The demographic timebomb

The rising ratio of middle-aged savers to young spenders spells trouble for markets.

Many forecasters rightly pointed out at the beginning of the financial crisis that the recovery would be very slow by historical standards as it would take years to work off the huge debt accumulated during the bubble.

Another future headwind for the world economy one that will outlast the hangover from the credit crunch is that populations are ageing.

This implies not only fewer workers producing less national income, but also heralds an era of increased volatility, says Andy Mukherjee on Breakingviews. The ratio of middle-aged people 45- to 54-year-olds to those in their 20s is rising worldwide, from 0.65 in 2010 to 0.85 in 2025.

The middle-aged save more, so as the ratio goes up, the economy's ability to withstand deflationary shocks dwindles; more and more people will be saving rather than spending.

Moreover, young people's spending normally spurs investment, soaking up the savings of the middle-aged. But as the young group shrinks, its spending potential becomes too small to encourage much investment.

So, savings chase a limited set of investment opportunities, implying more asset bubbles in future. Markets "are in for a rocky ride over the next two decades".

Recommended

Stockmarkets shrug off turbulence
Stockmarkets

Stockmarkets shrug off turbulence

Stockmarkets have hit their first bout of turbulence of the year, but most are clinging onto January’s gains.
4 Feb 2021
US inflation is rising – but it’s not enough to rattle markets yet
Inflation

US inflation is rising – but it’s not enough to rattle markets yet

The latest US inflation figures showed that consumer prices are rising more rapidly than expected. But markets shrugged. John Stepek asks why, and wha…
14 Apr 2021
What’s in Biden’s global corporation tax proposals?
Global Economy

What’s in Biden’s global corporation tax proposals?

US president Joe Biden’s administration recently proposed a universal model for taxing global companies. Saloni Sardana looks at what's involved.
13 Apr 2021
Why all eyes will be on US inflation data this week
Inflation

Why all eyes will be on US inflation data this week

As the world comes out of lockdown and demand for goods and services rises, attention will shift to inflation and what it means for interest rates. Th…
12 Apr 2021

Most Popular

The bitcoin bubble will burst: here’s how to play it
Bitcoin

The bitcoin bubble will burst: here’s how to play it

The cryptocurrency’s price has soared far beyond its fundamentals, says Matthew Partridge. Here, he looks at how to short bitcoin.
12 Apr 2021
Four investment trusts for income investors to buy now
Investment trusts

Four investment trusts for income investors to buy now

Some high-yielding listed lending funds have come through the crisis with flying colours. David Stevenson picks four of the best.
12 Apr 2021
Central banks are rushing to build digital currencies. What are they, and what do they mean for you?
Bitcoin

Central banks are rushing to build digital currencies. What are they, and what do they mean for you?

As bitcoin continues to soar in value, many of the world’s central banks are looking to emulate it by issuing their own digital currencies. But centra…
8 Apr 2021