It’s also a large market and more uniform. That said, the United States in general has more data. Sven Smit: The findings are absolutely applicable globally. A lot of the analysis focuses on the United States-why is that? And are these findings applicable globally? In this sense, real estate can reflect people’s wealth. That stock value is people’s wealth, businesses’ wealth, and influences their sense of whether they can continue to spend. Therefore, if the stock moves around 20 percent, that’s equivalent to the same amount as the global GDP.Ī small variation on the balance sheet would turn out to be a large variation in the real economy. The world’s GDP sits at about $100 trillion, but the world’s balance sheet is worth north of $500 trillion. So we want to pay attention to the balance sheet because that’s where the stock value sits. Looking at the world’s future that way is very important because we are living in a time of higher interest rates and higher inflation. The value of that equipment could go down, but the debt may need to be paid at higher interest rates. You could have large mismatches between the debt that was used to finance assets and the value of what you purchased with that financing-for example, real estate, equipment, etcetera. They actually don’t look at the balance sheet, but the balance sheet has very profound implications. Sven Smit: Many people often just look at the profit-and-loss statement when looking at the aggregate economy. Roberta Fusaro: Besides this example with the housing market, are there other broader implications? Why do business leaders need to care about this mismatch or gap? Google Podcasts Apple Podcasts Spotify Stitcher RSS Listen to previous episodes Housing could very well continue to be a store of value, but if the housing shortage doesn’t continue and other factors come to play, then we could see paper wealth evaporate. Now whether this paper wealth remains depends on whether these shortages continue. Many people would like a nicer, bigger house, but there aren’t enough available. Obviously, this shows that assets are scarce this is obvious in the housing market. But in the last 20 years, we saw the growth of $160 trillion in paper wealth-but that growth only came through prices. Normally, these factors move in lockstep. If you look at the last 20 years of GDP growth, that could manifest in a material increase in real estate, more land, or more equipment in factories. We also looked at debt and equities, which would represent the ownership of those assets. For the first time, we conducted research adding up the entire world’s full balance sheet: in the real world, that is represented by houses, real estate in general, the productive capital of businesses, etcetera. That’s sort of the difference between real wealth and paper wealth, correct? What does it look like on the ground? The research confirms that the global balance sheet grew faster than GDP. We looked at what that might mean for equity, real estate, and debt. In our recent research on the Future of Wealth, we modeled the outlook for the global economy, specifically for inflation, interest rates, and growth over the next ten years. Roberta Fusaro: We’re talking about the health and wealth of our global economy. Sven Smit: It’s great to be with you, Roberta. Roberta Fusaro: Sven, thanks so much for joining us on the podcast today. A difference between paper wealth and real wealth This transcript has been edited for clarity and length. The McKinsey Podcast is cohosted by Roberta Fusaro and Lucia Rahilly. He offers four potential scenarios for inflation, interest rates, and growth to 2030 and considers their implications for the future health and wealth of the global economy.Īlso in this episode, in an excerpt from our Author Talks series, we hear from Farah Stockman, who, in her book, American Made: What Happens to People When Work Disappears (Penguin Random House, October 2021), clarifies our understanding of the working class. He shares findings from the McKinsey Global Institute’s latest Future of Wealth research with podcast host and editorial director Roberta Fusaro. In this episode of The McKinsey Podcast, senior partner Sven Smit puts these trends in context. These and other headwinds are pressing powerfully against leaders’ and organizations’ attempts to be more productive and create more economic value.
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