Consumption, Demographics, and Destiny

Freedom Financial Archive | Originally posted Jan 05, 2023
  • The Old China Hand keeps getting older.
  • Catholic Europe isn’t reproducing fast enough.
  • Even the United States have population issues to deal with.

Let’s talk about demographic shifts, how populations move, and why that's a problem for specific countries and the global economy in general.

When you look at some of the shifts that have really accelerated with prime age population projected to, to decline across multiple countries, we look at the countries that are the biggest producers of things, as well as buyers of goods in, in the global economy.

So, the one I think is very well telegraphed is Europe. They have an aging population. It's accelerating to the downside. The US doesn't get as much press, and we're going to go deeper on specifically the US in another post.

China: One Child Isn’t Enough

But the one that's the biggest is China. China has a huge demographic pivot that only accelerates and gets much worse as time goes on. And the reason why that's a problem is you have to think about who's buying your stuff.

So, there's multiple points of a demographic issue, especially as the population is dwindling. One is, “Who's going to work those jobs?”

Stay with me on this:

So, then that means you have less people in the economy to work. That means the government’s tax take falls. And that means that productivity comes down. Then you have to pay people more to stay longer. And that increases your wage cost.

Then on the other side the question is, “Who's going to buy your stuff?”

These employees are also consumers! You have a degradation of who's your underlying buyer. The problem is a lot of the places that have the most buyers, like the US, are also suffering from the same problem in terms of underlying people and their working availability. Especially when you look at both manufacturing and service jobs.

So then, who is going to be the consumer?

Let’s pick on China for a moment.

China's been building skyscrapers and ghost cities for two decades, but who's moving into them? Who’s the buyer?

Because you have the one child policy that is now hitting hard.

You have a population that is not only aging, but shrinking, and yet you have a record amount of empty space in the country from ghost cities to units to square footage.

No matter how you look at it, there's a record amount of available square footage or floor space in China, but yet you have a declining population and an aging population.

So how are you going to fill that? How are you going to correct that?

That’s obviously a long-term problem.

And there are near-term problems in China that aren’t going away.

Pull that forward and you look at the world to experience a recession in 2023.

Most have assumed that there's going to be a recession at this point but start looking at the countries experiencing a recession. The US is almost 16% of global economic capacity, and the Eurozone is 12%.

You’re looking at a lot of areas that are big buyers that are not going to be there because of a contraction, a recession that is going to be a bit prolonged.

So where is China going to sell?

How Does China Look in 2023?

How are they going to turn around their economy in the near term given the weightings that we have on that global footprint?

So again, there's a lot of things happening right now that are going to be, I think, a big hindrance in Q1.

I think you're going to see the biggest impact to the global economy in Q1.

You'll probably get a little bit of a resurgence in Q2 in terms of activity for things to slow down in Q3 and Q4.

But the demographic shift that we highlighted, that's a long-term problem.

That's something that's going to cap growth for the foreseeable future, especially as we go out into 2026 and beyond.

You see that accelerating decline, which is going to be that bigger issue as we go throughout the rest of this century, let alone just decades.

So, there's going to be a lot of things to talk about for sure, as those demographics hit and limits growth.

Have a great day ahead.

Kind regards,

Freedom Financial News