SBI Global Economic Forecast: How to Predict the Future

 

 

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Patrick Schwerdtfeger discusses the impact of demographics on future economic growth for countries around the world including America, Latin America, Europe, Russia, China, Japan, India, Pakistan and the Middle East and North Africa. In particular, he looks at population growth, the age profile and net exports as a way to predict expected economic growth between 2010 and 2050.

This type of analysis is extremely valuable for people interested in international business. Their interest might be motivated by business interests, international investment objectives or thought leadership around the world. Regardless how you use this information, it will allow you to literally predict the future for the economic performance of countries all around the world.

The conclusion is that the developed nations all have a “youth deficit” while the developing Muslim nations all have a “youth bulge” and that has massive implications for their respective economic forecasts. Nations with a youth deficit will have a disproportionate number of older people which will act as a drain on economic activity. Nations with a youth bulge will have more political volatility and social unrest, but they will also have more impressive growth in the years ahead.
 

Nigeria
India
Egypt
China
Saudi Arabia
Pakistan
Colombia
Australia
UAE
Turkey
Argentina
South Africa
Canada
USA
Brazil
UK
Russia
France
Germany
Spain
Greece
Italy
Japan
Pakistan
Egypt
South Africa
Colombia
Brazil
Turkey
India
Saudi Arabia
Argentina
Nigeria
USA
Japan
France
UK
China
Greece
Canada
UAE
Australia
Italy
Russia
Spain
Germany

 
Here is the full transcript of the video above:

Hey, this is Patrick and welcome to another edition of Strategic Business Insights. Today we’re going to be talking about predicting economic activity in countries all around the world for the next 40 years. So look, if you have a company, if you’re doing business around the world, you need to know this. You need to know which economies are expected to grow, which economies are expected to shrink.

Maybe you’re just worried about your investments. Maybe you want to invest in different countries around the world, be they developed nations or emerging economies. Maybe you just want to expand your influence around the world and become a thought leader or a recognized expert in your field around the world. Regardless how you use it, you need to have some understanding of what’s expected to happen in the years ahead.

Now, it turns out you can predict this stuff with incredible accuracy. Let’s take a look at the United States. Seventy-one percent of our GDP, gross domestic product, is consumer spending, is people buying food, shelter, clothing, gasoline, energy, all those sorts of things. That means that you can predict what’s going to happen because we know our population today. We know how many people are going to be 25 in 10 years because they’re 15 today. We know how many people are going to be 35 in 20 years because they’re 15 today or how many people are going to be 25 in 20 years because they’re 5 today.

It’s very easy. As long as you know the current population, the immigration trends and what immigration is taking place in the country, and fertility rates, you can predict the population. And you can go to websites like the World Bank, a lot of different websites where you can get this type of information, and you can see what the population is going to look like in all kinds of countries all around the world for the next 40, 50 years. In this video, we’re going to be talking about 2010, 2030, 2050. We’re going to talk about those three time periods.

Now, population accounts for the vast majority of gross domestic product because a couple of other things that determine this: What’s the age profile of that population? How many people do you have that are young, how many people are productive in the middle part of their lives, and how many people are older or retired? We’ll talk about that in just two seconds.

And the last thing is net exports. So in other words, how much do you sell to people in other countries versus how much do you buy from people in other countries? So obviously businesses are selling things to local consumers—shelter, water, all those sorts of things—but they’re also selling things to people in other countries, and then we’re also buying things from people in other countries.

So those three statistics you can predict economic activity with incredible accuracy way into the future. Imagine the implications for investing. You can look into this and I’ve got all kinds of different countries. We’re going to go through the statistics in just two seconds. But the total population, whether the total population is growing or shrinking; the age profile of that population, in other words, how many are young, in the middle or older; and finally, net exports. You can predict economic activity.

Now, if you look at the entire world, what’s happening, let’s look at three different age demographics. You’ve got 0 to 24. So those are young people. What do they have in common? Well, they’re healthy. They’re not particularly productive in the economy. I mean, yes, some of them have jobs [00:03:30] get it. Certainly in some parts of the world people start working earlier than others. But they’re not a major contributing force in the economy. So they’re healthy, they’re not particularly productive.

Then you get that middle segment, 25 to 64. They’re for the most part healthy and productive. That’s your economy. It’s right in that center part of the population. Those are the people who are spending money, making money. The savings, the spending, everything happens in that middle segment.

Now, look at that last segment, 65 and older. They’re generally not healthy and they’re not productive. So those older folks, you’re paying retirement expenses, health benefits. You look at any country around the world, those older people represent effectively a drain on the economy.

