Are demographics destiny?
That’s what a couple of researchers sought to find out. Using UN population numbers and economic and capital market data, they looked at 60 years worth of information in 176 countries. Because demographic data are fairly predictable and individual behavior follows a life-cycle pattern of education, production, saving, and retirement, they attempted to fit a mathematical function to see what the next ten years might look like for different regions of the world.
What did they find?
GDP is the most predictable. When a country has a large cohort of individuals between ages 20 and 50, that’s when its economy does well. The country’s bond market does best, however, when they are a little older—from 35 to 60. Before and after that the country is either borrowing to build its economic base or dissaving for retirement spending. Stock market returns are volatile, but they tend to do best when a country has a large population in their upper ‘50s.
What does the world look like? Not surprisingly, Africa and Latin America have the best prospects for GDP growth. Their young populations are just entering the most productive years. China, Europe, Australia, and Japan, by contrast, have aging populations that will be less productive over time. Bond markets in China and Europe will be well supported. And around the world the stock markets are a mixed bag: the BRIC nations, emerging Asia, and parts of Europe should do well, while Japan and Scandinavia struggle.
The US looks like its stock and bond markets will do moderately well, even as its economy slows slightly. Many other factors affect how the economies and markets perform, including wars, disease, and government policies.
Demographics, however, give a sense of the underlying trend—the climate versus the weather. Demographics may not be destiny, but they can tell you which way the wind is blowing.