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The end of constant economic growth

Economic growth
By Paul Hodges on 15-Oct-2013

Youtube Oct13You can’t turn 55-year-olds back into 30-year-olds.  That, in a nutshell, is why today’s globally ageing populations are creating major changes in demand patterns.

Household consumption is more than 60% of GDP in all developed countries, and also the key driver for future growth in emerging economies.  So the rise of the New Old 55+ generation, alongside the dramatic drop in the number of babies being born, is creating an unprecedented paradigm shift in the global economy.

The key starting point is the way global life expectancy has increased by 50% over the past 50 years, whilst global fertility rates have halved.   The average person can now expect to live to 70 instead of 47, whilst each woman has just 2.5 babies.  Dramatic change is thus underway in demand patterns as a result:

  • The post-War Western BabyBoomers were the largest and wealthiest generation in history
  • They drove a 25-year economic SuperCycle between 1983-2007 as they entered their Wealth Creator years
  • They are now entering their low-spending and low-earning years as they retire and join the New Old generation
  • Today’s Western Wealth Creators aged between 25 – 54 years are a much smaller generation.  Their spending power therefore can’t compensate for the decline in New Old consumption
  • The future Wealth Creators being born today are an even smaller generation in the West and in the emerging economies, where women are also now choosing to have fewer babies

Is your company now finalising its budget for 2014-16?  Has it factored this paradigm shift into its thinking?  Or is it still working with forecasts of a return to constant growth based on hope rather than experience?

In 5 and 10 years time, people will likely look back in amazement at the idea one could forecast demand by relation to IMF forecasts of GDP.  They will believe it is just common sense to instead focus on age range and income levels.

Companies that don’t focus on this paradigm shift will face tough times, as they wait for a recovery that never comes.

The blog’s new article for ICIS Chemical Business highlights the opportunities and risks ahead.

Please, take a moment to download it and circulate it to your colleagues.  Debating these issues may well be the most important thing your company does all year.

Click here to download the new article, The End of Constant Growth
Click here to view the ICIS interview with Paul Hodges