(The opinions expressed here are those of the author, a

columnist for Reuters.)

By Mike Dolan

LONDON, Oct 9 (Reuters) - Global wealth accumulation

this century has far outstripped economic growth, and the

performance of that $600 trillion of savings over the next

decade rests heavily on how the gap is closed - a productivity

boost or sustained inflation.

Financial markets have become increasingly agitated about

whether investors chase the parabolic rise in artificial

intelligence stocks and bet on AI adoption more broadly, or

hedge fears of a prolonged inflation burst due to lax money and

fiscal policies worldwide.

Right now they appear to be betting on both - with

tech-heavy stock indexes hitting records in tandem with soaring

gold. Global equities are up 17% in 2025 while gold has gained

50%.

Business consultants McKinsey put some shape on the bigger

picture with its updated release this week on what it calls the

"global balance sheet" of GDP, savings and debt.

The top-line metrics from this "state of the world" number

crunch are eye-catching.

Global net worth in aggregate has nearly quadrupled since

2000 to $600 trillion at the end of last year and will have

climbed further given the market moves of the past nine months.

But this is getting further and further from underlying

economic performance - moving from 4.7 times world GDP 25 years

ago to 5.4 times now. And the concentration of that wealth

remains alarming, with just 1% of people owning a fifth of it.

By devaluing assets and debt in real terms, the

post-pandemic inflation burst kept something of a lid on this

outsize expansion - but we appear to have reached another

juncture.

"When the balance sheet outruns the underlying economy, it

exposes weaknesses," the McKinsey Global Institute said.

"When real estate and equity values rise faster than GDP,

capital may disproportionately go to asset repurchases,

sometimes with a lot of leverage," the MGI authors wrote. "This

pushes up valuations further but leaves the economy deprived of

the type of investment that generates long-run growth."

More than a third of the $400 trillion rise in wealth since

the turn of the century was essentially just paper gains,

decoupled from the real economy, and about 40% was cumulative

inflation, McKinsey added.

That means only 30% reflected new investment in the real

economy or, put another way, every dollar of new investment

created $3.50 of new household wealth.

PAPER TIGER

The nature of that kind of asset wealth - whether

predominantly equity in America or real estate in Europe or

deposits in China - can then be inherently unstable, with

sizeable feedback loops to the real economy in volatile times.

In the U.S., for example, the market value of corporate

equity excluding its debt is almost twice the assets owned by

the firms.

But rising wealth effects encourage exuberant behaviour,

shown in part by the fact that while each dollar of investment

created more than three times the amount in wealth, it also

created almost $2 of new debt. So much so that global debt is

near all-time highs at some 2.6 times global GDP.

The question raised is whether these wealth multiples are

sustainable for much longer and what might bring them back

closer to the real world.

A market shock - or bubble burst, as many might see it -

might help a balance sheet reset, but at the risk of hitting

GDP, and all the recession risk and household distress that goes

with it.

McKinsey sketched out the two most likely scenarios.

One is an extremely benign view of a productivity boom -

perhaps sown by the quantum leap in AI now unfolding - that

allows growth to catch up, stock values to stay strong without

overheating wages and prices. There's less of a reset but a more

sustainable underpinning.

The less favourable outcome is one of prolonged high

inflation, which could help erode nominal debts but with toxic

fallout for poorer households, business planning, the wider

economy and political stability.

"Economies are unlikely to achieve balance while preserving

wealth and growth unless productivity accelerates," MGI said.

"Other scenarios sacrifice one or the other or both."

Regionally, of course, the numbers break down differently

and cross-border imbalances have grown.

But for the average U.S. saver the difference between the

two most likely scenarios could amount to as much $160,000 by

2033. A productivity boost that lifts annual GDP growth by more

than one percentage point above trend could lift per capita U.S.

wealth by $65,000 over that period, while sustained inflation

could eat into net worth to the tune of $95,000.

Market tensions already show investors are testing both

scenarios and building portfolios to protect them in the event

that either unfolds. Tense times indeed.

The opinions expressed here are those of the author, a

columnist for Reuters

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