MGI Research

The global balance sheet 2026: Imbalance and divergence

| Report
Rebecca J. Anderson Jan Mischke Arvind Govindarajan Sylvain Johansson Nick Leung Shubham Singhal  Carlo Tanghetti

At a glance

  • The global balance sheet takes stock of all assets, liabilities, and wealth, providing a lens into economic health. This annual update estimates that it reached nearly $1.8 quadrillion ($1,800 trillion) in 2025, up from $1.7 quadrillion in 2024. Several asset classes grew further out of balance with the underlying economy, raising the possibility of corrections through inflation, asset valuation losses, or, optimally, productivity growth.
  • The balance sheet’s mounting detachment from the global economy was driven by the world’s two biggest economies in 2025. US equity values soared to 2.4 times corporate net assets as profits were double their share of GDP since 2000. China’s corporate debt grew to 80 percent of real assets, versus 50 percent globally. Government debt remains near all-time highs in the United States and has grown most rapidly in China.
  • Globally, most corporate and household debt and real estate moved closer to 25-year averages relative to GDP. Inflation helped with this normalization, although values remain well above pre-2000 levels. The ratio of productive assets to GDP held steady amid flat investment.
  • Global household wealth growth rose to a new high of $570 trillion, driven by “paper” gains. Only 20 percent came from real capital formation, while valuations of existing assets grew four percentage points faster than already-high consumer price inflation. In the United States and Canada, equity values drove wealth growth. China, France, and Germany saw a drop in paper wealth as real estate prices declined. In the United Kingdom and Japan, inflation pushed up asset values.
  • Major economies were on different pathways entering 2026. The United States has been in a “productivity acceleration” scenario, but high public debt and equities add the possibility of “sustained inflation” or “balance sheet reset.” Europe has gravitated toward “secular stagnation” as sluggish demand depresses growth and interest rates. China has experienced a partial balance sheet reset amid declining property values, although government spending and corporate investment have continued to propel balance sheet growth.
Equity, government debt, and liquidity remain near historic highs while other items have shifted more 'in balance' with GDP.
A line chart shows seven lines mostly clustered together before diverging after 2020, each tracking different items on the global balance sheet. The horizontal axis represents years, from 1995 to 2025, while the vertical axis is an index where the year 2000 equals 100. The lines for equity, government debt, and currency and deposits rise near the top of the chart, indicating they are near historic highs. In contrast, lines for household real estate and productive assets end lower on the plot, showing a more stable relationship with GDP.

In this report, we provide an update on the global balance sheet in 2025, exploring to what extent its recent expansion, and by extension wealth growth, has been “in balance.” The analysis finds that wealth was, to an even greater extent than previously, rooted in asset values rising faster than real economy investment and growth, creating record levels of global wealth “on paper.”

Although many economies that were studied experienced wealth and balance sheet swings, the global picture was largely driven by its two biggest: the United States and China. Higher US equity values and the accumulation of China’s public and private debt brought some near-term economic benefits but left their economies more vulnerable to potential corrections.

Businesses use both income statements and balance sheets to develop a complete picture of their financial health. Analysts of the global economy tend to focus on the former. Since 2021, MGI has developed a “global balance sheet” to fill this gap, representing a clearer view into the world economy’s wealth and health.

Our previous reports found that from the mid-1990s to the COVID-19 pandemic, household wealth expanded faster than gross domestic product. Asset prices for real estate, equities, and bonds grew, as did debt and deposits. This occurred amid declining (and eventually rock-bottom) interest rates, rapidly expanding US profits, and a property boom in China. Productivity did not keep pace across advanced economies, nor did real wealth formation through net new investment.

When the balance sheet outruns the underlying economy, weaknesses can be exposed. When real estate and equity values rise faster than GDP, capital may disproportionately go to asset repurchases, sometimes with a lot of leverage. This may push up valuations but leave the economy deprived of the type of investment that generates long-run growth. For households, wealth rises but merely on paper, with heightened risks of eventual corrections. Growing asset values also tend to exacerbate wealth inequality, as existing owners of wealth see large gains while entering asset markets becomes harder for others (for example, young households trying to buy a home).

Elevated balance sheets may correct in one of three ways. A productivity acceleration scenario involves higher income supporting high asset values and debt; this is the most preferred outcome. A sustained inflation scenario brings down the real values of assets and debt, recalibrating the balance sheet with higher nominal GDP. But it can erode inflation-adjusted wealth along with other undesirable side effects. A balance sheet reset scenario, entailing a drop in asset values, deleveraging, and defaults, would shrink the balance sheet in absolute terms, with severe wealth losses and, often, lengthy periods of lost economic growth. Or the balance sheet may just stay high, particularly under secular-stagnation-like conditions of low investment and interest rates, as seen in the United States and Europe in the 2010s. That’s seemingly good for wealth, but at the cost of low growth and rising leverage.

Historically, most balance sheet corrections have taken place through higher inflation. Indeed, the inflation coming out of the COVID-19 pandemic in the United States and Europe brought a correction in the balance sheet (and wealth) ratio to GDP. In China, a drop in property values drove a decline in wealth to GDP.

In 2025, global wealth reached a higher dollar value than ever before. But how “healthy” was this new growth? After postpandemic corrections, some balance sheet items have resumed expansion and reached new heights. This was particularly the case for US equity as AI fueled market optimism and corporate earnings continued to climb. Rising government debt relative to GDP remains a challenge in many economies amid higher interest rates. Stocks of currency and deposits remain high compared to longer-term historical norms. Altogether, this has culminated in even more wealth on paper than in the past several decades and raises the stakes for US corporate earnings to deliver.

When is wealth growth ‘healthy’?

What makes a healthy balance sheet? Multiple characteristics, all of which are related to fostering future economic growth and stability, and ultimately wealth, play a role. There is no clearly defined threshold where “healthy” ends and “unhealthy” begins, but comparing trends over time and across countries can reveal imbalances that require careful monitoring and managing.

