Economic possibilities in demographics

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The blog’s latest post for the Financial Times FT Data blog is published today.

April 19, 2013 4.59 pm by Financial Times

FT G20 19Apr13.pngGuest post by Paul Hodges

The G20 group represents 79 per cent of global GDP.But when it comes to demographics, you can split its membership into threequite distinct groups.

The chart shows each country in terms of GDP per capitaand median population age, with its economy’s size depicted by the bubble:

·        Rich but old. These are wealthy western countries, with GDP percapita around $40,000 and median population age of 40 years

·        Poor but young. These are emerging economies, with GDP per capitaaround $10,000 and median population ages of 25 to 30 years

·        Poor and ageing. This group contains just China and Russia, whohave GDP per capita around $10,000 but median population ages approaching 40years

The first group is dominated by its ageing babyboomer population. Historically the over-55s have largely been ignored as asource of demand, but today this generation offers a major new growthopportunity. They will be over a third of the group’s total population by 2030,more than double the percentage in 1950.

The “poor but young” group has a differentopportunity. Its populations have successfully escaped from poverty in recentdecades, but now need to be supported as they seek to progress up the incomeladder towards Western living standards. Sustained growth could therefore come fromdeveloping new products and services to meet the emerging needs of thisgeneration, whose incomes currently still average less than $20 a day($7,300/year).

The final group has a more complex challenge ahead.China’s one-child policy since 1978 means its population risks growing oldbefore it gets rich. Russia’s population is also ageing fast, due to itsfertility rates having halved since 1950 whilst life expectancy has hardlychanged. Growth prospects in both countries therefore depend on their abilityto support demand growth within on their own new poor generations, and moveaway from their current export-dependency.

The chart shows the urgent need to shift theeconomic debate away from the current “one size fits all” argument betweenadvocates of stimulus or austerity. A more nuanced approach is insteadrequired, as demographics are now taking demand patternsin completely new directions.

Sustaining future growth thus depends on the G20’sability to successfully develop and implement new policies, focused on theopportunities offered by the emergence of the New Old and New Poor as major newdemand sources for the first time in history.

Paul Hodges is the co-author of Boom, Gloom and the New Normal: How theWestern Baby Boomers are Changing Demand Patterns, Again www.new-normal.com

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