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History has often illustrated the power of the maxim, coined by the French socialist thinker, Auguste Comte, that “Demography is destiny”. The post war baby boom helped drive growth in Europe and North America through the 1950s and 1960s. In the 1970s Asia enjoyed similar, population-driven, gains.
History also shows that Comte’s dictum could, more accurately, but less elegantly, be rendered as, “Demography and policy are destiny”. To realize the potential of an expanding population a country needs to invest in education and infrastructure, and to have sound government.
While Asia largely got these things right in the 1970s, Latin America, which saw similar population growth, did not. Recent research by the International Monetary Fund shows that poor policy and insufficient investment hindered Latin America’s ability to benefit from a growing population.
Asia and Latin America both witnessed a 20% increase in their working age populations between 1965 and 2010. Asia turned its population growth into a seven fold increase in GDP per capita. Latin American managed only to double its GDP per capita.
This episode matters enormously for Africa, a continent which now sits on the cusp of a similar demographic transition. Africa already has the youngest population in the world. Falling mortality rates, high fertility and growing number of women of reproductive age are set to quadruple Africa’s population, to more than four billion people, by 2100. By the start of the next century about two-fifths of the world’s population, and its workforce, will be African.
This change brings with it opportunities and risks.
The greatest risk is that there are insufficient jobs for the millions of new workers. The African Development Bank suggests that the continent creates only 3 million new jobs for the 10 to 12 million people who enter the African labour market every year.
Unemployment creates political as well as social and economic risks. Unemployed youth are more likely to turn to crime, to join rebel groups or armies or make perilous trips in search of a better life overseas. If Africa is unable to provide work for its burgeoning population the risks to stability at home and the likelihood of mass migration increase.
Switch on the TV news, follow Twitter or read a paper and it can feel like we are living in an era of high, perhaps unprecedented, uncertainty.
We certainly seem, over time, to have become more aware of uncertainty. Since the 1940s references in English language books to uncertainty, volatility, complexity and ambiguity have soared. The term Chief Risk Officer did not exist before the mid-1990s. Now CROs are an established part of many large companies. In the 1990s the US army War College coined the term VUCA in to describe an apparently new world of volatility, uncertainty, complexity and ambiguity.
Last week two of the UK’s leading economic forecasters concluded that Brexit is unlikely to cause a sharp slowdown in UK growth over the next three years. This is big news.
Last summer, in the weeks after the referendum, talk of the UK falling into recession was rife. Economists slashed their UK growth forecasts. By August economists expected GDP growth would fall away in the second half of 2016 as Brexit hit home. They saw the UK eking out meagre growth of 0.6% in 2017, the slowest since the recession in 2009.
Inequality in incomes is a hot topic across the industrial world. Although the global recovery is in its eighth year in most rich countries the gap between higher and low incomes has widened.
A conspicuous exception is the UK. I was surprised to learn that take-home incomes for those in the bottom 20% of incomes have risen faster than for those in the top 20% in the last ten years.
The performance of financial markets provides signals about the state of the global economy. Market movements in part reflect shifting expectations about growth, inflation and risk. The messages from markets are fallible. But unlike economists’ forecasts, the positions investors take are backed by real money.
So who made money in financial markets in 2016 and what does it imply for the global economy?
The Brexit vote has set the UK on a new path. The form Brexit takes will take time, possibly years, to emerge. But there is another, and for me, more fundamental question facing Europe.
2017 marks the sixtieth anniversary of the foundation of the European Union. Its founding principle was progress to “ever closer union”. Today, amid challenges created by low growth, migration, the growth of insurgent political parties and Brexit, this principle is in question as never before.
The global recovery is entering its eighth year – sufficiently long for some commentators to suggest that we are due for another recession. That seems premature. 2017 looks likely to be another year of growth for the global economy, and at a rather faster rate than in 2016.
But this is not likely to be the year in which growth finally breaks through, returning to the heady rates seen in the decade before the financial crisis. In other words, activity is likely to remain close to the lower, so-called New Normal levels seen since 2009.
The latest Deloitte survey of UK Chief Financial Officers highlights the opportunities and risks facing British business in 2017. To read the report in full visit:
CFOs have become markedly more positive on the outlook for their businesses. Optimism among the UK’s largest businesses rebounded to the highest level in 18 months in the fourth quarter.
For the last Monday Briefing of 2016 we have pulled together our favourite funny news stories from the Briefing through the year. As ever credit goes to my colleague, Alex Cole, who tracks down each week’s news stories and is the indefatigable inventor of the play on words that concludes each week’s Briefing. The Monday Briefing will return in the New Year. In the meantime the Economics Team – Ian, Alex, Debo, Jemma and Anthea – send our very best wishes to you for Christmas and the New Year.
With Christmas approaching here is our seasonal offering of six thought-provoking articles to occupy the quiet time during the holidays. All are available free and on-line.
The continuing problems faced by Italian banks, some of the oldest in the world, is a reminder of Italy’s long banking history. This History Today article describes how the Italian Medici family built their banking empire in the fifteenth century; “not merely the most profitable organisation in Europe, but the richest commercial house there has been anywhere.”
Our Christmas Quiz offers an eclectic test of knowledge of economics and business. The answers, and a brief explanation of the factors at work, are at the end of this note.
- Which of the following countries is likely to show the fastest growth of the seven major industrialised nations this year?