  • Assets grow broadly in sync with the economy. In the long run, asset values should reflect the underlying economy: A growing economy provides the basis for savings and investment, and investments in turn expand national output. When valuations outpace the economy (and go beyond global norms), it may signal confidence in future growth for a while. But prolonged disconnects, and notably valuation gains from rising multiples mostly due to changing financial conditions (like lower interest rates and excess liquidity), have a history of course correcting.1 Excess asset valuations can also have broader negative ramifications, including distorting incentives (capital chasing valuation growth rather than real investment opportunities) and feeding wealth inequality. Ideally, both economic and asset growth are real, rather than linked to inflation, but assets growing in line with inflation wouldn’t signal balance sheet concerns.

    In practice, this means that balance sheet items should have relatively consistent ratios to GDP over time (effectively akin to a price-to-earnings ratio, for the broader economy). There is no “golden number” for an ideal GDP ratio for a given asset that can be applied across countries, given unique circumstances, but a good rule of thumb is that it should remain in line with long-term historical averages. This is especially true in advanced economies. In emerging markets, GDP ratios may climb from a low point as economies build up their capital bases and financial systems.

  • Sustainable debt. Too much debt may place a drag on future growth via debt service (interest) payments crowding out productive asset investment. This risk is particularly pertinent when interest rates rise relative to an economy’s growth rate. Debt can usefully be monitored not only relative to GDP but also relative to underlying assets. Often, debt crises start in specific pockets (for example, sectors, industries, household sectors, instruments) and may spread through the broader economy. By contrast, too little debt could signal undeveloped financial markets, underinvestment, or unattractive investment conditions.
  • A growing base of productive assets, with appropriate capital productivity. These include infrastructure, machinery and equipment, and intellectual property. Together, they form the foundation for future production and growth. Of course, productive investment needs to be balanced with growth and demand. A rapid increase in productive capital stock relative to GDP—observed in certain periods in China—may signal emerging imbalances, which could be associated with overcapacity or softer capital productivity. An empty house or road does not create long-term economic value.

  • Balanced or stable cross-border positions. In other words, net international investment positions that are not growing disproportionately to the economy. These positions reflect, in part, a cumulation of net lending or borrowing, or the difference between domestic savings and investment. Countries that tend to be net savers and net exporters typically have net lending positions, and vice versa. There can be good reasons for temporary imbalances (a country working through an economic crisis, for instance, will typically be a net saver) as well as longer-term imbalances (for example, an aging population will tend to produce excess savings to draw on when old). But when net foreign liabilities grow fast and large relative to the economy, that can reflect unsustainable indebtedness and insufficient domestic savings and production. And large and growing surpluses can reflect unbalanced domestic demand and investment as well as growing risk exposure if counterparties suffer financial crises, currency devaluations, or geopolitical shocks.

    Note that international investment positions can also grow or shrink with valuations. For example, as US equity markets have outperformed those of other economies, the United States has had an increasingly negative position while international holders of US equity assets have had increasingly positive positions.

  • Household wealth growth underpinned by real investment. If household wealth grows mostly from financial valuations, as discussed above, it is a sign of concern. Sectoral imbalances can also signal risk. Household wealth includes financial claims on the corporate (equity and debt) and public (government debt) sectors, directly or via financial institutions. If these claims exceed the value of assets owned by corporations and governments, or do not generate sufficient income, they eventually turn into a claim of citizens on themselves in their role as customers and taxpayers, respectively. Defaults on debt or collapses in equity values directly affect household wealth through the ownership of financial assets.

Importantly, all of these are early warning signals. In each case, metrics of health need to be understood in the overall context of a country and its economy to determine the exposure to risk.

Balance sheets, and macroeconomic factors like productivity and inflation, point to diverging trends across major economies. Recognizing the swing factors that can shift an economy to productivity acceleration is more urgent than ever: for the United States, corporate earnings and greater government saving (in other words, less borrowing); for Europe, greater investment; for China, higher domestic consumption.

Future global wealth and stability may depend on it.

The global balance sheet: Latest totals

In 2025, MGI’s estimates show, the global balance sheet reached nearly $1.8 quadrillion in total assets, up from $1.7 quadrillion a year earlier.1 This includes $570 trillion of household wealth. In each case, this was the highest ever.

Building from the bottom up, real assets include the real estate, infrastructure, machinery and equipment, and intellectual property held across households, governments, and corporations. These totaled $620 trillion, constituting global net worth across sectors.

Financial assets held outside the financial sector include equity, bonds, loans, currency and deposits, and pensions, among other assets. Every financial asset has a corresponding liability, netting out at the global level.1 This “financial layer” serves to separate wealth from asset ownership, and it was close to the total value of real assets.

The financial sector, in turn, intermediates these financial assets and liabilities. At $550 trillion, it has reached 90 percent of the value of real assets.

Wealth is ultimately the balancing item on balance sheets, equaling total assets less liabilities. It was $600 trillion in 2025.

Exhibit 1
The global balance sheet takes stock of global wealth and health.
A set of six stacked bar charts are arranged in two columns and three rows. The left column is labeled “Assets” and the right column is labeled “Liabilities.” Each row represents a different layer of the global balance sheet: “Financial assets and liabilities held by the financial sector” at the top, “Financial assets and liabilities held by households, governments, and nonfinancial corporations” in the middle, and “Real assets and net worth” at the bottom. The segments in each stacked bar are sized to represent the share of different components, such as equity, bonds, loans, and real estate. The asset and liability bars are equal in total height, with internal segments of different heights illustrating how the global balance sheet takes stock of both sides to measure wealth and health.

Each major economic sector has its own balance sheet. They play different roles in the economy and, as a result, have different compositions. Both nonfinancial and financial corporations tend to have very little wealth, because corporate equity is considered a liability to owners of the shares. However, their asset compositions are quite different, with real assets (for example, machinery) playing a significant role for nonfinancial corporations. Governments tend to have some wealth, unless their debt liabilities exceed all assets.

