What kind of impact should investors expect on future inflation, economic growth and fiscal spending patterns?
The new dynamics of labor markets will likely be inflationary.
1.
These labor market forces will dampen growth and growth potential.
2.
Rising dependency ratios will strain fiscal budgets, especially in emerging markets.
3.
Fiscal Strain
Inflation
Growth
Fiscal Strain
Growth
Inflation
Dive Deeper into the Macro Implications
Inflationary impulses will dominate as a result of aging demographics
The combined forces of upward wage pressure from a shrinking labor pool and increased fiscal expenditures will offset any declining aggregate demand in most countries.
Japan’s disinflationary experience will not be representative or easily repeatable as globalization has lost considerable momentum and shrinking national pools of labor are now more widespread.
Japan increased global production to mitigate a shrinking population
Japan’s outbound FDI (left) and manufacturing employment (right)
Source: United Nations Conference on Trade and Development and Japanese Statistics Bureau. Data as of August 2023.
Note: Three-year moving average used for both FDI and share of manufacturing.
The new era of labor will dampen growth
An aging workforce negatively impacts areas that influence growth potential such as investment, innovation and technological progress.
The total hours worked will likely decline and—unless productivity rises to compensate—this would adversely impact overall growth.
Annual growth rate estimated to fall to
US
The IMF’s five-year forecast for growth in China fell to
China
Source: US Congressional Budget Office
Data as of August 2023.
Source: International Monetary Fund
Data as of August 2023.
Rising dependency ratios will strain fiscal budgets
A smaller population in their prime working age and more dependents implies lower tax revenues from workers as well as greater spending on social services, straining budgets.
Many EMs are set to experience rapid aging at lower levels of wealth and fiscal strength than many developed countries.
Countries challenged by high fiscal debt and a rapidly aging population
Source: Adapted from Perasso and Doppelt, “Greying and Greening Across Emerging Markets,” PGIM. Data as of August 2023.
Note: EMBIGD refers to J.P. Morgan’s Emerging Markets Bond Index Global Diversified.
1.6%
in the 30-year period starting with 2020, from 2.5% in the preceding 30 years.
citing a shrinking population and declining productivity growth.
3.8%
4.6%
FROM
The new dynamics of labor markets will likely be inflationary.
These labor market forces will dampen growth and growth potential.
Rising dependency ratios will strain fiscal budgets, especially in emerging markets.
•
•
•
•
•
•
•
•
•
•