Global growth slows to 3.9 percent as BRIC nations diminished by population


A year ago, Catherine Liu employed more than 2,000 people at her five Shanghai luggage-making factories. Now, as the dwindling supply of low-paid young workers forces wages and costs higher, she has 1,200 left.

“Local workers are getting much older,” said Liu, owner of Shanghai Worldwide Trading Co. “If you want to train them, they must be young. It’s very difficult to survive.”

Aging and shrinking labor pools are also poised to curb expansion across the other so-called BRIC nations that contributed almost half of global growth in the past decade. With fewer youths keeping factories going and more pensioners to support in those markets, the world economy is set to slow, Goldman Sachs Group Inc. says.

The number of people older than 65 in Brazil, Russia, India and China will rise 46 percent to 295 million by 2020 and to 412 million by 2030, according to United Nations projections. The pool of 15 to 24-year-olds, the mainstay for factories like Liu’s that drove China’s boom for three decades, will fall by 61 million by 2030, about the population of Italy.

As the BRICs slow down, global growth probably will peak at about 4.3 percent this decade and fall to 3.9 percent in the 2020s, according a Dec. 7 report by Goldman analysts. That’s prompting fund managers including Mark Mobius to invest in so- called frontier markets such as Nigeria, Vietnam and Argentina, where average annual growth is set to rise to 5.1 percent this decade, from about 4.3 percent in the previous 10 years.

One of his holdings, Nigeria’s Zenith Bank Plc, has risen 11.9 percent in the past two years, while the MSCI Emerging- Markets Index is down 7.4 percent. 

Goldman Sachs Asset Management Chairman Jim O’Neill, who coined the BRICs acronym a decade ago, said other emerging economies may now be better investments ― especially Indonesia, Turkey, Egypt and Mexico.

“These four countries could be in the top 10 contributors to global GDP this decade, adding well over $2 trillion,” London-based O’Neill said in an emailed response to questions on Dec. 29. “With large young populations, these countries could become powerful growth stories.”

While Goldman started its N-11 fund in February covering the “Next Eleven” emerging nations to “benefit from superior growth potential,” O’Neill said the size of the BRICs economies means they will remain “the most dominant and positive force in the world economy.”

Together, Brazil, Russia, India and China account for about 25 percent of world gross domestic product, according to Goldman.

O’Neill’s company predicts that the average annual expansion of the BRIC countries will fall during this decade to 6.9 percent from 7.9 percent in the 10 years to 2009, then drop to 5.3 percent in the 2020s. “In terms of the role of the BRICs in driving global growth, the most dramatic change is behind us,” the Goldman analysts, led by Dominic Wilson in London, wrote in a Dec. 7 note.

Already, the demographic volte-face has prompted calls for China to end its one-child policy, which exacerbated the drop in workers since its implementation in 1979; and has forced legislation in Brazil to control the cost of public-service pensions. In Russia, a shortage of qualified middle-aged workers is being blamed for a crisis in its space program after failed exploration and satellite launches.

In India, where the working-age population is projected to rise more than a quarter by 2030 to 972 million, illiteracy among more than one-third of workers is preventing the nation from capitalizing on its demographic fortune.

“Financial markets, businesses and policy makers have failed to recognize that demographic realities are creating pressures for slower future growth,” said Nicholas Eberstadt, a demographer at the American Enterprise Institute in Washington, who has advised the World Bank.

The shift to a society with a dwindling number of employees funding a growing pension bill is most pronounced in China, the world’s biggest growth engine last year.

After expanding 2.5 percent a year over the past three decades, China’s working-age population has almost stopped growing, said Richard Jackson, director of the Global Aging Initiative at the Center for Strategic and International Studies in Washington. That pool will contract almost 1 percent a year by the mid-2020s, he said.

The number of 15- to 24-year-olds, who staff the factories that make cheap clothes, toys and electronics, will fall by almost 62 million, to 164 million, in the 15 years through 2025, U.N. projections show. Meanwhile, those over 65 will rise 78 percent to 195 million.
 
(Bloomberg)