency programs, as well as low interest rates, have played their part. However, there is evidence of differences between regions and population subgroups.
Why has household wealth been so resilient to the pandemic thus far?
There are several reasons for this unexpected outcome:
- Restricted consumption. Lockdowns and limited opportunities for shopping, entertainment, and travel led to unintended savings and a smaller-than-expected rise in household debt.
- Lower interest rates and relaxed credit conditions. The pandemic and lockdown sped up the trend to working from home. This has activated the property market in several regions, and resulted in growing demand for larger properties outside of cities.
- Economic support from governments. Governments across the world have transferred trillions of dollars to households through support programs, albeit to varying degrees. This has prevented many households from having to rely on their savings, or take on debt.
- Furlough and job support schemes. Salary support for those employers that had to temporarily shut or limit their operations has allowed businesses to avoid or delay closure and keep employees on the payroll for longer.
These observations must be treated with caution: The support measures have disguised the true burden of COVID-19 on household wealth. This has delayed – rather than eliminated – the cost, as governments will eventually seek to recoup some of the costs. Moreover, the picture is distorted by insufficient data on smaller businesses – especially those hardest hit by the pandemic and related restrictions.
The impact of the pandemic on household wealth has been relatively mild thus far.
Who has suffered most financially?
The pandemic's consequences for wealth have manifested themselves in two ways: the impact on individual wealth portfolios and the income shock.
- Individuals with larger equity holdings, people in late middle age, and wealthier sections of the population have suffered financial losses – especially those invested in "old-economy" sectors such as bricks-and-mortar retailing and airlines.
- Female workers are disproportionally affected due to their high concentration in businesses and industries such as restaurants, hotels, personal services, and retail. As a result, more women than men have lost their jobs during the pandemic.
- The millennial generation have experienced the second major economic shock of their adult lives. They share the experience of unemployment and a lack of stability. Their prospects in terms of wealth accumulation are gloomy due to reduced economic activity, limited travel, and the end of globalization.
Women are highly represented in sectors affected by the pandemic
of all female workers work in the most affected industries.
drop in job numbers for women in OECD countries, Q2 2020.
of the labor force in health and social care are women.
Prospects for post-pandemic wealth creation
The first wave of the pandemic had a relatively mild impact on household wealth. The swift response by governments and central banks – applying the lessons of the 2008 financial crisis – certainly played a key role.
With emergency resources already stretched to the limit, the second wave and deepening recession may, however, reveal a different picture. Over time, household wealth tends to rise roughly in line with GDP growth. Reduced GDP, rising debt, and a termination of the emergency programs are just a few factors that we expect will depress the growth in wealth. That said, we anticipate that 2021 will see growth resume, but the pandemic will have lasting consequences on our ability to create wealth.