Interview with Paul Hodges on changing demographics

01 Jul 2014 | Giada Vercelli


Changing demographics in advanced countries have had an impact on investment patterns. Paul Hodges, Chairman, International eChem (IeC) talks with Euromoney Conferences’ Giada Vercelli about the long term consequences of current demographics trends.

Changing demographics in advanced countries have had an impact on investment patterns. Paul Hodges, Chairman, International eChem (IeC) talks with Euromoney Conferences’ Giada Vercelli about the long term consequences of current demographics trends.

Euromoney Conferences: What is the impact of demographics changes in the advanced economies?

Paul Hodges: Consumption is the key driver for the economy. We also know that consumption peaks in the 45 – 55 age group, after which the kids leave home and incomes reduce as people enter retirement. So today’s aging populations, with nearly half of the adult population already over the age of 55 in some countries, are inevitably going to see much lower growth than in the past when the BabyBoomers were in their peak consumption years.

EMC: What can we learn from the Japanese experience?

PH: Japan has been wrongly seen as having experienced a ‘lost decade’ or more since 1990, as its GDP dropped due to its ageing population. We should rather be celebrating that Japan’s life expectancy has almost doubled from 44 years a century ago. If you ask people whether they would prefer either to live longer and have low growth, or to die young and have higher growth, its hard to imagine many would choose the second option.

EMC: China is an extreme example of demographic patterns. What is your take on China?

PH: Major change is underway in in China under the new leadership, which recognises that the country is at great risk of growing old before it becomes rich. The ‘wealth effect’ from its property bubble boosted consumer spending short-term. But now the economy is heading in a new direction. China over the next 2-3 years will be a great example of Warren Buffett’s famous saying “Its only when the tide goes out, that you learn who’s been swimming naked.”

EMC: Why has the great rotation failed to materialise?

PH: Because you can’t you print babies, or turn 55 year-olds back into 35 year-olds. Or to put it another way, the economic impact of today’s demographic changes far outweighs that of monetary policy. Investors are far more worried about return of capital, than return on capital. In turn, this raises the question of whether today’s debt mountain can ever be repaid in a low-growth economy? Capital repayment risk will be the big issue for the second half of this decade.

To see the full interview please  click here


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