Total wealth across all sectors was $600 trillion in 2025, with 95 percent owned by households. About half of household wealth is in real assets, mostly property. The other half is financial assets, notably governments through their bonds, nonfinancial corporations via equities, and financial corporations through things like investment fund shares and pension assets.

In this report, we focus on household rather than total wealth because it has immediate economic relevance for spending and saving decisions.

The interconnectedness of the balance sheet means that stress in other sectors may ultimately affect household wealth. It is thus important to understand the full balance sheet to gauge how household wealth might evolve.

Exhibit 2
Household wealth is 95 percent of the total and encompasses financial assets from other sectors.
A waterfall chart visually distributes the total economy’s net worth across four sectors, starting with a large positive bar for Households that is then slightly offset by near-zero or negative bars for Governments and Corporations. Below this main waterfall, a more detailed set of stacked bar charts breaks down the net values into their component assets and liabilities. The chart illustrates that households are the primary owners of wealth, holding nearly all of the total economy’s net worth. In contrast, the other sectors, such as corporations and government, act as “wealth enablers” or “intermediaries” and have a net worth near zero or negative, as their assets and liabilities largely cancel each other out.

As of 2025, global household wealth totaled a record $570 trillion, up $40 trillion from 2024. That was more than quadruple its value in 2000, at nominal values and market exchange rates. This wealth grew faster than GDP, posing questions about its health and stability (see sidebar “When is wealth growth ‘healthy’?”).

The United States continues to hold the largest share, at 30 percent. The eurozone and China held the next-largest shares, at 14 and 13 percent, respectively.1

At the country level, Poland, Ireland, Spain, and Sweden experienced the highest rates of household wealth growth (in dollar terms), each reaching double digits. Eurozone countries including Austria, France, Germany, Italy, and Portugal saw wealth grow slightly in dollar terms but decline in constant foreign-exchange terms as the dollar fell against the euro from 2024 to 2025.

Exhibit 3
In 2025, household net worth hit a new high of $750 trillion globally.
A stacked area chart rises from left to right, showing growth over time. The horizontal axis spans from just before the year 2000 to 2025, and the vertical axis is marked in trillions of dollars, starting from zero and reaching over 500. The chart is made of several colored bands stacked on top of one another, each representing a country or region. The total height of the stacked bands grows substantially, from $130 trillion at the start to $570 trillion at the end, illustrating a more than fourfold increase in household net worth. To the right of the area chart, a horizontal bar chart ranks individual economies by their total net worth in 2025. The bars for the United States and China are by far the longest, extending much further than the others and highlighting their dominant share of global household wealth.

Household wealth per capita grew in most countries. However, it did not keep pace with GDP. This resulted largely from slowing real estate values, correcting from pandemic peaks. In many economies, real estate is the largest component of household wealth.

There were multiple exceptions. In the United States and Australia, which have the highest wealth per capita, household wealth expanded by at least 20 percentage points of GDP.1 In the United States, this was largely equity driven. In Japan, household wealth as a share of GDP grew by double-digit percentage points. This was more a story of inflation growing and assets keeping pace.

Multiple eurozone countries experienced a decline in per capita wealth in purchasing power parity terms.2 This was in large part attributable to declining real estate values.

Exhibit 4
GDP outpaced household wealth in most major economies.
A horizontal bar chart on the left ranks countries by their net worth per capita. Each country is listed along the vertical axis, and the horizontal bars extend to the right, with the United States having the longest bar at the top of the list. Next to this, a series of horizontal dot plots provides another view of the same countries’ wealth, this time relative to their GDP. Each country’s row has a line with several markers indicating its 2025 net worth as a GDP multiple, as well as the historic peak and average. For most countries, the marker for 2025 sits to the left of the marker for the historic peak, illustrating that in most major economies, GDP has recently outpaced the growth of household wealth.

Is the balance sheet ‘in balance’?

The global balance sheet is a compilation of separate asset classes, which often grow in different ways across countries. More than three-quarters of its value is in real estate, equity, debt, and currency and deposits.

Assessing balance sheet health requires a deep dive into each asset class, to understand how they move over time relative to the underlying economy. We walk through them in this chapter, with a focus on how economies evolved in 2025.

In summary, we find the following:

  • Real estate declined relative to GDP across most economies. Australia was a major exception, and it topped the list of real estate values, at 4.5 times GDP.
  • Equity largely grew. Relative to GDP, it climbed the most in South Korea, the United States, Canada, and Japan. Of these countries, equity was highest in Canada and the United States, at 3.8 and 3.7 times GDP, respectively.
  • Corporate debt increased the most in China. Chinese corporate debt reached 1.7 times GDP, the highest among our economies of focus.
  • Government debt continued to expand. It exceeded 100 percent of GDP in a number of countries, with Japan, Italy, and the United States topping the list (although in Japan, inflation brought this ratio down).
  • Currency and deposits reached new all-time highs in China and South Korea. Japan still tops the list but also experienced the largest drop amid higher inflation.
Three-quarters of balance sheet value is in four asset classes.
A donut style pie chart shows the breakdown of global assets, with its area visually dominated by four segments representing real estate, equity, debt, and currency and deposits. The chart illustrates that about three-quarters of the balance sheet’s total value is concentrated in four main asset classes.

When could government debt become unsustainable?

There is no universally agreed-upon threshold, or band, at which government debt becomes unsustainable, especially for high-income economies issuing debt in their own currencies.

