How aging populations are affecting global growth

By Sarah Cunningham-Scharf | May 10, 2016 | Last updated on May 10, 2016
2 min read

Global growth has decelerated in the post-recession era, and changing demographics are a key factor, notes Benjamin Tal, deputy chief economist at CIBC Capital Markets.

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He adds the main question facing markets today is: to what extent is the global economy a different economy? “I think it’s an economy that’s experiencing reduced speed limits […] for many reasons.”

For example, the Japanese economy has been struggling with inflation and deflation for the last 20 years. “Japan’s GDP growth has been consistently slow, despite the government attempting to stimulate the economy and create inflation.”

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Why? Japan is facing a major demographic crisis. “They don’t have any immigration and the population is getting older. So you have a significant reduction in the ability of the economy to grow and generate momentum.” As a result, the country has turned to negative interest rates.

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Tal notes many other economies are facing similar demographic dilemmas. While Canada and the U.S. aren’t in as much trouble yet, he says, “The demographic trend is peaking with baby boomers aging. You have a situation in which the potential growth of the economy used to be 4% [and] is now maybe 2.5%. That’s because of the inability of the labour force to rise.”

Factors like increased immigration and people keeping their jobs longer does help, he says, but “you will see more people retiring and, therefore, the potential growth of the economy will slow down.”

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Some other factors that are influencing the slowing of the North American economy are the market’s sensitivity to higher interest rates, and the limited ability of the U.S. and Canadian economies “to grow vis-à-vis credit” due to liquidations.

Also, one of the results of changing demographic trends is youth underemployment. “People aged 20 to 25 are basically stuck. Until you see baby boomers retiring, you will have a lost generation; that’s something we are already witnessing, with a significant rise in youth unemployment, or at least underemployment.”

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As a result, Tal suggests investment strategies will have to shift. “You will see investment going down and productivity softening. We need to adjust to this type of environment.”


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Sarah Cunningham-Scharf