Now that’s not a judgment of those people, but we all need to realize that a country that has a lot of older people in it is going to be weighed down by that obligation. You have to keep these people healthy. You have to keep them alive. There are expenses associated with that. They’re not as healthy as younger folks and they’re not as productive.

And what’s happening is over the course of time the percentage of people who are in that last segment, that older segment, is growing. But it’s not growing by the same amount in all the countries. There are some very, very wide differences and it has huge implications.

Now, for the world as a whole, from 2010 to 2050, population is expected to grow by 34% during that timeframe. That means that economic activity is going to grow by some percentage – I don’t know exactly. We’re talking about real terms here, so real GDP growth. We’re not talking about inflation because that obviously skews the number every single year, but real GDP growth around the world. I don’t know what the exact percentage is going to be, but it’s going to be driven primarily by that 34% population increase.

Now, let’s take a look at a few countries around the world. Let’s start with the United States. The United States—there are two dramatically different things happening around the world. Some countries have a youth bulge. In other words, they’re making a lot of babies. There are a lot of young people in those economies.

Now, what else do those people have in common? Well, they tend to be more tech-savvy. They’re on social media. They’re connecting. They’re becoming politically awakened, politically active. They’re restless. They tend to be underemployed, which means they have a lot of free time. So you have people who have free time, they’re underemployed, which means they’re probably frustrated, they don’t have as much money as they want, and they’re increasingly connected around the world with social media. That’s why we see so much of this political unrest and protests. The countries where those protests are taking place are generally speaking countries that have that youth bulge.

So the youth bulge represents political volatility, but it also spells dramatic growth on the horizon because those young people are going to mature into that middle segment where they’re productive members of society. Those economies are going to grow, because not only are they going to be contributing to society but they’re going to be buying as well. They’re going to be buying their shelter, their food, their energy, their clothing. All of that purchase activity, all that domestic consumption is going to form the pillar of their economy.

And you can look back in the United States, and the baby boom generation, they were born after World War II, big disproportionate hub in the population. When it was young, in the sixties and seventies, 1965 to 1979, something like that, 1980, they were young, they weren’t particularly productive, so they represented a small drain on the economy, and so we found that the economy kind of went sideways during that timeframe. There were other factors that were involved as well, but a big part of it was that massive baby boom generation hadn’t matured into the middle part of their productive years.

And if you work it out mathematically, it really started around 1981, 1982 that the vast majority of them started getting into those productive years. And so we saw this huge boom that started like 1982, went all the way mathematically into about 2003 is when it topped out, and now it’s starting to decline because now those baby boomers are starting to retire. And that’s going to be a drain on our economy in the United States for the next 30, 40 years, because those folks are expected to live a long time. Once they’re into their retirement years they’re not productive members of society anymore. So they’re still spending money, so they’re still buying their things but they’re not contributing. So it’s going to represent a drain on the economy.

Now, back to the two realities that are taking place, part of the countries have this youth bulge, and I’m going to tell you which ones they are in just a few seconds, but the developed world for the most part, including the United States, has a youth deficit where we do not, relative to the rest of the world—we have a lot of young people, but if you look at the entire world we’re below average in terms of the percentage of young people in our economy. And what happens is if you project this to 2030, 2050, in the case of the United States and many other countries, we’re going to get to those as we go along here, we have an increasing percentage of older people. That’s going to be a drain in our economy.

Now, the saving grace in the United States is that between 2010 and 2050 our population is expected to grow by 29%. And if you remember, the world population is expected to grow by 34%. So we’re growing not as much as the world overall, but we do have growth. And it’s not because we’re making a lot of babies. It’s because we have a lot of immigration. And that’s a good thing. People are so quick to criticize immigration, saying it’s a bad thing. Look, those are people who are in our economy. They define the growth that we have in our economy, to a large extent, is that immigration. You’ll see when we get to Europe, they don’t have that, not nearly to the same extent, and it spells trouble for Europe. But if you’re in the United States, that population is expected to grow by 29%.

So we have a lot more older people – that’s a drain on the economy, but we have 29% growth – that’s going to be a surge in the economy. So that’s a plus. We have one minus, one significant plus. And then we have a trade deficit, and that’s overall I would say a negative thing. So we kind of have two negatives and one positive.

The United States economy is going to continue to muddle through. We’re going to have up years, we’re going to have recessions, but if you take the next 40 years—so it’s very macro. I’m not predicting tomorrow or 2014 or 2015. I’m making a very long-term macroeconomic prediction. The United States economy will continue to grow but it’s not going to be the kind of growth that we have seen in the last 20 years. It’s going to be a lot slower.

