I firmly believe major demographics shifts are going to have massive social, political, economic, financial market and commercial impacts in the coming decades. The balance of savers and borrowers, investors, producers and consumers will change with complex effects.
For example:
📊 Having fewer children has a temporary impact to boost productivity as resources aren’t spent on child rearing and more time is available for labour force participation. (This will have contributed to China’s decades-long GDP growth.)
👥 Longer term, fewer children results in a reduction in the working age population. This can result in higher unit labour costs. (Mismatch of education and skills to available jobs can still cause unemployment, as it does in China.)
💹 Relatively large retiring populations and retired populations can skew capital markets and interest rates as they sell assets to consume. With fewer new savers and investors available, these asset prices will likely decrease. Production constraints through lower working age populations will increase the cost of goods and services, requiring further sales of assets. The impact on bonds and interest rates is more complex given the move from equities to bonds before selling even bonds. At some periods, interest rates may decline as consumption slows while there is still plenty of capital. In time, interest rates will likely rise as surplus capital decreases.
🏘️ Population declines may decrease housing demand overall. However, not all housing is created equal, and pockets of demand outstripping supply will continue for much longer than the total measures suggest.
🏗️ Large property supply overhangs (not only China, but yes China) can decimate confidence and savings if prices collapse.
📉 Decreasing populations make it much more difficult to grow nominal GDP, putting upwards pressure on Debt/GDP ratios. Inflation can do wonders here, so expect more inflation. Or defaults. Or both. And knock on impacts on interest rates and spreads.
🌍 Xenophobia, meet necessary global population migration. And this before we’ve introduced climate-forced migrations to the analysis. Countries with ageing populations (most countries) need young immigrants, but with that comes cultural clashes.
🌱 Reduction in resource and energy utilisation may have some offsetting impact on our planet and climate change
There’s much more to this story. But sometimes insurance execs want to know what the clear product demand change will be.
One answer could be pet insurance.
China is set to have more pets than children soon. Goldman Sachs says by 2030 there might be double the number of pets as children. Pet Insurance and Pet Food might be two big growth areas to pay attention to amongst the fundamental revision of society as we know it.
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