Wealth vs. GDP

Understanding the true financial health of an economy requires a more nuanced approach than simply examining GDP figures. GDP is often used as a standard measure of economic performance, but it does not fully capture the dynamics of wealth creation and accumulation or the financial health of an economy. Private wealth provides a far more accurate reflection of economic strength, taking into account asset ownership, investment flows, and the movement of high-net-worth individuals. Unlike GDP, which can be distorted by government spending and other factors, private wealth offers a clearer picture of financial stability and prosperity.

Why wealth?

We consider wealth to be a far better measure of the financial health of an economy than GDP. The reasons for this include:

• In many countries, a large portion of GDP flows to government and therefore has little to no impact on private wealth creation.
• GDP counts items multiple times. For instance, if someone is paid USD 100 for a product or a service and they then pay someone else that same USD 100 for another product or service, USD 200 will be added to the country’s GDP, despite the fact that only USD 100 was produced at the start.
• GDP largely overlooks the impact of property and stock market moves, yet these two factors clearly have a significant impact on wealth creation.
• GDP is a relatively static measure that tends to move only slightly year on year. It also has a time lag.

Wealth figures, on the other hand, have none of these limitations, making them a far more accurate gauge of the true financial health of an economy than its GDP figures.

Key drivers of wealth

It is worth noting that most industries boost GDP, but very few boost wealth. Generally, only industries that bring new money (forex) into a country help to build its wealth. The inward migration of wealthy people also helps to drive a country’s wealth, along with improving safety and security and offering competitive tax rates.

Key industries for creating new wealth include:

• Export sectors such as tech and manufacturing. Fast-growing emerging markets such as China and India have seen impressive growth in these sectors over the past decade. The tech sector is especially important as it accounts for over 20% of global centi-millionaires as at year-end 2024.
• Foreign investment in the local equity and property market. For example, foreign investment in the NYSE has heavily boosted wealth held in USA, while expat real estate acquisition in Dubai has boosted wealth held in the UAE.
• Offshore banking. The likes of Mauritius, Singapore, and Switzerland have sizeable offshore banking industries which is a major source of foreign exchange (forex) revenue for these countries.
• Hotels and safari lodges. Luxury hotels are a significant source of forex in luxury tourism hotspots such as Florida, France, Greece, and Italy, while the luxury safari sector is one of the biggest sources of forex revenue in Africa.
• Movies and TV. The global film industry generates tens of billions in forex revenue every year. This is especially relevant to the USA and the UK, which have successfully exported their films and TV series for almost a century. More recently, countries such as Australia, China, and India have also seen tremendous growth in this sector. According to New World Wealth’s latest figures for December 2024, 480 centi-millionaires and 35 billionaires have been created by the global film industry. This includes producers and actors as well as the executives and founders of major production companies and streaming services.

Other key drivers of long-term wealth growth:

• Millionaire migration. The migration of wealthy individuals to a country helps to build its wealth, while wealth migration away from a country does the opposite. Please see our related article on why millionaire migration matters.
• Strong safety and security. The safety levels in a country and the efficiency of the local police are probably the most critical factors in encouraging long-term wealth growth over a 50+ year period.
• Competitive tax rates. With their very low tax rates, the UAE, Monaco, Mauritius, Cayman Islands, Bermuda, and Singapore are examples of the power that tax incentives can have in encouraging wealth creation.
• Well-developed banking system and stock market. This ensures that individuals invest and grow their wealth locally.
• Media freedom. It is key that major news outlets in a country are neutral and objective. A well-developed financial media is especially important as it helps to disseminate information to investors.

Assessing economic strength through the lens of private wealth rather than GDP provides a more precise understanding of long-term prosperity. Key factors such as millionaire migration, competitive tax rates, and robust financial markets play a critical role in shaping a country’s wealth landscape. These insights are central to our research, ensuring that our wealth reports offer a comprehensive and forward-looking analysis for investors, policymakers, and global citizens navigating the shifting dynamics of wealth creation and mobility.