Understanding the trajectory of public debt involves three central variables: (1) the level of primary (noninterest) deficits as a share of GDP; (2) nominal GDP growth (g); and (3) the rate on long-term government bonds (r).1 When growth exceeds interest rates, there is some fiscal space to run primary deficits without growing the public-debt-to-GDP ratio, since the cost the government is paying to borrow money is less than the growth of the economy. The larger the gap between g and r, the greater space for deficits without growing the debt-to-GDP ratio.2 In the United States, the ratio of public debt to GDP remained relatively stable in the 2010s even though the government was running persistent deficits, because interest rates were much lower than nominal GDP growth rates.3

Given the new environment with notable increases in interest rates in the United States and Europe, and decreases in growth projections in China, the gap between g and r is much closer to zero than it was in the past decade and a half. Some projections even suggest that in the United States, the signs actually flipped in 2025, with interest rates exceededing expected growth rates.4

There are multiple reasons to believe that interest rates are structurally higher today than in the prepandemic period. These include higher planned investments, lower planned saving, and higher risk (for example, from shifting geopolitics and rising public debt).5 As a result, fiscal budgets could come under pressure and the debt-to-GDP ratio is poised to further increase, unless major steps are taken to reduce government borrowing.

Long-term interest rates exceeded growth expectations in the United States, while the gap narrowed in Germany.
Three line charts are arranged side-by-side, one each for the United States, Germany, and China. Each chart contains two lines from the early 2000s to 2025, comparing 10-year government bond yields with 5-year growth projections. In the United States chart, the lines cross near the end, showing that interest rates have recently exceeded growth expectations. In Germany, the gap between the two lines narrows over time. In China, the gap remains wider than those of the other two countries.

At the end of the chapter, we examine other features of balance sheet health, including productive asset formation and cross-border imbalances.

Real estate

Real estate is the largest single asset on the global balance sheet and, in most economies, the biggest component of household wealth. Globally, two-thirds is held by households.

In most economies, household real estate relative to GDP peaked during the pandemic. Since then, values have recalibrated toward long-term averages. In both the eurozone and China, real estate relative to GDP is back down to levels seen two decades ago. Across major economies, real estate values are still higher than what was typical relative to income in the last decades of the 20th century.1

In 2025, nearly all economies of focus saw real estate values continue to correct relative to GDP. One exception was Australia, where household real estate grew by more than 10 percentage points of GDP. It also remained the most elevated relative to GDP (by 80 percentage points) compared to its average of the past 25 years.

Exhibit 6
Real estate has largely recalibrated toward 25-year averages but remains elevated.
A line chart on the left tracks household real estate assets from 1975 to 2025, with several lines representing different economies showing a long-term rising trend that peaks around 2021 before declining. To the right of this, a series of horizontal dot plots compares the 2025 level for select economies against their historical average and peak. For most countries, the marker for 2025 is to the left of the peak marker, indicating that real estate values have recalibrated from their recent highs and are now closer to their long-term averages.

Equity

The second-largest component of the balance sheet is equity, which is a liability for an issuing corporation and held as an asset by households, governments, and financial corporations. The ratio of equity to GDP can be interpreted as a variation of a P/E ratio for an economy; elevated ratios by historical standards indicate high expectations for future growth, while also implying the possibility of correction if growth disappoints.

In 2025, countries generally fell into two groups. Some, including the United States, Canada, Japan, and South Korea, reached all-time highs in equity. In the United States, values were nearly double the historical average. Some of this reflected a boom in tech, particularly AI. Looking across the S&P 500, just over 50 percent of the growth in market capitalization from 2021 through 2025 came from the “Magnificent Seven” firms commonly associated with AI.1 Another driving force was the expansion in the profit share of GDP, which we turn to later in the chapter.

Others peaked around the time of the pandemic, including most European economies and China, although they saw some growth in 2025.2

Exhibit 7
Equities relative to GDP are at all-time highs in a handful of countries and down from pandemic-era peaks in others.
A line chart on the left shows several lines representing different economies following a volatile but generally upward trend from 1975 to 2025, tracking corporate equity liabilities. An adjacent set of horizontal dot plots on the right provides more detail for select economies, showing that while some are at their peak, many others have fallen from their pandemic-era peaks.

Equity (continued)

Equity originating from US firms holds particular significance for global wealth. The United States accounts for nearly half of the equity across countries in our global sample. This is much higher than in the past, following rapid equity-price appreciation.

The impact of US equity markets extends beyond American households. More than one-third of US equity liabilities are owed to foreign entities. International investment positions are significantly composed of equity, with the United States on balance owing more to the rest of the world, and many other countries on balance owning more equity originating from abroad, suggesting that many cross-border equity liabilities originate from the United States.

Exhibit 8
The share of equities originating from the United States has grown over the past 15 years, accounting for nearly half today among big economies.
A stacked area chart shows several wide, colored bands shifting their relative thickness from the late 1990s to 2025, illustrating the changing distribution of corporate equity liabilities. The band representing the United States, at the bottom, grows wider over time to fill nearly half the total area. The band for China widens as well, while the bands for the Eurozone and other high-income economies narrow.

Equity (continued)

While the United States is one of several countries with high equity-to-GDP ratios, it stands out for its high equity-to-net-asset ratios. US equity values rose to 2.4 times net assets, while the figure in most other countries hovered around 1.0.

Economic theory suggests that the equity-to-net-asset value, also called “Tobin’s Q,” should be around one in the long term: Equity should converge to net assets, or the reinvestment value, if there is perfect competition.1

In the United States, returns on invested capital rose and the corporate profit share of GDP doubled relative to pre-2000 averages. Fundamentally, high US equity valuations depend on corporate earnings continuing to outgrow GDP in the long run.

Exhibit 9
Record US profits have pushed equities higher than in other economies relative to GDP and net assets.
A line chart on the left shows corporate equity liabilities from 1975 to 2025, with the line for the United States separating from the pack and rising sharply above all other economies after 2010. To the right, a second line chart tracks US corporate profits as a share of GDP over the same period, showing a jagged but clear upward trend. The average profit share in the years since 2000 is significantly higher than the pre-2000 average, helping to explain the higher equity valuations seen in the first chart.

