Demographics: A Different Perspective

Transcription

1 Demographics: A Different Perspective WHAT IT CONNECTS TO & INFLUENCES D: Discount rates, Debt E: Economic Growth, Efficiency, Structure M: Mortality O: Organisation Behaviour, Structure G: Geography, Geopolitics, Governance R: Robotics, Real Estate A: Asset Prices, Asset Allocation P: People, Pensions, Politics H: Heterogeneity, Households I: Inflation, Inequality, Institutions C: Consumers, Culture, Cities S: Sustainability All UN data used for this presentation comes from 2017 UN population Revision. Beyond 2015 the data include UN projections. WHO DOES IT PERTAIN TO? All the People in the world and their characteristics. From an economic perspective, we restrict attention to them as consumers and workers in the world. It affects all Income Statements & Balance sheets in the world for Individuals Households Corporates Nations EMPRES

2 All population numbers in millions Super-old (80+) Age Group Fastest Growing World Population: 1970 versus Growth 394% 186% Share of 80+ Population 1970 (%) 2015 (%) UK % US 2 4 Germany Japan % France 2 6 Italy Total Population % Source: UN, CS, SSGA Demographics EMPRES

3 Population aged 65+ per 100 population15 64 yrs. Years Children per woman % change per annum Core Demographics: World, Less & More Developed Total Fertility Rate 5.0 Population growth annual average World More developed regions Old Age Dependency Ratio 40.0 Less developed regions 0.0 World More developed regions Life Expectancy at Birth Less developed regions Source: UN, SSGA Demographics World More developed regions Less developed regions 0.0 World More developed regions Less developed regions EMPRES

4 Population aged 65+ per 100 population15 64 yrs. % p.a. Children per woman Core Demographics: G6 Developed Countries Annual Population Growth Japan UK Italy France Germany US Life Expectancy at Birth (Years) Fertility Rate (Children per Woman) Japan UK Italy France Germany US Old Age Dependency Ratio Japan UK Italy France Germany US Source: UN, SSGA Demographics Japan UK Italy France Germany US EMPRES

5 Population aged 65+ per 100 population15 64 yrs. % p.a. Core Demographics: EMG6 Emerging Countries EMG6 Annual Population Growth EMG6 Fertility Rate (Children per Woman) China India Turkey Russia Mexico Brazil China India Turkey Russia Mexico Brazil EMG6 Life Expectancy at Birth (Years) EMG6 Old-Age Dependency Ratio China India Turkey Russia Mexico Brazil 5.00 China India Turkey Russia Mexico Brazil Source: UN, SSGA Demographics EMPRES

6 The Demographic Manifesto (2000) Radical Policy Actions to mitigate the Ageing Time Bomb Abolish Mandatory retirement ages. Adopt Flexible retirement. Close gender gaps to better utilise female work potential Rethink & implement immigration policies Outsource and off-shore non-core jobs based on costs and benefits EMPRES

7 How Increasing Longevity Affects Us All? Individuals & Families Challenge existing asset & time allocation frameworks & intergenerational dynamics Governments & Societies Policy changes in labour, education, health, pensions & social benefits necessary Asset managers, pension funds, insurance cos., banks, SWFs etc. Re-assess frameworks & assumptions. Develop new solutions for clients & new approaches to understanding longevity. Significant change in thinking and mind-set needed Source: IPE Pension Awards Speech (2013), SSGA Demographics EMPRES

8 (%) (%) Labour Force Participation: 1985 & 2015 Female LFP, 1985 & France Germany Italy Japan United Kingdom United States Male LFP: 1985 & Source: ILO, SSGA Demographics 55.0 France Germany Italy Japan United Kingdom United States EMPRES

9 Gender Differences: Participation & Income G6 Gender Labour Participation Differences France Germany Italy Japan United Kingdom 2015 FLFP 2015 MLFP United States Ratio of Male GNI per capita to female GNI per capita 2013 in 2011 PPP Source: ILO, World Bank, SSGA Demographics 0.0 France Germany Italy Japan UK US EMPRES

10 Rising Youth Unemployment Global youth unemployment rate (%) Source: ILO, UN, CS, SSGA Demographics EMPRES

11 Demographic Components of GDP growth Working-age Population Growth working-age population = population aged Labour Productivity Growth labour productivity = real GDP/hours worked Labour Utilisation Growth labour utilisation = hours worked/working-age population G6 GDP growth rate has fallen dramatically ( relative to ) Main cause is declining labour productivity growth. Similar across the developed & developing world Japan Real GDP growth ( ): Contributions 6.0% 4.0% 2.0% 0.0% -2.0% -4.0% US Real GDP growth ( ): Contributions 6.0% 4.0% 2.0% 0.0% -2.0% -4.0% -6.0% JPLPG JPLUG JPWPAG USLPG USLUG USWPAG Source: GGDC, UN, SSGA Demographics EMPRES

