GS catching up on our conversations on demographics |

GS catching up on our conversations on demographics

We’ve often discussed demographics as a critical long (very long) term indicator – and, by the way, the message ain’t good. Goldman is finally catching up on the conversation. The main idea is that by looking at demographics, both on a national and world level, we can anticipate major trends in spending, real estate, and price pressures. For years, the developed world has known that it is facing a declining demographic profile brought on declining fertility rates and just the sheer size of the baby boomer generation. The emerging markets, meanwhile (except for China), maintained a younger average age, higher fertility rates, etc. Additionally, the savings profile in the emerging markets has helped sustain the overspending of baby boomers – and that was at the time when baby boomers were in a position to save on their own if they so chose, which they didn’t.

And now, the baby boomers are entering a phase of declining savings, and are facing structural challenges that will need to be financed. Goldman starts to analyze them. Here are the main highlights:

Demographics are a major determinant of long-term current account trends.

Countries with a high proportion of ‘prime savers’ (those aged between 35 and 69) are more likely to run current account surpluses.

We show how demographic shifts have influenced global current account trends in the past 30 years, and what they imply for the next 20 years and beyond.

We have seen some rebalancing from the extremes in 2008 but the process is not yet complete.

Demographic shifts point to a cleaner split between emerging markets (mostly in surplus) and developed markets (mostly in deficit) in the future than is evident in the current, more complicated picture.

Emerging markets (EM) could continue to lend to developed markets (DM) on average.

Demographic forces may help keep global real rates low.

The development of EM capital markets may be important in offsetting demographic pressures for capital flows from the EM to the DM world.

For the full article, click here.

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