Transcript Titel Titel 2

How population ageing affects
financial markets
Germany, Japan and USA on focus
Rüdiger Daberkow
DekaBank
Mai 2006
Demographic Development
Downward trend in population growth
Germany and Japan soon with shrinking populations
Population growth*
1.2
0.8
0.4
0.0
-0.4
-0.8
1995 2005 2015 2025 2035 2045
Germany
Japan
USA
*year-on-year, %
Sources: United Nations, DekaBank
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Germany and Japan as examples for the
demographic development in
industrialized societies
Declining population growth rate also in
the US, but thanks to strong immigration
and higher birth rates still better
development
Consequence 1: Lower potential growth
rate
Consequence 2: Pension systems with
pay-as-you-go financing in financial
distress
Consequence 3: Increasing financial
burden of the public budget
Demographic Development
Pension insurance in trouble
Dwindling number of employees to carry more and more pensioners
Persons in working age per pensioner*
6
4
2
0
1990 2000 2010 2020 2030 2040 2050
Germany
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Japan
USA
Number of persons in working age per
pensioner halved within the next 30
years
Even heavier financial burden for the
already troubled pension insurance
scheme
More individual retirement provisions as
sustainable solution
Pension systems with pay-as-you-go
financing can only guarantee a
subsistence-level income
Retirement age to rise in order to soften
the effects
Number of Persons aged 15 up to 64 years divided by number of persons
over 64 years
Sources: United Nations, DekaBank
Demographic Development
Ageing as a burden for public finance
Continuously soaring expenses for elderly persons
Public expenses for persons over 60*
30%
25%
20%
15%
10%
5%
0%
2000
2010
Germany
2020
Japan
2030
Increasing payments for pensions as
well as soaring care & health expenses
in older age
Urgently needed investments in
education and infrastructure are inhibited
by higher budget burden provoked by
elderly persons
To moderate the financial burden due to
demography, savings should be made
However, public debt now is soaring – in
Japan, Germany and the US
2040
USA
* in % of GDP
Sources: Center for Strategic and International Studies, DekaBank
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Demographic Development
Economic growth tends to weaken
Population development no longer a growth driver
Potential growth*
Lower potential growth due to lower
population growth rate and shrinking of
the population, respectively
Consequence 1: Potentially weaker
development of financial markets
Consequence 2: Increase of public
revenues lowered, at the same time
soaring public expenditure
Consequence 3: Corporations need to
find new markets in order not to shrink
with the population
3.5
3.0
2.5
2.0
1.5
1.0
0.5
0.0
2000
2010
EU
2020
USA
2030
2040
2050
Japan
„Average“ year-on-year growth of GDP, %
Sources: EU-Commission, DekaBank
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Demographic Development
Effects on financial markets
Plunging market prices?
Ageing will lead to increasing supply of stocks and bonds,
because of dissaving in retirement age
Higher public deficit due to increasing expenditure for elderly
persons will lead to growth in the supply of bonds
Lower potential growth will lead to slowdown of the
development of stock markets
Result 1: Increasing supply tends to result in plunging prices of
stocks and bonds
… however:
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Demographic Development
Effects on the financial markets
Soaring market prices?
More individual retirement provisions will cause higher
demand of stocks and bonds
Pension funds will invest more in bonds to keep up with
promised returns with less risk
Global economic growth is expected to remain high with
corporations profiting from it
Result 2: Increasing demand of bonds and stocks as well as
dynamics of the world economy tend to result in soaring prices
of stocks and bonds
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Demographic Development
Effects on the financial markets
„Soft landing“ of the markets
There are good reasons for higher as well as for lower prices
in stock and bond markets
Regarding the demographic development, a „soft landing“ of
the markets can be expected at last, i.e. tendency to slightly
falling prices, but with temporarily higher prices in some
periods
Diversification of investments in products and regions as
strategy to manage risk
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Thank you
for your attention!