When Global Wealth Stops Reflecting The Real Economy

For most of this century, the world has felt richer every year. The question is whether that feeling lines up with the underlying reality. Recent work from the McKinsey Global Institute takes a balance-sheet view of the global economy and the answer is unexpected. By 2024, global household net worth had climbed from about $136 trillion in 2000 to roughly $539 trillion. But only about $100 trillion of that increase came from cumulative net investment. Roughly three-quarters of the gain came from asset-price appreciation and general inflation rather than new productive capacity. In other words, about a third of the growth in household wealth since 2000 is “paper wealth” that reflects how we’ve priced assets, not what we’ve actually built.

This gap between wealth and productive investment didn’t appear out of nowhere. For two decades, the world ran on low rates and expanding balance sheets. As policy makers used cheap money to stabilise crises and support demand, the value of existing assets was repeatedly marked up. Property markets inflated, listed equities re-rated, and private markets scaled on a wave of leverage and fund formation. Debt grew faster than the capital stock it was meant to fund, and wealth became increasingly sensitive to valuation multiples and discount rates rather than to productivity or innovation.

The charts in the same MGI package make that link explicit. Borrowing a page from corporate finance, they construct a “global balance sheet” that tallies the world’s financial claims against its underlying physical and intangible assets. It shows households gaining roughly $400 trillion in wealth between 2000 and 2024, against only about $100 trillion in net new investment. The rest is explained by higher valuations and price levels. That dynamic is pleasant on the way up. It looks fragile once inflation and higher real rates return.

Calling it “paper wealth” can sound like it’s fake. It isn’t. Valuations are a legitimate way of capitalising expected future cash flows. Still, the uncomfortable bit remains: when three-quarters of the wealth increase is coming from repricing rather than new net formation of productive assets, the system’s stability depends more on discount rates and sentiment than on throughput and output. That is a duration problem.

The other problem is that asset inflation doesn’t lift all boats equally. It concentrates gains in the households and institutions that already hold assets, and it changes behaviour in the rest of the system because those assets become collateral. Rising property and equity values don’t just make people feel richer, they expand borrowing capacity, loosen financial conditions, and feed back into demand. That loop is powerful in an easing cycle but not in reverse. When valuations deflate, the loss isn’t only on paper. Consumption slows, lending standards tighten, and the political appetite for more balance-sheet support tends to reappear right on cue.

This is why the next regime matters so much. If returns are less about multiple expansion and more about cash flows and real reinvestment, the winners won’t be the portfolios that were simply long duration and lucky on entry point. They’ll be the ones that can answer, cleanly, what they own and why it should compound in a world with higher real rates. For allocators, that means underwriting deals and managers with an explicit split between growth, margin, and exit multiple, and stress-testing the exit the way you stress-test leverage.

That is exactly where the world now sits. The “low-rate forever” assumption has been punctured. Inflation spikes have forced monetary tightening. Geopolitics and trade frictions are injecting more risk premia into global markets. In that environment, an economic model that leans heavily on ever-rising asset prices looks like a vulnerability. To restore balance-sheet health, economies need faster productivity growth and a higher share of capital going into genuinely productive assets rather than simply bidding up the existing stock.

One way to see the adjustment starting is through foreign direct investment. Since 2022, roughly three-quarters of cross-border FDI announcements have gone into a cluster of “future-shaping” industries: advanced manufacturing such as semiconductors, batteries and EVs; communications and software, especially AI infrastructure; and the energy and mining projects that power them. Before 2020, those sectors accounted for only about half of announced FDI. If these projects actually get built, they would more than quadruple battery manufacturing capacity outside China and nearly double global data-centre capacity. That is what reconnecting capital to the real economy looks like in practice: large cheques going into plants, logistics, grids and compute rather than into trading of existing financial claims.

For allocators and asset owners, this raises an obvious but often dodged question: how much of your performance has been multiple expansion and how much has been cash-flow growth? In a world where paper wealth has outrun underlying investment, portfolios that looked strong in mark-to-market terms may be more vulnerable than they appear if the multiple side of the equation compresses. Conversely, exposures linked to the future-shaping investment wave (energy transition, supply-chain reconfiguration, digital infrastructure) may be better positioned, provided entry prices are not already baking in perfect execution.

The point isn’t to sneer at paper wealth. Repricing risk is part of how markets work. The point is to recognise that a long period of balance-sheet inflation has made the global system more sensitive to rates, discount factors and risk sentiment. If the next decade is more about real investment and productivity than about financial engineering, capital that is genuinely aligned with that shift should have a clearer path to durable returns than capital that is just hoping the old game resumes.

Research Analyst

Simran Mehla

Frequently Asked Questions

Q: What does it mean that most wealth growth is “paper” rather than “real”?

A: It means the bulk of the increase in global household net worth since 2000 has come from higher asset prices and inflation, not from net new investment in productive assets like factories, infrastructure, or IP.

Q: Why did paper wealth grow so fast between 2000 and 2024?

A: Prolonged low interest rates, repeated policy support, and abundant credit pushed up valuations for property, equities, and private assets faster than underlying capital formation and productivity.

Q: Why does this imbalance matter now?

A: With higher inflation and higher real rates, valuations based heavily on cheap money and multiple expansion are more vulnerable, while assets tied to real investment and productivity look more robust.

Q: How are capital flows reacting to this shift?

A: A large share of recent global FDI is moving into “future-shaping” sectors such as semiconductors, batteries, data centres, and energy transition projects, signalling a pivot back toward tangible capacity and infrastructure.

Q: What should allocators pay attention to in this context?

A: The key distinction is between returns driven mainly by multiple re-rating and those supported by genuine cash-flow growth linked to real-economy investment and productivity.

Sources

McKinsey Global Institute, McKinsey Global Institute: 2025 in charts.