12 Unsustainable Fiscal Strains (Ageing Related) EU28, 2012, % of total benefits Others 3% Disability 7% Survivors 6% Family and Children 8% Unemployment 5% Sickness/ Healthcare 30% Old Age 41% In most EU countries, age related expenditures currently account for 20%+ of GDP Projected to increase in future This is unsustainable currently and in future without radical reform Source: EC, SSGA Demographics EMPRES

13 Demographics & Monetary Policy My view since 2005 Effects of Interest Rates: The young: Long on human capital & short on assets. The old: long on assets & short on human capital. Monetary policy impact is different based on relative fractions of young & old Credit Restrictions The more people in the latter parts of their working lives and in retirement and the fewer the young workers the less important are credit constraints EMPRES

14 Consumers: Changing Household Sizes Share by household type in percentage Share of household by size in US, 1980 versus 2016 Share of household by size in UK, 1980 versus % 13% 11% 100% 7% 9% 80% 16% 13% 80% 16% 13% 17% 16% 16% 16% 60% 60% 40% 31% 33% 33% 34% 40% 20% 20% 23% 28% 27% 31% 0% 0% Share of household by size in Germany, 1980 versus 2016 Share of household by size in Japan, 1980 versus % 8% 3% 100% 7% 9% 20% 80% 15% 12% 80% 13% 18% 25% 18% 60% 60% 34% 29% 40% 29% 40% 18% 17% 20% 31% 42% 20% 34% 20% 0% 0% Source: Bernstein estimates and analysis, SSGA Demographics EMPRES

15 Consumer Expenditures by Generations (US): 2016 Generations: Expenditure Shares of Average Annual Consumer Expenditures Item All Consumers Birth Year of 1927 or Earlier Birth Year from Birth Year Birth Year Food Alcoholic Beverages Housing Apparel and Services Transportation Healthcare Entertainment Personal Care Products and Services Education 2.3 b/ Tobacco Products and Smoking Supplies Miscellaneous Cash Contributions Personal Insurance and Pensions Birth Year 1981 Source: BLS EMPRES

16 Gender Changes-marriage, Child-bearing Women getting married later Women having children later Women with higher university graduation percentages. Active decision makers. Source: OECD, CS EMPRES

17 Changing Global Consumers Internet use is not just a function of age but gender, education, family background, income, nationality, wealth also come into play. Internet users among year-olds by educational attainment level, 2013 Young Adults Enter the workforce later and start accumulating assets later Most likely live at parents house until years old Sharing economy Young Adults Living with Parents Year-olds High Attainment As a percentage of year-olds in each educational attainment group Low Attainment UK US Germany France OECD Source: OECD, ONS, US Census Bureau EMPRES

18 Demographics Affects Real Estate Demand & supply Real Estate Demand factors Population growth Labour market & income/wages Household structure Rural versus Urban Credit access Stage of life cycle Real Estate Supply factors State of the economy Business Credit Geopolitics Land Infrastructure Labour supply/technology EMPRES

19 G6: Population Density & Share of Cities Population Density, Largest City, Share of Cities > 1M Country Population share in cities > 1M Population Density (people per sq. km) Population of largest city France ,843, Germany ,563, Italy ,717, Japan ,001, United States ,593, United Kingdom ,313, Source: UN EMPRES

20 EMG6: Population Density, City & Share of Cities Population Density, Largest City, Share of Cities >1M Country Population share in cities > 1M Population Density (people per sq. km) Population of largest city Brazil ,066,245 China ,740,778 India ,703,168 Mexico ,998,543 Russian Federation ,165,704 Turkey ,163,989 Source: UN EMPRES

21 % Housing & Population Share (30 44 years) Real housing price & share of population aged 30 44, US Real housing price (residential investment deflator/gdp deflator), LHS Share of population aged 30-44, RHS Real housing price is the residential investment deflator divided by the GDP deflator Homeownership rate by age: USA Source: Bureau of Economic Analysis, US Census Bureau UN, CS 0 < 25 years EMPRES

