Global macro from a demographic lens: growth, debt, asset prices & pensions Dr Amlan Roy Global Demographics & Pensions Research Credit Suisse Securities (Europe) Limited, London Email: amlan.roy@credit-suisse.com
Demographics is about “People as Consumers & Workers” Peter Drucker (1999): “Demographics is the single most important factor that nobody pays attention to, and when they do pay attention, they miss the point.” D • Discount rates, Deficits and Debt E • Economic growth, Emerging markets Popular misconceptions M • Mortality risk, Mega-cities O 1. Demographics is Long-term • Organisation structure & behaviour 2. Age-related G • Geopolitical Risks 3. Predictable R • Retirement risk, Real estate, Ratings A • Asset prices, Asset allocation Demographics affects P • Pensions income statements and balance sheets H • Health, Housing of I • Inflation, Infrastructure, Individuals households, corporates C • Commodities, Current account and countries. S • Sectors, Society, Sustainability 3
The Growth of the Super-old (80+): challenge that has crept up World Population Change: 19 1970 70 vs. 20 2015 15 Share of 60+ population millions Growth 1970 2015 394% UK 19% 23% 186% US 14% 21% Germany 20% 28% Japan 11% 33% France 18% 25% Italy 16% 29% 129% Share of 80+ population 1970 2015 UK 2% 5% US 2% 4% 38% Germany 2% 6% Japan 1% 8% France 2% 6% Total 100% 3,682 7,349 population Italy 2% 7% Source: UN, Credit Suisse Demographics Research 4
The Growth of the Super-old: EMG6 & South Africa Source: UN, Credit Suisse Demographics Research 5
Core demographics: EMG6 & South Africa Source: IMF, UN, Credit Suisse Demographics Research 6
Life expectancy @ 60: G6, EMG6, South Africa Source: UN, Credit Suisse Demographics Research 7
Population & WAP growth – South Africa & selected countries South Africa Angola Egypt Nigeria Ghana Cote d'Ivoire Kenya 1970-75 2.66% 2.41% 2.08% 2.49% 2.68% 4.63% 3.62% Population growth 2015-20 0.78% 3.12% 1.88% 2.54% 2.16% 2.38% 2.50% 1970-75 3.01% 2.41% 2.53% 2.33% 2.65% 4.82% 3.77% Working-age population growth rate 2015-20 0.94% 3.79% 1.83% 3.02% 2.58% 2.88% 3.20% Source: UN, Credit Suisse Demographics Research 8
Credit Suisse’s Demographic Manifesto (2000) Retirement ages: effective & official Men Women Effective Official Effective Official Abolition of mandatory retirement ages 2007-12 2012 2007-12 2012 Mexico 72.3 65 68.7 65 combined with flexible enabled retirement Korea 71.1 60 69.8 60 Chile 69.4 65 70.4 60 Japan 69.1 65 66.7 65 Portugal 68.4 65 66.4 65 Increased female labour participation rates New Zealand 66.7 65 66.3 65 Switzerland 66.1 65 63.9 64 with use of technology to facilitate women to Sweden 66.1 65 64.2 65 better balance work and family US 65.0 66 65.0 66 Norway 64.8 67 64.3 67 Canada 63.8 65 62.5 65 UK 63.7 65 63.2 61.2 Outsourcing and off-shoring Netherlands 63.6 65 62.3 65 Denmark 63.4 65 61.9 65 Turkey 62.8 60 *63.6 58 Spain 62.3 65 63.2 65 *White cells: Germany 62.1 65.1 61.6 65 Selective immigration policies effective Greece 61.9 65 60.3 63.5 retirement age Finland 61.8 65 61.6 65 > official Italy 61.1 66 60.5 62 retirement age France 59.7 65 60.0 65 Source: UN, OECD, Credit Suisse Demographics Research 9
How increasing Longevity Affects us all? • Challenge existing asset & time allocation Individual & families frameworks & intergenerational dynamics Governments & • Policy changes in labour, education, health, Societies pensions & social benefits necessary Asset managers, • Re-assess frameworks & assumptions. Develop pension funds, new solutions for clients & new approaches to understanding longevity insurance cos., SWFs. Source: Credit Suisse Demographics Research, IPE Pension awards key note speech (Noordwijk, 2013) 10
GDP growth decomposition – South Africa South Africa Source: UN, GGDC, Credit Suisse Demographics Research 11
Health expenditure – South Africa & Selected countries Source: World Bank, Credit Suisse Demographics Research 12
Pensions South Africa: Pension system in in 2012 2012 Flat rate based in a residency test Pension age is 60 years old for both women and men Not possible to claim the public pension before the normal eligibility age of 60 Receipt of the old-age pension is not dependent on retirement, Source: OECD, Credit Suisse Demographics Research 13