Debt

The next-largest component of the balance sheet is debt, representing both loans and bonds. Its dynamics vary substantially by sector and across countries.

Household debt relative to GDP is trending down in most economies. Many are below their average levels since 2000; Ireland in particular stands out for being more than 40 percentage points of GDP below its average since then. On the high end, household debt in Australia and Canada remains north of 100 percent of GDP, although still below its peak. China’s figure is the most elevated compared to its post-2000 average.

Lower debt means healthier balance sheets for households. But higher debt in other sectors could mean an eventual correction that affects household wealth through ownership of financial assets or participation in pension funds holding those assets.

Exhibit 10
Household debt is back to early-2000s levels in the United States and Europe.
A line chart on the left tracks household debt liabilities from 1975 to 2025, with lines for several economies showing a distinct rise and fall, peaking between 2005 and 2015 before declining or leveling off. The line for the United States has returned to levels last seen in the early 2000s. An adjacent set of horizontal dot plots on the right provides more detail for select economies, showing that most are now well below their historic peak debt levels relative to GDP.

Debt (continued)

Corporate debt levels are below or in line with 25-year averages in much of the world. In 2025, Ireland stood out for a reduction in corporate debt relative to GDP of 21 percentage points.

China is a major exception. Its corporate debt is double the global average and grew by six percentage points of GDP in 2025. This comes amid a growing rate of loss-making firms and deflating producer prices.1 China’s corporate debt is also highest relative to corporate real assets, with a ratio of about 80 percent. The typical range across countries is 40 to 50 percent.

Exhibit 11
Corporate debt is trending down in Europe and growing in China, where it is now almost double the global average.
A line chart on the left tracks corporate debt liabilities from 1975 to 2025, with the line for China showing a steep and continuous upward trend, ending above other economies. In contrast, the lines for Europe and other advanced economies are flat or trending downward. An adjacent set of horizontal dot plots on the right provides more detail for select economies, confirming that China’s corporate debt multiple is at a new peak while many European countries are below their historical averages.

Debt (continued)

Government debt, by contrast, remains a pressing challenge for many countries.

As of 2025, it was over 100 percent of GDP in Japan, Italy, the United States, France, Canada, Belgium, the United Kingdom, and Spain. China had the fastest growth in government debt-to-GDP ratios, by nine percentage points, continuing a sharp uptick in recent years.1 While Japan’s level remained the highest relative to GDP, it has seen the greatest drop, eight percentage points, amid a significant increase in inflation.

As interest rates remain elevated across advanced economies, reaching or exceeding expected economic growth rates, government debt sustainability is increasingly in the spotlight. Economies may not simply be able to grow their way out of debt (see sidebar “When could government debt become unsustainable?”).

Exhibit 12
General government debt remains greater than 100 percent of GDP in many advanced economies, including the United States.
A line chart on the left tracks government debt liabilities from 1975 to 2025, with the lines for most economies showing a sustained and steep upward trend, particularly after 2008. An adjacent set of horizontal dot plots on the right provides more detail for select economies, showing that government debt remains at or near highs in many advanced economies.

Currency and deposits

Monetary aggregates, shown here as currency and deposits, are another balance sheet signal of economic health. They are assets for households, governments, and nonfinancial corporations, and liabilities for financial corporations (including central banks).

Currency and deposits expand as a result of loans provided by depository banks or via central bank creation of base money, which includes programs such as quantitative easing.1 Quantitative tightening, or central bank action to reduce its balance sheet size, thus dampens the growth of currency and deposits.

In recent years, inflation and quantitative tightening have brought down currency and deposits relative to GDP from pandemic-era peaks in the United States, most European economies, and Japan. Still, they remain elevated compared to levels before the global financial crisis.

As of 2025, Japan, the United Kingdom, China, and France have currency and deposit levels more than double GDP. China saw the most significant growth, ten percentage points of GDP, over the past year. This is concurrent with high lending by Chinese banks, particularly to corporations.

Exhibit 13
Money supply corrected from pandemic highs in most major economies but grew in China.
A line chart on the left tracks financial corporations’ currency and deposit liabilities from 1975 to 2025, with the line for China showing a steep and continuous rise. In contrast, lines for other economies like the United States and the eurozone show a peak around the pandemic era before moving downward. An adjacent set of horizontal dot plots on the right provides more detail for select economies, showing that while most have dropped from recent highs, China’s money supply continued to grow.

Productive assets

Another component of balance sheet health is productive assets, a smaller set of real assets encompassing infrastructure, machinery and equipment, and intellectual property.1 These lay the foundation for future output and are typically held on balance sheets of nonfinancial corporations and governments.

These assets tend to move closely in tandem with GDP, with the causation going both ways: Higher investment drives productivity and growth; and growth gives firms (and governments) the financial means and revenue opportunities to invest. There can be reasons for them to move out of sync, for example a sudden industrial buildup that results in faster productivity growth. One recent example is AI data centers and related infrastructure. That said, deviations often signal under- or overinvestment.

As of 2025, Japan, China, and South Korea continued to top the list in terms of productive capital-to-output ratios, due both to a high share of capital-intensive production and overcapacity. The United Kingdom, Canada, and Poland have the lowest stocks, although Poland grew the most of any country in our sample.

Given the overall stability of productive asset stocks relative to GDP, it is not always easy to get a sense of the nearer-term direction of flows, or changes in stocks.2 Looking at these directly, 2025 net investment rates exceeded long-term averages in multiple countries, including Poland, Sweden, the United States, Italy, and Spain.

A range of countries, notably China, South Korea, and Ireland, experienced a sharp drop compared to average rates. Germany, Ireland, and Australia saw negative net investment, meaning capital expenditures were below replacement requirements, asset values declined, or both.

