Demographic Time Bombs – They May Not be What You Think

Demographic factors can significantly affect economic activity.  The following graph from an article by Gregory White and Kamelia Angelova at  Business Insider – Clusterstock shows how Japan’s aging population has been a detractor from economic growth will be an increasing burden on GDP in coming years.

Some have lamented the burden of retiring baby boomers in the U.S.  However,aging demographic factors will also be working to the detriment of the economies of Germany and China, two countries with large balance of trade surpluses today, in the coming decades.  Both countries will be disadvantaged with respect to the U.S., as shown in the following graph from an article by Joshua Aizenman and Rajeswari Sengupta.


Germany, and Europe as a whole, are already burdened by aging demographics compared to the U.S. and the difference is projected to increase, especially after 2030.  China is projected to surpass the U.S. in old age dependencies in about 25 years.

Not shown in the Aizenman and Sengupta graph is the data for India.  India has a much younger demographic profile today, as well as a higher birth rate, which infers that India will have an advantage over many other countries with regard to demographic burdens from an aging population at least until the latter stages of the 21st century.  Sanjeev Kulkarni has discussed both the positive and negative aspects of this demographic profile of India.

These are not factors that will have a bearing on economic activity in the coming one, three or five years, but the demographic changes will start to have significant effects in 10 and 20 years.  As Aizenman and Sengupta point out, today’s trade imbalances will eventually be reversed by demographic forces.  The U.S. simply has to survive for a couple of decades to have a chance of benefiting.

Related Articles:

Global Imbalances:  Is Germany the New China?  A Sceptical View  by Joshua Aizenman and Rajeswari Sengupta

The Effect of a Renminbi Appreciation on US – China Trade Imbalances by Willem Thorbecke

Plaza II is the Wrong Approach for Global Rebalancing  by Yiping Haung

Currency Manipulation by Asian Central Banks  by Ajay Shah

China and U.S. Should Stop Finger Pointing and Get to Work  by Jason Rines

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