Multi-Asset

Pyrford Perspectives: ageing economies

The team at Pyrford investigate the disappointing levels of productivity growth around the world.
August 2019

Risk warnings

The value of investments and any income derived from them can go down as well as up as a result of market or currency movements and investors may not get back the original amount invested.

Views and opinions have been arrived at by BMO Global Asset Management and should not be considered to be a recommendation or solicitation to buy or sell any companies that may be mentioned.

The information, opinions, estimates or forecasts contained in this document were obtained from sources reasonably believed to be reliable and are subject to change at any time.

In its latest World Economic Outlook update, the IMF marginally lowered its global growth forecast for the current year, and in the now-familiar language stated that:

“Risks to the forecast are mainly to the downside. They include further trade and technology tensions that dent sentiment and slow investment; a protracted increase in risk aversion that exposes the financial vulnerabilities continuing to accumulate after years of low interest rates; and mounting disinflationary pressures that increase debt service difficulties, constrain monetary policy space to counter downturns, and make adverse shocks more persistent than normal.”

In plain language:

  • The world has too much debt;
  • trade wars are destabilising and anti-growth;
  • monetary policy has run its course; and
  • productivity growth remains comfortably below historic norms.

We think there is another factor at play: the demographic outlook is bleak indeed relative to the post-WW2 “boom years”. This is backed-up by the United Nations’ release of its latest forward-looking global demographic database.

Risk warnings

The value of investments and any income derived from them can go down as well as up as a result of market or currency movements and investors may not get back the original amount invested.

Views and opinions have been arrived at by BMO Global Asset Management and should not be considered to be a recommendation or solicitation to buy or sell any companies that may be mentioned.

The information, opinions, estimates or forecasts contained in this document were obtained from sources reasonably believed to be reliable and are subject to change at any time.

Around US$13 trillion of government bonds now trade at negative yields. Many of these are in Europe, which tells a compelling story about growth prospects in that ageing part of the world. In his final months in office as president of the European Central Bank (ECB), Mario Draghi seems determined to unleash additional stimulus in the eurozone – perhaps further quantitative easing or even a more negative ECB deposit rate. What a sad story when an economy the size of the eurozone requires its central bank to purchase over two trillion euros of government debt and corporate bonds (so far) and sets its key interest rate below zero. And does it provide a tangible and enduring benefit? History will be the judge of that, but we remain healthily sceptical.

Amongst the plethora of statistics churned out by the UN publication referred to above, one of the most interesting is its forecast of countries that will experience declining populations over the next several decades. This amplifies the growth challenge facing Europe as many are in that part of the world. Here is a selection of those facing declines of more than 10% over the next 30 years: Lithuania, Bulgaria, Latvia, Ukraine, Serbia, Croatia, Romania, Albania, Greece, Hungary, Poland, Portugal and Italy. Many, as can be seen, were part of the old Soviet bloc. Outside of Europe, the most significant “biggie” facing a decline of more than 10% is Japan.

Declines in population of between 2% and 10% over the same period include Slovakia, South Korea, Russia, Slovenia, Spain, Taiwan, Thailand, Germany and China. Added up, that’s a chunky percentage of the world’s population that will have to run very hard to stand still.

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