And in particular between now and maybe 2020, 2022, mathematically that is when the drain on the economy from the older folks in our economy, the retiring baby boom generation, is the biggest. So it’s going to be challenging years between now and 2020, 2022, 2024, but after that it starts to really alleviate. And it’s awful to say this, but the truth is that it’s because at that time the baby boom generation starts to thin out. People start to pass on. And again, it’s awful to say that, but mathematically, when that happens the economy starts to pick up more as a result of that.

Now, let’s look at some of the other countries around the world. Latin America. We’re going to get to Europe, Russia, and we’ll do it quicker than the first one, [00:11:30] to explain what it is we’re talking about. Latin America, the proportions of young, middle-aged and older people is pretty much in line with the overall global economy. So they don’t necessarily have a huge benefit or a huge cost associated with that. Population growth is expected to be 26% in Latin America, and that whole South American continent is developing, kind of moving from third-world nations historically and into second and some into first.

Brazil and Colombia are booming. Of course, Brazil has huge things coming it’s way the next 10 years. Colombia is booming. The Panama Canal is being widened right now. That’s going to be finished in 2014. A lot of good economic activity coming out of South America.

They also have a small trade deficit, but I would expect that that might reverse in the next 10 to 20, 30 years. As the South American continent becomes more and more developed, more and more productive, they’re probably going to switch to a trade surplus. But they’re not there yet. Overall, it’s still pretty much a wash with a slight trade deficit if you include all the different countries. South America’s going to do well mainly because of that population growth and the process of modernization.

Alright, next stop, Europe. Europe is in trouble. There are a lot of problems in Europe, and there are some countries that are worse off than Europe including Russia and Japan, but we’ll talk about that in a second. The European continent has a significant youth deficit just like we have here. They’re not making any babies. And so meanwhile, as the years go by, they’ve got a lot of older folks, not a lot of younger folks. That’s going to be a significant drain in their economy.

But check this out, the population of Europe is expected to shrink by 1% between 2010 and 2050. Now, it depends on which countries you include, because in the European continent the further east that you go, those Eastern European countries have more babies than the Western European countries. Like France and Belgium and Germany, they have fewer babies per capita, then you go over to the East side like Ukraine and so forth, Belarus, they have more babies.

So it depends on which countries you include, but the bottom line is the population is basically flat and shrinking slightly. They don’t have much of a—they have a tiny trade surplus, but it’s very small. It’s not significant. And the proportion of their population is skewing to the older generations, older years, in the next 10, 20, 30 years. Europe, there are going to be challenges. They’ve got their debt crisis. It’s going to take years for this to unravel. Unfortunately, they’ve got a lot of internal things that they have to focus on. So don’t expect dynamic growth out of Europe.

Okay, next stop, Russia. Russia’s got the good, the bad and the ugly. Here’s the good news. The good news is they have a 9% trade surplus. Where is that coming from? It’s coming from energy. They have oil and they have a lot of energy. They have a lot of resources because they have that massive land mass, but a lot of it is energy. It’s oil coming out of Baku and those areas of the country. So they export energy. That’s a huge—obviously, costs a lot of money. So a lot of money comes in to Russia as a result of their exports.

But their population, they have a massive youth deficit. There are no babies. There are no young people, and meanwhile there are a lot of old people – disproportionate compared to the rest of the world. And listen to this: Their population is expected to shrink by 12% between 2010 and 2050. Russia has got a lot of challenges internally.

Meanwhile, the life expectancy in Russia is appallingly low. They have high levels of alcoholism and there are all kinds of social problems. Those social problems are going to be exasperated because of the age profile in their country and it gets worse as the years go on. And the population is shrinking. So what Russia really needs to focus on as it develops its economy is exports and energy. That’s the one thing that they have to work with to try and get their economy growing into the future, but it’s going to be a struggle.

And there’s one country that’s even worse off than that, and it’s Japan. Japan has the biggest youth deficit of any major developed nation. There are very few young people. They will have the highest proportion of retired people as a percentage of their population of the entire developed world by 2050. Meanwhile—listen to this—their population is expected to shrink 17% in the next 40 years.

And to boot, a lot of people think that Japan has a huge trade surplus. It’s actually not true. They have a modest trade deficit mainly because they have to buy energy from externally. So they import a lot of things into Japan. So Japan’s got a lot of problems and their government deficits make the United States look like a Sunday picnic. I mean, they’ve borrowed a ton of money.

The saving grace is that historically they were borrowing that money from their own citizens, and so there wasn’t a lot of external pressure. The United States borrows money from a lot of people who are not citizens. We borrow from China. We borrow from other international players. We don’t necessarily borrow all from American citizens. But Japan has been borrowing largely from its own citizens, so the pressure of the bond markets has not been there.

