Demographics mean growth has slowed

Median age, West.pngWestern politicians have failed to take responsibility for managing the Crisis. And so, as the blog noted last week, policy is instead being made by unelected central bankers – principally Ben Bernanke at the US Federal Reserve, and Mario Draghi at the European Central Bank.

They are clearly well-meaning, and in normal times might do little harm. The problem, however, is that their analysis ignores one super-critical issue, the ageing of the Western population. 272m of them, 29%, are now in the New Old 55+ age group. This means that GDP growth will be much slower, just as in Japan over the past decade:

• The kids have grown up and left home, so people don’t need to keep buying bigger houses or new cars
• They have to save more to finance their extra decade of life expectancy

Growth might not be quite so slow, if companies woke up to the opportunity staring them in the face. But they persist in targeting the youth market, which has gone ex-growth. And they instead assume the New Old need only walking frames and sanitary equipment.

The chart shows the key dimensions of the issue by country:

• The green circle is the relative size of their economy versus the US
• The vertical axis shows GDP/capita in each country
• The horizontal axis shows the median age

Almost all can be described as ‘Rich but Ageing’. Their GDP/capita is relatively high, often ~$40k. But most now have a median age around 40 years, with Japan and Germany near 45 years.

Politicians and company Boards need to wake up this changed demographic reality, as we note in ‘Boom, Gloom and the New Normal’. Yesterday’s policies are useless in today’s environment.

About Paul Hodges

Paul Hodges is Chairman of International eChem, trusted commercial advisers to the global chemical industry. The aim of this blog is to share ideas about the influences that may shape the chemical industry over the next 12 – 18 months. It will try to look behind today’s headlines, to understand what may happen next in important issues such oil prices, economic growth and the environment. We may also have some fun, investigating a few of the more offbeat events that take place from time to time. Please do join me and share your thoughts. Between us, we will hopefully develop useful insights into the key factors that will drive the industry's future performance.

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