There's an interesting article on
Bloomberg drawing on recent work from HSBC on how aging populations in different countries are likely to be a drag on their growth. Japan is, of course, today's most prominent example of the difficulties encouraging growth against a backdrop of demographic disaster. However, the situation of Japan will hardly be unique over the coming decades as the forces of depopulation replicate themselves all over the world. Worryingly, it is not only developed but also developing countries which will likely experience this phenomenon:
From such advanced economies as the U.S. and Japan to developing countries, such as China and India, the change in the shape of population pyramids is poised to crimp productivity growth over the next decade, HSBC contends. "The population structure in many economies does not lend itself to an increase in productivity, with a higher share of older (or younger), less productive workers," wrote the economist. "The change is huge, suggesting that the make-up of these populations will be less conducive to productivity growth in the future than it has been in the past."
Pomeroy adds that along with peak productivity, the 45- to 54-year-old age bracket also boasts the highest consumer spending in the U.S. People aging out of this category present another channel by which the graying process will drag on growth. And health care, a segment that will be in high demand among the elderly, is a sector with notoriously poor productivity growth.
Another thing is that investment growth tends to track labor force growth. With labor forces the world over shrinking--Japan being today's case in point--the trends look worrisome.
Investment growth, meanwhile, tends to track the growth of the labor force rather closely:
It would likely take a breakdown in this historical relationship—in which capital supplanted rather than complemented labor—to allow for the possibility that productivity growth could offset the deleterious effect of lower hours worked on GDP.
"Unless something changes and we see more investment from either public or private sources, the rest of the developed world may succumb to a similar fate to Europe today, where the dearth of investment is hampering output growth," concludes Pomeroy.