But the savings rate of Japan is dropping like crazy as well. Why? Because the population is aging. They were saving money earlier in life. Now that they’re retiring, they’re taking money out of their savings. So the larger the proportion of retired people, that brings the savings rate of the entire country way down. That’s exactly what’s happening.

So they can’t borrow from their own citizens for much longer, which means that very soon, I mean you never know when, but likely, certainly in the next two, three, four years, I would expect Japan to probably hit a wall in the bond markets, and that is going to cause a huge financial shock to the world’s third largest economy. Japan is the third largest economy behind China and the United States. So Japan’s got a lot of problems coming up.

Now, let’s talk about the Red Dragon. Let’s talk about China. Everybody thinks that China is going to dominate the next century, so let me be on record. China looks great. Their modernization over the past 30 years is nothing short of phenomenal. It’s remarkable what they have accomplished. You compare China to India, for example. A lot of people put them in the same bucket. I view them very differently because India has done very well as well but they have not modernized, they have not built the infrastructure the way China has. China’s done an extraordinary job of building infrastructure and really modernizing their economy in a very, very progressive way.

Now, believe it or not, China has a youth deficit. Most people don’t realize that but they have a youth deficit, and it’s because of their one child policy. There is a government policy that says you can only have one child, and if you have two children you have to pay an extra tax as a result of that. Now, right now, China in 2012 just brought in new leadership and there are some people in that new round of leaders that’s actually considering changing that policy because they see the writing on the wall. Their population right now is expected to shrink by 5% between now and 2050. It’s remarkable. I was shocked when I saw this myself. Their population is actually shrinking and it’s because of that one child policy. So they might change it. If they change it, then that trend could change. But right now, their population is expected to shrink by 5%.

Now, the saving grace for China is they have a trade surplus. Not as big as you might think. A lot of people think that China has just this massive trade surplus that they’re dealing with. It’s actually not true, for a similar reason to Japan. China has to buy much of its energy from outside its country. So most of its imports is energy, raw materials, and energy is the lion’s share. So they have a trade surplus, it’s a healthy trade surplus, but it’s not the massive trade surplus that a lot of people think it is.

So we’ve got a negative in the age profile. They have disproportionate old people, not a lot of young people, and that’s going to get worse in the years ahead. Population is going to shrink. That’s also a negative. But they have that trade surplus, and I believe that trade surplus, in the case of China, will carry the day. They export a lot. They’re very smart and savvy. I think China’s going to be healthy. It’s just not going to be the explosive growth that they have had for the past 30 years. The past 30 years in China have been incredible, but that growth is going to moderate.

Now, where is the growth going to come from? Let’s get to that right now. India. For the first time in this video, we’re going from a youth deficit to a significant youth bulge. Lot of young people. So we can expect some political instability, some political restlessness coming out of India. A lot of those people, because they’re young. But they’re going to mature into that center segment, so we can expect good growth in the next 10, 20 years.

And there’s less than average older people in the economy, which is another positive. So listen to this. Population is expected to grow by 38%. So that is a significant growth curve plus a very healthy age profile – a lot of young people, not a lot of older people. Those are two massive positives.

The last one is the net exports, and there again I was surprised. I thought that India was going to have a huge trade surplus. It’s not true. They actually have a trade deficit because they do import a lot. So that’s a small negative. But India’s going to do just fine. The 38% growth, very healthy age profile – we can expect a lot of growth. Probably some bumps on the road—there’s going to be some political instability along the way—but a lot of growth coming out of India.

Let’s go right next door, Pakistan. Pakistan has the biggest youth bulge as a percentage in the age profile of all the major countries that I’m going through in this video. They have a massive youth bulge, a lot of young people. They have not a lot of old people at all. Very healthy in terms of the age profile. As well, the population—get this—58% growth between 2010 and 2050, because all those young people are going to grow up and they’re going to make more babies themselves. Their fertility rate is very high in Pakistan. So that population growth, you’re going to find explosive growth coming out of Pakistan.

But, there are two major risks. The first one is those young people. Again, they’re politically restless. They’re generally underemployed and they’re politically restless. So there are going to be a lot of bumps on the road, a lot of volatility coming out of Pakistan, and some volatility coming out of India. So there’s that border region, Kashmir, which is in between the two. They both claim that territory. We can expect some problems coming from that region. There have been skirmishes along the way, but I would expect that that would increase, not decrease, along the way.

