Strengthening the Global Balance Sheet
The economic, banking, and investment landscape may well look materially different in the next ten years than it did in the last 20. But the range of possible paths forward is wide, with the best- and worst-case scenarios implying sharply different outcomes.
SAN FRANCISCO – In recent decades, the world’s wealth has soared – at least on paper – as low interest rates drove up asset prices. But the global balance sheet remains rife with fragilities, which recent financial-sector turbulence has exposed. Now, how the world borrows, lends, and creates wealth may be set to change fundamentally.
From 2000 to 2021, asset-price inflation created about $160 trillion in paper wealth. But while asset valuations grew rapidly, investment and growth remained sluggish. Moreover, every $1 in investment generated $1.90 in debt. But, recently, headwinds have confronted the world economy: in 2022, households lost $8 trillion of wealth.
The only certainty now is an unusually high degree of uncertainty. The economic, banking, and investment landscape may well look materially different in the next ten years than it did in the last 20. But the range of possible paths forward is wide. As part of its ongoing research exploring the global balance sheet, the McKinsey Global Institute has modeled four plausible scenarios.