While the world economy languishes, paintings and sculpture continue to command dizzying prices. Georgina Adam explains how competitive billionaires, new wealth and the fashions of the super-rich keep values sky high.

Imagine Las Vegas casino owner Steve Wynn’s horror when, seven years ago, he accidentally put his elbow through Picasso’s painting Le Rêve (The Dream), just as he was about to sell it for an eye-popping $139m.

The painting is one of a series of sensuous portraits of the artist’s young mistress Marie-Thérèse Walter, painted in 1932 during their torrid affair. Such works are among the most desirable by Picasso and the price would have set a new high for the artist – but with the painting punctured, the buyer, billionaire hedge fund mogul Steve Cohen, called off the deal.

Now, after a skillful repair, the sale has finally gone through, but this time for $150m, setting a new record for Picasso as well as being the highest price any American collector has ever paid for a work of art. This was a private sale, and at auction records are also being shattered: last year in New York, Edvard Munch’s The Scream made almost $120m.

While much of the world is mired in economic gloom, the art market – which regularly sees multi-million prices set for paintings and sculpture – seems to be living in a parallel universe. Le Rêve just one example of how values are spiralling upwards, driven by new money, newly emerged economies, speculation and a fashion for art that overlaps with lifestyle choices and the luxury goods industry.

The seemingly gravity-defying art market also reflects the nature of wealth today. The sheer amount of money in private hands allows billionaires – and there are, at the last count according to Forbes, 1,426 of them spread throughout the world – to indulge in a highly competitive sport to bag the best artworks. And after all, if you can spend nearly $1bn on a yacht, as the Russian billionaire Roman Abramovich is supposed to have spent on his floating palace Eclipse, another few millions for a trophy picture is not that much.

And while you can build another yacht, you can’t get a top Manet, Cézanne or Raphael made for you – you have to vie with other collectors when one appears on the market.

A changing picture

This is a market which has, over the last 25 years, seen a massive growth in size. According to art economist Dr Clare McAndrew, in a report published in 2012, about $27.2bn worth of art was sold through dealers and auction houses in 1990. By 2007, at the peak of the last boom, this figure had almost tripled, to $65.8bn. In 2012, according to her latest findings, it was still worth a stunning $56bn, despite shrinking slightly compared to the previous year.

As well as expanding, the business of selling art has been profoundly modified by the arrival of new economies. This is now a global market, no longer dominated by the US and Europe and by American and European artists. Just two years ago, in the grip of sometimes extravagant spending on art in mainland China – and probably aided by some optimistic reporting – China leapfrogged into the top position, with the highest total in this field. While it has now fallen back to the number two slot, China and Hong Kong still represent 25% of art sales, with only the US ahead, with 33%.

Works of art have been sold in China at levels that used to be reserved for the top Western names. For instance an 11th century calligraphy scroll by Huang Tingjian sold recently for a stunning $63.8m in Beijing.