About four years ago, Deutsche Bank released a detailed report announcing the arrival of a new supercycle in the global economy that would be known as the “Era of Disorder.” This era would be dominated by growing tensions between the United States and China, skyrocketing debt (increasing government spending), price volatility, and technological revolution. Four years later, we can say that they have succeeded. Now, the same economist who led that report has released a sort of appendix or extension focused on financial markets and demographics to try to decipher what will happen in the future. An overview: Spain is not doing well.
Although the report is mainly dedicated to the study and projection of the large blocs (Europe, United States, China or India), it also contains a few lines dedicated to the Spanish economy, which, along with countries like Japan or Italy, will occupy last place. positions in the ranking in terms of economic growth and performance of financial assets.
Jim Reid, Deutsche Bank’s star economist, with help from Henry Allen and Galina Pozdnyakova, wrote a report analyzing the impact of demographics on the economy and financial markets. It is evident that demographics have a lot to do with overall economic growth, that is, the total GDP of an economy generally exhibits positive growth rates, almost unintentionally as the population increases. After all, more people of working age means more workers and more production, assuming everything else remains constant. But Jim Reid and his colleagues They estimate that this population growth is also positively linked to the growth of GDP per capita. (one of the most important indicators for measuring prosperity) and with the good performance of assets in financial markets, notably stocks. As the West and much of the world face a demographic winter, economists at Deutsche Bank are exploring what could happen to the economy and markets.
In the case of the Spanish economy, there is a clear slowdown in average growth measured by quarters of a century: in the period 1925-1949, with the destructive civil war in the middle, GDP increased by only 0.6 % in real terms (in real terms). average each year). The great takeoff of the national economy occurred in the period 1950-1974, with an average annual growth of 6.3%. Later, the economy began to lose ground, as did productivity. During the period 1975-1999, the real annual rate of change of GDP averaged 2.6%, while over the quarter century 2000-2024, this figure was only 1.6%. Given Spain’s demographic behavior, the decline in the working age population and other parameters such as productivity, the next quarter century cannot be expected to be one of recovery.
“According to data on the working age population and total population of the largest developed market countries, everything indicates that countries like Italy, Japan, Spain and Germany will face an uphill climb to avoid finding yourself at the bottom of the rankings list of growth and profitability of stocks for the period 2025-2049, all things being equal,” warns Deutsche Bank. Analysts at the German bank estimate that by 2050, Spain will lose almost 8 million people of working age. So, if everything else remained constant, GDP would fall extremely sharply and stocks would be weighed down as well: “There is a correlation between growth in the working age population and real stock returns…although there are many other factors that come into play. explain the behavior of actions, It’s surprising that there are so few examples of advanced economies with low population growth and decent stock returns.“, says the report published this month by the German bank.
However, a sharp decline in GDP does not appear to be the central scenario in Spain or any other developed country, as productivity is expected to rise sharply as artificial intelligence is applied massively to the economy. This would help cushion part of the shock and allow economies to produce more with less (to be more productive).
Since the first industrial revolution, humans have continued to revolutionize the planet with productivity-enhancing inventions. However, “it is fair to say that over the 2000-2024 industrial cycle, productivity growth slowed in many developed countries and stagnated in the United States. Although debt overhang does not bode well for productivity during the 2025-2049 industrial cycle, it would be courageous to invest against humans’ ability to find the next productivity miracle. At least with AI we all have something to hold on to for hope. The prospect of artificial general intelligence arriving when we reach the second half of the 2025-2049 industrial cycle is real and could completely revolutionize the world,” they say from Deutsche Bank. Even so, the demographic change is astonishing and unprecedented , as these experts point out.
“We currently find ourselves in the midst of an unprecedented demographic transition, in which global population growth is in steady decline, with no clear signs that this trend will change. Within a few years, population growth rates will fall at levels lower than those observed since before 1900”, they say from Deutsche Bank. Although this trend is global, there are large differences between regions and countries. While Africa will be the great engine of population growth, The West will be the great burden of the global engine. In the West, Europe is in a bad position. Within Europe, Spain appears in a bad position.
The demographic decline of Europe
“Europe will be the first large region or country to experience a notable decrease in its population since in the period 1850-1874, the population of China was reduced by around 30 million inhabitants,” underline these analysts. For information or curiosity, between 1850 and 1874, a great drought and an ineffective diet caused a historic famine. China’s population has fallen by more than 30 million people. Now, Europe will likely be the first region to experience a notable population decline since then. Moreover, on this occasion, barring a catastrophe, there will be no famine, no war, nor any natural phenomenon behind it.
The population will naturally decline, but “this demographic decline will pose significant challenges for Europe, as it attempts to maintain its economic and geopolitical influence despite a significant demographic disadvantage,” say economists at German banks. This puts Spain, Japan, Italy and Germany in a difficult situation for the future.
Of the 57 economies in DB’s sample (roughly evenly split between developed and emerging countries), 26 will experience a decline in their working-age population between 2025 and 2049, including China (-225.8 million), Japan (-18 million), Korea (-12.2 million), Russia (-11.7 million), Italy (-10 million), Germany (-8.6 million) and Spain (-7.8 million).
In contrast, DB economists place countries like the US, UK, Canada and Australia at a demographic advantage. Anglo-Saxon countries not only have slightly higher fertility rates, but are also among the countries with the capacity to attract skilled immigration in the labor “war” that is growing as the population is aging and certain qualified profiles are starting to become rarer. Outside of developed countries, India stands out for its potential. Even though the fertility rate is falling drastically, India still has a very favorable age pyramid, so that in the coming years, several tens of millions of people will enter the labor market.
With the data in hand, Deutsche Bank experts point out that The United States will see a slight increase in its working age population (+8 million) between 2024 and 2049, while India will add 145 million workers. The total population of 16 of the 57 economies will decline during this period. By 2050, India’s population will be a third larger than that of China (surpassed in 2022), and its working-age population will be more than 50% larger.
In no man’s land are countries like France, which “falls in the middle of these two groups. As for the largest and most important emerging market economies, China, Thailand and Russia have figures more associated with large and weaker European countries,” say Deutsche Bank analysts. At the other extreme, countries like Indonesia, Mexico, India, United Arab Emirates, South Africa and Egypt have good demographics, but it should be noted that virtually all countries are experiencing a slowdown compared to the period 2000-2024.
Spain fights not to be last
“Taking into account the above and All things being equal, Italy, Japan, Spain and Germany will face an uphill battle to avoid occupying the bottom spots on the list. growth and profitability of stocks over the period 2025-2049. However, in developed markets, the US, UK, Canada and Australia have a demographic advantage given current forecasts. As for the largest and most important emerging market economies, China, Thailand and Russia have population figures more associated with those of larger and weaker European countries. At the other extreme, Indonesia, Mexico, India, UAE, South Africa and Egypt have good demographics,” the Deutsche Bank report said.
Additionally, demographics will also have a big impact on geopolitics, according to Reid and colleagues. The fact that the Japanese economy has fallen from 48% of US GDP in 2000 to less than 15% today is mainly due to weaker demographics.is an important lesson for Europe, which will likely experience a notable population reduction over the period 2025-2049. China will also see its population decline by 149 million, and by 2050 India’s population will be a third larger than China’s, while Africa will have almost double China’s population.
Can the economy be saved from global “Japanization”? “If AI becomes a productivity driver comparable to previous industrial revolutions, it is expected to increase pressure on the entire global economy. However, some countries will have a natural advantage, with the United States currently being the outstanding leader in this area, despite the high initial valuations of current stocks,” Deutsche Bank concludes.
