Columbia International Affairs Online: Working Papers

CIAO DATE: 11/2009

Slump in wealth to hinder global recovery prospects?

May 2009

Oxford Economics

Abstract

Since the credit crunch began in Q3 2007, there has been a dramatic slump in the prices of many financial assets. Global equity prices have dropped some 40-50% from their peaks in the major economies and by as much as 70% in some emerging markets. This has led to a very substantial drop in global financial wealth. Oxford Economics estimates than total financial wealth has fallen some US$28 trillion, or 14% from its peak. But developments in financial wealth only represent part of the story, as households also hold significant non-financial assets, mostly in the form of housing. A significant concern for the medium term is that house price cycles tend to last much longer than those in financial assets, weighing on consumer spending for a number of years.