Exhibit 14
Japan, China, and South Korea continue to have the highest levels of productive assets.
A line chart on the left tracks productive assets as a multiple of GDP from 1975 to 2025, with the line for China showing a strong and steady upward trend since the 1990s that separates it from the others. In contrast, the lines for the US and the eurozone are relatively flat. An adjacent set of horizontal dot plots on the right provides more detail for select economies, showing that Japan, China, and South Korea have higher levels of productive assets relative to GDP, placing them at or near their historic peaks.

Cross-border positions

A final component of balance sheet health is cross-border positions. Within a given financial asset class, an economy may have a positive or negative balance, signaling net inflows or outflows over time. When they accumulate for an extended period in positive or negative directions, they may signal risks.1

In macroeconomic accounting, net inflows or outflows of financial assets equal domestic savings minus domestic investment. These flows can significantly influence national wealth. Domestic savings greater than investment means a net lending position to the rest of the world. Investment that exceeds savings means a net borrowing position.2

International positions are shaped by these domestic imbalances as well as by differences in asset valuations. These imbalances have increasingly come under scrutiny, meaning net lending and borrowing as a driver of wealth may face political limits as occurred, for example, during the eurozone debt crisis.

Net flows of financial assets accumulate to international investment positions, which have grown substantially since 2010. In 2025, they reached new heights in Japan and Germany, both nearly 90 percent of GDP in a net lending position, and in the United States, nearly 90 percent of GDP in a net borrowing position. Half of the US negative position is in equity, as US equities have grown in value more than those of other economies. Major European economies, Japan, and Canada have positive balances in equity, meaning on net, they own more equity issued abroad.

Exhibit 15
Cross-border financial imbalances mostly widened.
A line chart on the left shows the net international investment position for seven economies from 1995 to 2025, with the lines for Japan and Germany rising to indicate large creditor positions, while the line for the United States trends steeply downward to a large debtor position. To the right, a series of stacked bar charts breaks down each country‘s 2025 position by asset type. These charts illustrate the composition of each country’s net position, showing, for example, that Japan’s creditor status is built on equities and bonds, while the US debtor position is reflected across most asset types.

Has wealth growth been ‘healthy’?

In 2025, household wealth growth accelerated to 7.3 percent from the 5.9 percent annual average since 2000. In this chapter, we explore the drivers of household wealth growth and the extent to which they have been what we consider healthy.

From an asset class standpoint, there was a stark shift in the drivers of wealth last year. Mirroring balance sheet trends, 57 percent of new household wealth globally was based in equity, and only 15 percent in real estate. This was a marked departure from the average composition of wealth drivers since 2000, in which real estate produced more than half of wealth growth.
Exhibit 16
Equities played an outsize role in household wealth growth, mirroring balance sheet trends.
A waterfall-style bar chart on the left illustrates the growth of global household net worth. It begins with a bar showing the net worth of $130 trillion in 2000, then adds a large floating bar for the $400 trillion of growth through 2024 and a smaller bar for the $40 trillion of growth in the last year, arriving at a final bar of $570 trillion in 2025. To the right, a pair of stacked bar charts shows how the composition of that growth has changed. In the first bar, representing the 2000-24 period, the segment for real estate is the largest component. In the second bar, for 2024-25, that segment is much smaller, while the segment for equity has expanded to become the dominant component, visually illustrating the outsize role equities played in recent growth.

Real estate accounts for about half of global household wealth. About a quarter is held in equity and investment funds, 20 percent in currency and deposits, and 20 percent in bonds and pensions. (Loans were equal to 15 percent, in the negative direction.)

Household wealth composition in major economies varies, in part reflecting different retirement systems. Notably, in the United States and Canada, equity plays a large role, making up more than one-third of household wealth. In China and Japan, currency and deposits make up more than one-third.

In 2025, equity was the single largest catalyst for wealth creation in nearly all major economies. In many, including China, Germany, France, Italy, and Canada, real estate declined.

Exhibit 17
Every major economy saw growth in equity assets, which in some cases offset drops in real estate.
A series of seven stacked bar charts are arranged horizontally, one for each major economy, breaking down household net worth by balance sheet item in 2025. Each chart shows assets like equity and real estate stacked above a zero line, and liabilities like loans below it. The bars show that while all major economies saw growth in equity assets, the composition of wealth varies significantly.

In 2025, global wealth growth was driven to a greater extent by paper wealth, or nominal asset value growth decoupled from the real economy.

Only 20 percent of household wealth growth was based on net new investment (real assets including machinery and equipment, homes and buildings, infrastructure, and intellectual property, less depreciation), compared to 30 percent on average from 2000 to 2024. Nearly 60 percent came from asset price growth above and beyond general inflation and negative net worth positions from other sectors.1 This was a marked increase over the average from 2000 to 2024, when paper gains drove one-third of global wealth growth.

Exhibit 18
Most global wealth growth was 'on paper.'
A pair of stacked bar charts stand side-by-side, with the second bar, representing recent growth from 2024-25, being significantly taller than the first bar, which covers the 2000-24 period. The most prominent visual feature is the top segment of each bar, representing “paper wealth,” which is proportionally much larger in the taller, more recent bar, making up 58 percent of its height. This illustrates that most recent global wealth growth was “on paper,” driven by asset price dynamics in excess of inflation.

Dynamics of investment and asset-price-driven wealth growth varied substantially across countries.

China saw the largest drop in wealth growth as net investment rates declined, inflation hovered around zero, and asset values, particularly in property, continued their multiyear decline.

Japan saw the largest upswing, driven mostly by valuation gains, a significant pivot following decades of near-zero inflation.

The United States also saw an increase, due largely to valuation gains.

France and Germany both experienced declines in net new investment and valuations—and, when removing positive foreign exchange effects, wealth losses.

The United Kingdom and Canada saw slight declines in wealth growth in local currency terms. In Canada, domestic equity markets appear to have lifted paper wealth while also slightly rebalancing the positive international financial position.

