US-CHINA GROWTH PROSPECTS AND
MARKET DYNAMICS The two largest economies in the world – the United States and China – are seeing economic growth decelerate, both have loaded up with debt, and are engaged in a high-stakes trade war with each other. How each country fares will have a lot to say about the dynamics and evolution of a variety of key markets in 2019.
The two largest economies in the world – the United States and China – are seeing economic growth decelerate, both have loaded up with debt, and are engaged in a high-stakes trade war with each other. How each country fares will have a lot to say about the dynamics and evolution of a variety of key markets in 2019.
. Context matters, and we start with a brief review of the dominant long-term theme – demographic patterns. Demographic trends suggest slower growth is in store for both China and the US well into the 2020s, before trends might shift. In 1990, the percentage of the population over 65 years of age in China was 5.5% and, in the US, it was 12.5%. Today, those percentages stand at 11.3% and 16.0%, respectively. By 2030, the same measures will have increased again to 17.0% for China and 20.6% for the US. The impact of a larger population of retirees means the younger generations bear a greater burden of support. In addition, the growth of the working-age group years of age, is of huge importance to potential economic growth. If one thinks of economic growth potential as the sum of labor force growth and labor productivity growth and when labor force growth slows dramatically, it sets the same trend for real GDP growth subject to the variations in labor productivity which tend not to be very large. From 1990 to 2018, in both China and the US, the population of 15-64
year-olds increased cumulatively by just over 30%. U.S. Census Bureau projections for 2018 to 2030 suggest that China may see a -4.66% cumulative decline in the population of the 15-64 cohort, while the US may eke out a 3% cumulative gain, which is partly dependent on immigration assumptions which may well be overstated.
The relevance for real GDP over the next decade or so is simply that population demographics suggest a deceleration of economic potential that will be well beyond the ability of traditional policy measures to reverse. For the US, it will be very hard to see real GDP average more than 2.5% per annum until the demographic population trend starts to become a little more favorable to growth in the late 2020s. For China, the implications are modestly more complex. China has been experiencing a dramatic rural-to-urban population shift, which has the highly productive urban labor force has still been growing at 3%-plus per year. As the rural-to-urban migration diminishes over the next decade, the joint challenges of a rapidly aging population and declines in the working age population will hit real GDP average real GDP growth in the 3% to 4% range in the 2020s, it will have done an exceptional job of adapting to the demographic challenges it faces.
28 | ADMISI - The Ghost In The Machine | January/February 2019
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