The combined wealth of all individuals has fallen this year for the first time since the financial crisis of 2007-08, with a drop in austerity-hit Europe outweighing a small increase in China, a Credit Suisse report has found.
The study found the wealth of all individuals – defined as assets such as income, real estate, savings and investments less debt – fell 5 per cent in dollar terms to $223-trillion (U.S.) by mid-2012 from the same time the year before.
The main driver of the decline was Europe, where wealth fell 14 per cent in dollar terms. But the study also attributed the fall to economic recessions in a broader range of countries, lower equity prices and relatively subdued housing markets.
Meanwhile, wealth in China grew 3 per cent in dollar terms, the biggest winner this year, Credit Suisse said.
At constant exchange rates, global wealth rose 1 per cent over the period, the smallest increase since the 2007-08 crisis.
The report published on Wednesday noted the European luxury goods sector had proven resilient, posting organic growth, which excludes acquisitions, at a high-teen percentage in the 12 months to June 30.
But Credit Suisse said it was cautious looking through to the second half of 2013, forecasting top-line growth would slow to 7-8 per cent with "a high level of uncertainty and no visible prospects of growth acceleration until the second half of 2013."
It said a weak macroeconomic environment in Europe, rising taxation for the rich and wealth erosion should take its toll on luxury sales in the region, a trend which would be somewhat mitigated by tourist buyers from emerging markets.
It also predicted sales momentum in China – the luxury market's biggest driver of growth – should be affected by an economic slowdown and a pullback on gift-giving, which would continue to weigh on luxury sales in China until a change in the country's leadership was complete.
China's ruling Communist Party is preparing for a once-in-a-decade leadership transition next month which could imply changes in the country's policies and economics.
The report comes after consultancy Bain on Monday forecast global luxury sales growth would drop to 5 per cent at constant currencies this year from 13 per cent last year.
Meanwhile, the latest trading update from LVMH, the world's biggest luxury group, showed a sequential slowdown in sales growth for the third quarter running as Chinese and Europeans cut spending.
The Credit Suisse report forecast total household wealth would increase by an average of 8 per cent annually over the next five years, driven by emerging markets such as China, Brazil, Malaysia, Russia or India.
Mean wealth per adult is projected to rise to $67,000 by 2017 from $48,500 in 2012.
Today, emerging market consumers account for around 50 per cent of luxury sales for the big luxury names, a proportion that Credit Suisse expects to increase given the faster wealth creation in emerging markets.
China is expected to surpass Japan as the second-wealthiest country in the world by 2017 while the United States should maintain its leading position, the report said.
It also found the United States was still the largest individual luxury market in the world – except for watches – but relative to the aggregate wealth of the country, penetration of European luxury goods was lower than in other regions.
"Part of this is cultural, part is brand awareness and part is a long-term penetration opportunity for European luxury names," the report said.
Spending on luxury relative to wealth levels or number of millionaires remains much higher in Asia and to a lower extent in Europe and Japan, it said.