Macro

The Demographic Challenge

We have often reflected upon the startling changes the ageing population will have upon the world...
January 2019

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Past performance should not be seen as an indication of future performance. Stock market and currency movements mean the value of, and income from, investments in the strategy are not guaranteed. They can go down as well as up and you may not get back the amount you invest.

 

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.

We have often reflected upon the startling changes the ageing population will have upon the world – and particularly the developed world as that is where the issue is most acute. Simply stated, the declining share of the total population “in work” will lower economic growth at a time when the budgetary demands on governments and retirement systems are under most stress.

In a recent publication the IMF projected that by 2035 the number of people in low-income countries reaching working-age (15-64) will exceed that of the rest of the world combined. That startling statistic is depicted in the graph below.

Risk Disclaimer

Past performance should not be seen as an indication of future performance. Stock market and currency movements mean the value of, and income from, investments in the strategy are not guaranteed. They can go down as well as up and you may not get back the amount you invest.

 

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.

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The implication is that the strongest growth will be in the low-income countries (no surprise there) whilst the developed world will struggle along with productivity growth and not much else. Take a look at China on the chart – it suffers from an even greater demographic challenge over the next 30 years than the developed world. It has finally removed the one-child-per-family policy but indications are that Chinese couples have simply lost their appetite for large families. This is no different from the trend we see throughout the world.

Ageing populations are expensive. They consume rather than contribute. They make demands that society finds it difficult to fund and manage. It is a challenge that we know about well in advance but little is being done to prepare – politicians will always leave these and similar long-term challenges to the next in line whilst many in society choose to simply ignore the financial challenges of their retirement years.

The IMF comments that the low-income countries face pressure to accommodate the rapid increase in the working-age population. In a sense it is a high-class problem but being realistic the IMF states that: “Creating enough jobs to absorb the new entrants will be vital for welfare and social and political stability. In this regard, economic diversification into labour-intensive activities outside agriculture, and away from excessive dependence on commodities for resource-intensive exporters, is critical…improving education standards will be essential to ensure that the growing pool of workers has the necessary skills.”

So whichever lens you look through there are difficulties ahead – funding the ageing population in a low-growth developed world and finding sufficient jobs for those in the low-income world. It wasn’t meant to be easy.

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