Exhibit 19
Wealth drivers varied substantially; the United States saw a surge in 'paper wealth,' while others had a notable drop.
A series of stacked bar charts are arranged horizontally, one for each of seven major economies. The bars vary in height and composition, with some extending high above a zero line while others show significant negative portions below it. The bar for the United States, for instance, is dominated by a large top segment representing “paper wealth.”

What this means for executives

A balance sheet that is out of kilter with the economy—in other words, with high paper wealth fueled by debt and liquidity levels significantly above historical norms—can unwind via higher productivity, higher inflation, or asset price corrections. Balance sheets may also remain large, typically under secular-stagnation-like conditions, effectively kicking the can down the road for potential correction.

Each of these four scenarios shapes the long-term economic outlook. Only productivity acceleration delivers real economic growth justifying valuations, thus protecting wealth. The others sacrifice wealth, growth, or both. Sustained inflation reduces real values of wealth, secular stagnation sees low growth, and a balance sheet reset signals a loss of wealth and growth. Importantly for business leaders, two scenarios would likely mean structurally higher interest rates: Productivity acceleration would entail greater demand for capital amid higher business investment, while sustained inflation would likely involve central banks tightening policy rates and, ultimately, higher long-term yields.

All scenarios are possible for all major economies. However, they appear to be on different pathways, with different swing factors that could move them from one trajectory to another.

Business planning for all scenarios

Each of the four scenarios has strategic and operational considerations for business leaders and investors.

Productivity acceleration

Only this scenario, which resembles the late-1990s United States, combines strong income and wealth growth with balance sheet health. Optimistic business leaders would anticipate this “Goldilocks” result.

To benefit from growth opportunities, business investment in technology, new capacity, and automation could help capture market share. Companies driving productivity—for example, through new technologies—may capture significant value. Labor and materials may become scarcer; businesses could therefore benefit from considering how to secure access to both. As interest rates rise, firms could benefit from securing long-term financing early.

Investors could find opportunities in equities but face headwinds in rate-sensitive industries like real estate. Fiscal authorities may consider taking advantage of any growth dividend to bring budgets into better balance.

Sustained inflation

In this scenario, inflation remains elevated above central bank target rates, potentially lowering the burden of debt but also the real value of wealth. The lack of price stability would pose challenges. But it would likely be accompanied by solid income growth, positive (albeit not impressive) growth in wealth, and a more sustainable balance sheet.

Many firms encountered these conditions after the pandemic. Businesses could look to pricing, procurement, and productivity as responses to higher input prices and wages. They could also alter the business-portfolio mix to benefit from healthy demand growth, particularly in investment goods. Scale will matter more to protect margins. Locking in favorable conditions—from long-dated maturities in financing to long-term contracts for labor and suppliers—may help hedge against higher costs.

Investors seeking to protect assets and wealth from inflationary erosion could also find an environment of higher yields. Financial institutions would likely need to rethink business models hardwired to ever-growing balance sheets. Banks, for instance, could seek to complement net interest income with more fee-based business models.

Secular stagnation

For many stakeholders, from asset managers to real estate investors, this may seem like an attractive prospect because wealth would continue to grow. But in a secular stagnation, rising wealth is mostly on paper and real economic output is sluggish. Thus, the risk of financial stress and future corrections would continue to grow.

For leaders in the United States and Europe, this scenario would likely feel like the prepandemic decade. Leverage would remain a potent tool for raising returns.

By contrast, in China, where the prepandemic decade was one of growth, secular stagnation would involve a marked shift. Regardless of geography, businesses would need to seek pockets of growth. For investors, asset values would most likely face headwinds from the further declines in real estate and hits to equity, amid stagnating corporate profits.

Balance sheet reset

This scenario affects both wealth and growth. If it unfolds, the world could find itself in a “lost decade” of growth, as Japan did in the 1990s and into the 2000s following the bursting of its real estate and equity bubbles.

This scenario would reward businesses with built-in resilience, for example through a flexible cost base and lower debt exposure. Businesses could also consider how they can ensure cost-base flexibility in case of a sharp economic slowdown. They may also reduce debt and limit exposure to market prices in equity and real estate. Fortress balance sheets could help weather the storm and enable opportunistic responses when distressed M&A opportunities emerge.

In a similar vein, investors could seek protection from asset corrections and defaults; holding cash could be a good option in this scenario. Financial institutions might live through a situation not unlike the years after the global financial crisis. There could be substantial opportunities for consolidation and M&A, including situations of distress, making preparation essential.

For executives, this means both preparing for an unusually broad array of economic pathways and carefully watching the swing factors, which rise above the noise of daily indicators (see sidebar “Business planning for all scenarios”). Leaders across sectors and industries could also explore ways to encourage the optimal outcome, the productivity acceleration scenario.

Elevated balance sheets could go four ways, each with a distinct combination of growth, inflation, and interest rate outcomes.
A large table is organized into four columns, each topped by a colored banner representing a distinct economic scenario: “Productivity acceleration,” “Sustained inflation,” “Return to past era,” and “Balance sheet reset.” The rows are labeled with categories like “Historical analogy,” “What it means for wealth,” and “What it means for growth.” The table outlines how each of these four potential pathways could affect the economy, with productivity acceleration leading to wealth growth, while a balance sheet reset could result in an absolute loss of wealth and a deep recession.

Major economies show significant divergence in trends across macro drivers of productivity, inflation, and interest rates, along with fundamental balance sheet components including real estate, equity, and debt.

The United States has seen a structural uptick in both productivity growth and interest rates relative to the prepandemic period. Productive investment, particularly driven by the tech sector, has recently grown. High equity values also signal market confidence, although they may pose some downside risks. Meanwhile, inflation remains above the Federal Reserve’s 2 percent target and government debt remains near all-time highs, adding further inflation risk.