The last one that I wanted to talk about is the Middle East and North Africa. Now, this is an interesting one. The Middle East and North Africa, again they have this youth bulge. So there are a lot of young people, not a lot of old people. It’s not nearly as extreme as Pakistan. It’s a smaller youth bulge but there’s still a youth bulge, so we can expect that growth to come. Fifty-six percent growth in population.

Oh, I wanted to mention something about Pakistan, the other risk factor. The first risk factor is political restlessness, some political volatility from those younger people. The second is water. If you rank all of the countries in terms of their risk for water shortages, the number one country on the list is Pakistan. The entire country, they feed off of one river. The entire country feeds off of this one river. There are dramatic water shortages coming to Pakistan. They already have them in hot years, but it’s going to get way worse because that population is going to grow like crazy and the river’s not going to grow. So there are going to be a lot of problems because of water shortages.

Now, what’s that going to lead to? To more political instability. There’s going to be social unrest coming out of Pakistan.

Look, here’s the trend. A lot of this comes out of the Muslim part of the world. Muslims tend to have larger families. They have more babies. So, for example, in India, you have Hindus, Sikhs and Muslims. The Hindus have one or two kids each, the Sikhs have one or two kids each, the Muslims have eight or 10. Totally different. A lot of this comes from their faith base, the way that they were brought up.

So 20 years ago, Muslims accounted for like 4% of the population in India. Now they have account for more like 20% of the population in India. And as time goes on, that population percentage is going to continue to go up. So the people of Muslim faith tend to have more children, larger families. So the growth of the Indian population comes from the Muslim segment, largely. The growth of the Pakistan—Pakistan is almost entirely Muslim. They make a lot of babies. That’s why their growth is so fast.

And finally now, the Middle East, 56% growth. That’s similar to Pakistan. Again, mostly Muslim region. So they have larger families, more babies, population grows quicker. So you have this youth bulge, which for as far as economic activity for the next 20, 30 years is a good thing. Those people are going to grow up and the economy’s going to grow as a result.

Some bumps on the road. There’s going to be some political instability. We’ve already seen this in the Middle East, in Egypt and Libya and Syria and so forth. This is all a function of politics awakening. These are young people who are tech-savvy, so they’re being connected to the Internet. They’re learning, they’re becoming politically awakened, politically aware, and what’s happening, they’re fighting for their rights. There’s social unrest. They’re politically restless. All this makes perfect sense.

Meanwhile, here’s the kicker for Middle Eastern countries: Trade surplus of 24% is the biggest trade surplus of any other countries that we’ve talked about in this video. It’s primarily because of oil. They’ve got all that oil. So they’re exporting that energy. So the age profile is just primed for economic growth, the population growth is primed for economic growth, and the trade surplus is primed for economic growth.

So between 2010 and 2050, we’re going to see massive growth and political and economic influence coming out of the Middle Eastern region. We’ve already seen like places like Dubai, they’re being developed like crazy. Abu Dhabi. Doha, Qatar. Doha, Qatar is developing their Education City. It’s an unbelievable development. Kuwait City, which is just south of Iraq. Saudi Arabia – Riyadh. These are all places that are being developed very, very quickly.

Obviously, Egypt, Libya, Morocco, they’re in a different situation because they don’t have that oil, so they don’t have nearly as much as money to deal with. So you’re going to see more political instability in those North African nations. But the actual Persian Gulf region, the oil-rich, what they call the GCC region—is the Persian Gulf cooperative, six countries involved in that and they all have a ton of oil—you’re going to see a lot of development, a lot of political and economic influence coming out of that part of the world but also some social unrest. We’re going to see continued social unrest, social instability, political volatility coming out of that region of the world.

So again, just reviewing, if you’re in business and you’re doing things internationally or you have interest in investing in these countries, imagine, you can invest in a country, like for example, Turkey. Turkey’s population is exploding. They’ve got a youth bulge, very healthy secular political environment. If you wanted to invest in a country, you could literally buy the Turkey country index, there are a number of ETFs that do that, and if you just left it there for the next 40 years, I’m here to tell you, it’s going to grow. It’s going to grow because the population’s growing, the age demographic is perfect. You know ahead of time where the good places to invest are. And if you’re in it for the long term, you can pick these countries, you can do your own research or follow what I’ve done here, and pick countries that are expected to grow.

So I hope that this video has provided some insight for you that maybe you didn’t have before. Thanks for watching. Again, my name is Patrick, reminding you to think bigger about your business, think bigger about your life.

Patrick Schwerdtfeger is a keynote speaker who has spoken at conferences and conventions in North America, South America, Europe, Africa, the Middle East and Asia. Please click the button below to inquire about speaking fees and availability.