• Investment Management

Global Economy SOS: More Workers Needed

Shrinking or stagnant workforces are one of the main reasons why the global economy has grown so slowly since 2008, writes Morgan Stanley’s Ruchir Sharma in Foreign Affairs.

Many explanations have been offered for the weakest recovery of the postwar era. One of the most overlooked and important is demographic, writes Ruchir Sharma, head of emerging markets and head global strategist at Morgan Stanley Investment Management .

“A collapse in the growth rate of the working age population was already underway before the financial crisis and the trend explains a good chunk of the persistently disappointing recovery since,” he writes in a piece in Foreign Affairs, titled ”The Demographics of Stagnation.”

Economic growth is driven in good part by labor force growth, which has fallen since 2005 from 1.8 % to 1.1% worldwide. The US's labor force is growing at an annual pace of just 0.5% and in some countries, notably China and Germany, it's already shrinking.

Sharma argues that in the past, economies rarely grew at a rapid pace if the working age population – people between 15 and 64 – was not growing at least 2.00% a year. Today, only two out of the 20 largest emerging nations have populations growing that fast, compared with 17 in the 1980s. This suggests that “the world should brace itself for slower growth and fewer economic standouts.”

Sharma elaborates on this topic at length in his upcoming book, The Rise and Fall of Nations: Forces of Change in the Post-Crisis World, coming from Norton in June 2016.

The full essay in Foreign Affairs is available here.

1434030 Exp. 3/2/2017

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