The structure of GDP matters: Different across countries National Income Identity: C + I + G + ( X – M) GDP C = Consumption, I = Investment, G = Government, X = Exports, M = Imports South Africa Angola Egypt Nigeria 1980 2013 1992 2013 1980 2013 1980 2013 Household Consumption 47.8 61.9 57.7 50.3 69.2 80.9 55.2 72.1 Government Consumption 14.3 20.3 42.3 19.9 15.7 11.7 14.7 8.1 Gross Capital Formation 29.9 20.1 3.8 14.7 27.5 14.2 34.0 14.7 Exports 35.4 31.0 69.2 55.8 30.5 18.1 29.4 18.0 27.3 33.2 73.1 40.7 42.9 24.8 19.2 13.0 Imports Ghana Cote d'Ivoire Kenya 1980 2013 1980 2013 1980 2013 Household Consumption 83.9 72.7 62.8 65.1 62.1 81.2 Government Consumption 11.2 16.4 16.9 13.2 19.8 14.2 Gross Capital Formation 5.6 23.8 26.5 19.1 24.5 20.1 Exports 8.5 33.4 35.0 43.8 29.5 17.9 Imports 9.2 46.3 41.2 41.2 35.9 33.4 Openness of an economy is measured by the sum of exports + imports as a ratio of GDP: South A Africa : : 64.2 .2%; ; Angola: : 96.5 .5%, , Nigeria: : 31%; ; Egypt 42.9 .9%, , Japan: : 35.2 .2%; ; France: : 56.4 .4%; ; US: : 30% Source: World Bank, Credit Suisse Demographics Research 14
GDP, Population and GDP per capita growth Source: UN, IMF, Credit Suisse Demographics Research 15
Economic Activity Rates, Men vs. Women Labour force participation rate, , in p percentage G6, 6, 20 2014 14 EMG6, 6, 20 2013 13 Source: ILO, Credit Suisse Demographics Research 16
Income Gap, Men vs. Women – G6, EMG6 and South Africa Income multiples of men over women, , 2013 2013 Income measure: GNI per capita in US$, $, constant 2011 2011 PPP Source: UNDP, Credit Suisse Demographics Research 17
Rising Youth Unemployment – a threat to growth and stability Global youth u unemployment trends, , 1991 - 2013 2013 Youth unemployment by region, , 2013 Source: OECD, ILO, Credit Suisse Demographics Research 18
Rising Youth Unemployment – a threat to growth and stability Youth unemployment, 2014 2014 *data for EMG6 is 2013 data Source: World Bank, ILO, Credit Suisse Demographics Research 19
Changing global consumers Women Young adults • Young adults are entering the workforce and start Are new consumers with increasing no. of them getting educated, working and becoming richer. accumulating assets later • They most likely live at their parents house until 28-30 Traditionally women make certain consumption choices for the family. years old Today as women are working and getting richer they have a greater influence in the major family purchase decision such as housing, cars and vacation. Share of highly educated women remaining childless into mid-40s fallen significantly over past 20 yrs. Internet users Nationality, education and socio-economic groups are also major influencers of online internet use, not limited to age group Source: OECD, ONS, US Census Bureau, Credit Suisse Demographic Research 20
Key Sectors Impacted by Demographic Change NATURAL RESOURCES LEISURE & LUXURY INFRASTRUCTU TURE Work-Leisure trade-off changes for old as Changing needs for infrastructure in Changing manufacturing processes/ well as young. developed world locations Wealth of retirees, ease of travel, ease of Mega-cities growing in the developing world Demands for new products very different shopping from the demand for older Residential, manufacturing, transport, products — derived demands too Lower costs of communication, travel and environmental considerations to name insurance Increased demands for hard and soft a few commodities. Water/Drinking water Information and Technology advances supplies EMERGING MARKETS PHARMA & BIOTECH FINANCIAL SERVICES Longer post-retirement life of growing number of retirees. Active Asset allocation, New product Growing importance due to economic development and Risk Management power Desire of retirees to enjoy a good quality of will be cornerstones life Global labour force DB to DC shifts New pharma and biotech needed for Global manufacturing locations mental health and new illness Newer ways of delivering pensions and Outsourcing insurance Genomics, pharma and biotech research Demand side need to find new cost-effective drugs Technology and treatments “ The reason these sectors are positively affected is not merely due to the fact that the number of people in the elderly population has increased, but also that the composition, family structure and behavioural characteristics of the elderly, as well as the young population, is vastly different compared to the past“ 21
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