22 Sectors Demographically Advantaged Changing consumers and workers in a global and technologically advancing world. Not just people numbers, but groups and behaviours impact these sectors. INFRASTRUCTURE NATURAL RESOURCES LEISURE & LUXURY EMERGING MARKETS PHARMA & BIOTECH FINANCIAL SERVICES EMPRES

23 Pension Fund Asset Allocation Trends Pension Fund Asset Allocation (2001 versus 2016) Equities (%) Bonds (%) Cash (%) Other (%) Equities (%) Bonds (%) Cash (%) Other (%) Australia Canada Japan Netherlands Switzerland UK US Source: Willis Towers Watson (2017), SSGA Demographics EMPRES

24 Conclusions Within economics and finance, models need to be more data adaptive rather than abstract; need for micro foundations (bottoms up) integrating with top down Understanding of demographics, behaviour, market and institutional evolution will be critical for macro economists and financial economists to understand the economy and its drivers as well as its performance Pensions strategic asset allocation and ALM must holistically take into account the macro drivers of inflation risk, interest rate risk, longevity risk and market risk Changing behaviour of consumers and workers across generations and within generations is rendering many old models invalid EMPRES

25 Important Disclosures Investing involves risk including the risk of loss of principal. Past performance is not a guarantee of future results. The whole or any part of this work may not be reproduced, copied or transmitted or any of its contents disclosed to third parties without SSGA s express written consent. United Kingdom: State Street Global Advisors Limited. Authorised and regulated by the Financial Conduct Authority. Registered in England. Registered No VAT No Registered office: 20 Churchill Place, Canary Wharf, London, E14 5HJ. Telephone: Facsimile: This communication is directed at professional clients (this includes eligible counterparties as defined by the Financial Conduct Authority) who are deemed both knowledgeable and experienced in matters relating to investments. The products and services to which this communication relates are only available to such persons and persons of any other description (including retail clients) should not rely on this communication. The information provided does not constitute investment advice as such term is defined under the Markets in Financial Instruments Directive (2004/39/EC) and it should not be relied on as such. It should not be considered a solicitation to buy or an offer to sell any investment. It does not take into account any investor s or potential investor s particular investment objectives, strategies, tax status, risk appetite or investment horizon. If you require investment advice you should consult your tax and financial or other professional advisor. All material has been obtained from sources believed to be reliable. There is no representation or warranty as to the accuracy of the information and State Street shall have no liability for decisions based on such information. This document contains certain statements that may be deemed forward looking statements. Please note that any such statements are not guarantees of any future performance and actual results or developments may differ materially from those projected. Diversification does not ensure a profit or guarantee against loss. Unless otherwise noted, the opinions expressed are those of the author who is a researcher at State Street. Views and opinions are subject to change at any time based on market and other conditions. Web: State Street Corporation All rights reserved. Tracking Number: EMPRES-8284 Expiration Date: 30 November 2017 EMPRES

26 Biography Amlan Roy, PhD Dr Amlan Roy is the Global Chief Retirement Strategist and Senior Managing Director at SSGA since April He is an experienced Global Macro Researcher specialising in Demographics & Pensions related to Economics, Investments and Public Policy. He highlights structural issues related to gender disparity, youth unemployment, system risks due to policy interactions with ALM & SAA. He is a Senior Research Associate at LSE and Guest Finance Professor at LBS. Prior to joining SSGA, he was Head of Global Demographics & Pensions Research and Managing Director at Credit Suisse having joined there in At Credit Suisse, Amlan was a client facing Researcher presenting to clients in 25+ countries and speaking at 60+ global conferences/events. In a prior role he developed global risk and asset allocation models serving as an international expert on Financial System Architecture. His big-picture macro strategic research in Global Demographics & Pensions is used by policy makers and investors and draws on the fields of Macroeconomics, Portfolio Theory, Behavioral Economics, Statistics, Derivatives and Econometrics. Prior to joining Credit Suisse, he spent over a decade in academia with a distinguished teaching career in the US and the UK. He was UK ESRC Research Fellow, Ponders Fellow, a Boston University Doctoral Scholar and a Government of India National Scholar. Amlan has a PhD and an MA in Financial Economics from the University of Iowa, an MBA from Indian Institute of Management Ahmedabad and a BA Honours in Economics from St. Stephen's College, university of Delhi. EMPRES

27 Thank You. For additional information or any questions on the information covered in today s presentation, please contact: Amlan Roy, PhD Senior Managing Director Global Chief Retirement Strategist amlan_roy@ssga.com EMPRES