Just like cars, it costs more to maintain an older person than a younger one. Government borrowing could rise by 3% of GDP over the next 20 years as a result of ageing. To offset this, the UK government has squeezed the rest of the public sector in an attempt to balance the books. This seems politically unsustainable. Is the government about to reverse course by ending public sector pay caps?
In 1979, Pink Floyd cried "Hey! Teachers! Leave them kids alone!”. Ironically, this marked a turning point. The contribution to US wage growth from educational attainment appears to have peaked since the early 80s. This is just another brick in the wall in our argument of weaker US trend growth.
We are fast approaching the Chinese leadership reshuffle in late 2017. Attention could turn from the current period of relative calm and stability to the medium-term challenges lying ahead. In this context, we are likely to encounter three myths about China’s growth slowdown.
Ageing populations are reducing global trend growth. However an army of grandmas is boosting the UK labour force because of changes to retirement ages. This means UK trend growth should hold up relatively better than the US. However, an offsetting end to immigration would see the UK labour force freeze.
One thousand years ago, King Canute got his feet wet trying to hold back the ocean. Today, Donald Trump is trying to hold back the demographic tide. Investors risk ending up being left underwater by higher inflation unless they take appropriate evasive action.
Ageing demographics have probably halved US trend growth from 3¼% to 1½%. The number of retirees is outstripping school leavers for the first time ever. So immigration - a key concern of President-elect Trump - is now the only driver of working-age population growth.