The eurozone has experienced a return to secular-stagnation-like conditions, akin to the prepandemic period, amid flat productivity and higher saving. Europe’s balance sheets overall appear more in balance compared to the US balance sheet (with a few exceptions, such as Italy’s government debt). Productivity growth rates, however, are down across the region’s three largest economies (Germany, France, and Italy). Until recently, inflation was mostly trending toward the European Central Bank’s 2 percent target, although Europe is more exposed to energy price changes.2 Personal savings rates remain high amid a drop in aggregate demand and per capita household wealth has declined in PPP terms in Germany and France.3 Productive investment remains below prepandemic and global averages.

China continues to work through a partial balance sheet reset in the face of a continued decline in real estate, with questions about future growth drivers amid low household demand and a boom in corporate investment. Productivity growth has receded in recent years, although it remains above the rate in advanced economies.4 Inflation and, in tandem, nominal interest rates have dropped, and concerns have shifted to dealing with deflation risks.5 At a macro level, lower household property investment has been offset by higher corporate investment, especially among state-owned enterprises, and by government spending.6 This has coincided with a substantial rise in corporate and government debt, both reaching all-time highs.

The global economy faces a widening disparity - and high uncertainty.
A diagram at the top shows a spectrum of four growth scenarios, from “Stronger growth” on the left to “Weaker growth” on the right. Below this, a table is organized into three columns for the United States, the eurozone, and China, with arrows indicating which scenario each economy’s recent pathway most resembles. The table’s rows list key economic indicators, such as productivity growth, inflation, and equity levels, showing that the United States is on a path of either productivity acceleration or sustained inflation, while the eurozone is on a path toward a return to a past era of secular stagnation, and China is on a path of either a return to a past era or a balance sheet reset.

While the United States is the only major economy showing signs of productivity acceleration, it is not guaranteed long term, and other economies have a potential path to it. Focusing on “swing factors” could help filter signal from noise in the daily flow of indicators, market fluctuations, and political headlines. These factors differ by economy.

In the United States, swing factors that could knock the economy out of productivity acceleration include the “fiscal tightrope” and corporate earnings.

  • Government debt stands at about 120 percent of GDP. Combined with higher interest rates, this means more public spending will need to be directed toward debt repayment. Public spending could come under pressure, especially from bond investors, in the form of higher market interest rates. These translate into higher business costs of capital. If fiscal policy tightens too little, a public debt crisis or sustained inflation becomes more likely.7 Too much, and secular stagnation is a potential outcome.8 To bring budgets back into balance, greater fiscal saving (or lower borrowing) on the order of three percentage points of GDP would be needed.9
  • On the corporate-earnings side, an equity or wealth reset could be triggered by a large structural shift in the longer-term outlook—for example, from AI disappointment or large geopolitical disruption. Equities are at all-time highs, at 3.7 times GDP and 2.4 times net assets, and constitute nearly 40 percent of household wealth.10 A price correction could result in a sharp pullback in demand, ushering in an extended period of low growth. It is thus imperative that corporate earnings deliver on high expectations.

In the eurozone, the most critical swing factor for productivity acceleration would be an uptick in productive investment. Europe has a $700 billion corporate-investment gap with the United States (equivalent to about three percentage points of GDP).11 Promoting greater investment would require competitiveness reforms, which would foster greater productivity growth.12 Without greater investment, secular stagnation trends could continue, with the added risk of energy prices driving higher overall inflation.

Acknowledgments

The research was led by Rebecca J. Anderson, a McKinsey Global Institute (MGI) senior fellow in McKinsey’s Washington, DC, office; Jan Mischke, an MGI partner based in the Zurich office; Arvind Govindarajan, an MGI partner in the Boston office; Sylvain Johansson, a director of MGI and senior partner in the Geneva office; Nick Leung, a director of MGI and senior partner in the Hong Kong office; Shubham Singhal, MGI chairman and a senior partner in the Detroit office; and Carlo Tanghetti, an MGI fellow in the London office.

Many McKinsey colleagues and alumni also participated in this research. Carlo Tanghetti led the working team. Team members were Amanda Langanke and Erik Rong. Former McKinsey colleague Olivia White also helped shape this research.

We would also like to thank Rachel Robinson, MGI editorial director; Rishabh Chaturvedi, MGI assistant managing editor; Nienke Beuwer, Suzanne Albert, and Rebeca Robboy in MGI external communications; and David Batcheck, MGI social media editor.

The article was edited by MGI senior editor Brian Blackstone. Chuck Burke provided expert support with data visualization.

We are also grateful to academic adviser Hans-Helmut Kotz, a resident fellow at the Minda de Gunzburg Center for European Studies at Harvard University and a senior fellow of the Leibniz Institute for Financial Research SAFE.

We thank our McKinsey colleague Philipp Koch for his insights and guidance.

As with all MGI research, this work is independent and has not been commissioned or sponsored in any way by any business, government, or other institution. We seek to provide business and policy leaders with the facts and insights needed to better understand the forces shaping the global economy. Any errors are our own.

In China, higher domestic demand could help unlock a productivity acceleration pathway. China has supply-side strengths. But debt-financed government and corporate spending cannot last forever, and there is a limit to how far the contribution of net exports to growth can go, in part reflecting limits to the ability of trading partners to absorb China’s exports. A pivot to domestic consumption may be the only way to sustainably grow and escape long-term stagnation. Compensating for declining household property investment would require domestic demand to rise by more than six percentage points of GDP.13 Reforms to raise consumption, such as improving the safety net of health care and pension systems, could also encourage private firm investment.14

Major swing factors can move an economy from one scenario to another.
A diagram at the top shows a spectrum of four growth scenarios, similar to the previous exhibit. Below this, a table is organized into three columns for the United States, the eurozone, and China. The table highlights one key “swing factor” for each economy that could move it toward the most favorable “Productivity acceleration” scenario. For the United States, this is greater saving; for the Eurozone, more investment; and for China, higher household consumption. Subsequent rows list what to watch for and key questions for business leaders related to these factors.
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