Bad news for growth: the baby-boomer super-cycle is over
In the economic super-cycle of the last several decades, growth has been fairly smooth. But no more. The changing needs of the baby boomers will mean very low growth for a very long time.
We've written before about the way demographic changes will affect Western stock markets. Take the 'baby boomers'. The key to their influence is just how many of them there are some two-thirds of people who have ever reached the age of 65 are still alive today.
By 2020, barring a sudden and extreme baby boom, around 33% of the population of the west will be over 55. This is the largest generation and the richest generation ever.
That matters to markets simply because as they age and retire, the baby boomers will not buy stocks, but will sell stocks (see our cover story of a few weeks ago). They've been saving for their retirements. Now they will withdraw from any remotely risky assets and live off those savings, something that could keep a long-term lid on valuations.
However, their ageing isn't just about stock markets: it will also affect demand for everything across all markets. As a new chapter from an online book by ICIS Chemical Business points out, it is also going to affect demand as a whole.
The over-55s spend less than all other age groups. They mostly don't need new houses or new cars. And even if they do, they are painfully aware that they are going to live longer than any generation before them, and that the performance of stock markets over the last decade has left them with less money to play with than they had hoped.
Given this, it makes sense to expect much lower demand growth in the West from here on in, and it doesn't make sense to be surprised by the fact that despite extreme stimulus, economic recovery in the West has been pretty elusive.
During what we might call the boomer-led economic super-cycle of the last several decades, growth has been relatively smooth. However, the shifting needs of the same boomers now suggest that it won't be any more: we "must plan for a world where regular and deep recessions" are likely to become a feature of the global economy and where average growth rates are very low indeed.
Add that to the many years of deleveraging ahead of us and it should be more clear than ever that, as even Ben Bernanke admits, we can't "grow our way out of fiscal imbalances."
For more on why we might not be able to grow any more, see my previous note on the subject, written in June.