IMF New Study Highlights Critical Role Of Demographics

By John Richardson

NEW040715A-CIT is fantastic news that the International Monetary Fund (IMF) has highlighted ageing populations as a major drag on global growth in its latest World Economic Outlook update.

The IMF warns that employment growth will decline in both advanced and emerging economies compared to the rates seen before the global financial crisis. This is  the result of demographic factors affecting both the growth of both working populations and labour-force participation rates, says  the report.

This backs up the arguments that we make on our book, Boom, Gloom & The New Normal.

Interestingly, the IMF also talked about another major drag on global growth – declining productivity.

“Productivity growth is not expected to pick up under current policies. In emerging market economies, past technological improvements and enhanced educational attainment have allowed these economies to narrow the gap between themselves and advanced economies,” adds the study.

“Although more strong growth can still be achieved from further improvements in these areas, the returns to education and innovation are unlikely to be as large as they were initially, when these economies were further from the technological frontier. This suggests weaker productivity growth in these economies in the future,” writes the IMF.

“For their part, advanced economies should see productivity growth near recent rates in coming years. Still, the rapid pace of expansion seen in the late 1990s and early 2000s—fueled by the exceptional information-communication-technology boom—is unlikely to be restored.”

I strongly suspect that ageing populations is already a factor behind this decline in productivity growth. We need an explosion of  innovation to create the goods and services that don’t even exist yet that will meet the needs ageing populations. Walk down any High Streets, anywhere in the world,  and how many manufactured goods do you see on display that serve the needs of older people?

But even if there are other reasons behind  weaker productivity growth to date, this explosion of innovation simply has to happen because of how our spending patterns evolve as we grow older. All the research shows that we have both less money to spend as we age – and want to spend our more limited resources in different ways.

And there is, of course, the drag on overall growth, highlighted by the IMF, which results from fewer working people supported ever-higher numbers of retired, non-working people.

Consider these key facts about China and demographics, from Euromonitor:

  • The One Child Policy has resulted in a 4:2:1 family structure. One child may need to care for 2 parents and 4 grand parents.
  • China is ageing rapidly before it has reached developed economy status. The median age will hit 47.1 by 2030 compared to 39.9 in the US.
  • The working age population (aged 15-64 years) will shrink by 10.8% in 2014-2030. This is equivalent to 107 million fewer people. That’s more than the entire population of the Philippines.
  • India will overtake China as the world’s largest population by 2025.

What worries me is that whilst the IMF report is a step in the right direction, there is still far too little recognition about the role that demographics is set to play in shaping both the quantity and nature of economic growth.

And as the quantity and nature of economic growth  changes, this ovbiously has huge implications for the chemicals industry. Producers who make the wrong amount of chemicals  in the wrong places, and also the wrong types of chemicals, will be in a lot of trouble.

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