The Asian tiger economies that boomed during the second half of the 20th century are about to hit a major constraint on their growth.
They’re going to see something that’s more common in southern Europe, and has bothered Japan for years. The number of people in the normal “working age” category (usually 15-64 years old) will go negative in 2016.
China — which is not strictly one of the four Asian tigers (Hong Kong, Taiwan, South Korea and Singapore) — now faces the same problem at an earlier stage of development, reaping the consequences of the one child policy.
For years these countries had impressive demographics, a young workforce with fewer elderly dependents. That is going to change in the years and decades ahead.
Here’s how it looks, with a chart from Morgan Stanley (AxJ stands for Asia ex-Japan):
Here’s a snippet from the Morgan Stanley note explaining the phenomenon (emphasis ours):
The economies that are facing the issue of weaker demographics and tight labour markets (China, Korea, Taiwan, Thailand, Hong Kong and Singapore) are also facing the challenges of high debt and deflationary pressures. Indeed, PPI has been in deflation for these economies for an average of 27 months and all of these economies have debt to GDP ratios that are close to or above 200%.
These three challenges of debt, demographics and deflation have been weighing on the domestic demand growth trend. The resulting high levels of real rates have meant that the private sector has been reticent to invest, and in the absence of monetary policy action to bring real rates lower, have been delaying a much- needed transition to a new productive cycle.
The economies might be able to engineer solutions on deflation and debt — but they can’t magic up new children. Without huge waves of immigration (which likely wouldn’t work for China since it’s so large), this is something the Asian tigers are just going to have to live with.
Combined with the general slowdown in China’s economy, it seems unlikely that the country will return to the double-digit growth rates of the last 20 years any time soon.