La principal causa de que estemos tan estancados es la mala demografía que presentan las economías en general, y la española en particular…
The Global Growth Slump: Causes and Consequences
Demographic factors like slowing population and labor force growth, along with a global productivity slowdown, are fundamentally redefining achievable economic growth. These global shifts suggest the disappointing growth in recent years is a harbinger of the future. While the causes of the growth slump are well defined, the consequences will be shaped by choices that policymakers are grappling with around the globe. The following is adapted from a presentation by the president and CEO of the Federal Reserve Bank of San Francisco at Macquarie University, Sydney, Australia, on June 27.
It is a pleasure to have the opportunity to join you here today. We in the San Francisco Bay Area feel a special kinship to the people of Sydney. Our cities are two of the world’s great metropolises, known for their sweeping waterfronts, iconic bridges, and unique architecture. Also, both our cities are chilly in June and July—only you have the excuse at least that it’s winter.
Among our other commonalities is a mutual stake in the economic well-being of the other, and in the well-being of the broader community of nations in an increasingly interconnected world. In this regard, an important new trend is emerging. Even as countries make strides in recovering from the global financial crisis, growth remains lackluster.
More specifically, as attention has been focused on combating crises and economic downturns, shifting supply-side realities have been developing that are holding back growth across the globe. Demographic factors like slowing population and labor force growth and a global productivity slowdown are fundamentally redefining what is achievable and creating a new set of economic challenges.
These challenges have ramifications that extend beyond the next few months or years—they will define the economic landscape for the next decade and beyond. In a broader sense, they’re also about the next generation, and what sort of future we choose to create together. The focus of my remarks today will be on the causes and consequences of this global growth slump.
Spoiler alert: When you look at the underlying demographic and productivity-related shifts, it becomes clear that a sea change is taking shape. What’s less clear is how global policymakers will respond to these shifts—whether they will make the necessary long-term investments in priorities like education, job training, science, and infrastructure that can break this slump, or whether they will allow this slump to break them.
Crisis and recovery
The narrative of the past decade has been one of crisis and recovery.
Today, many nations are still coping with the aftermath of the global financial crisis, the euro-area crisis, and other events. Central banks remain engaged in the extraordinary policy actions they undertook to stabilize their economies and to support economic recovery.
There are encouraging signs that we are approaching a turning point, a transition from recovery to ongoing economic expansion. The United States is a case in point.
The U.S. economy has regained and even surpassed full employment benchmarks. Although our inflation rate is still somewhat below our 2% medium-term target, I and my colleagues on the Federal Open Market Committee expect us to reach that goal in the next year or so (Board of Governors 2017). As a result, we at the Federal Reserve are now in the process of gradually withdrawing the massive monetary stimulus put in place during the past decade.
And we’re not alone in this improving outlook. When you look at the economic news coming out of Europe and Japan, for instance, you see economic indicators moving in the right direction.
But wait a second, isn’t this supposed to be a speech about the global growth slump?
The big dichotomy of our times is that, in country after country, the economic news is at once both encouraging and discouraging: encouraging that economies are expanding, discouraging that growth is disappointing, at least by historical standards.
In the United States this dichotomy is profound. U.S. GDP growth has been almost as unimpressive as employment has been impressive. In the nearly eight years since the recession ended, real GDP growth has averaged only about 2%, well below former trends, while we’ve added an impressive 15 million jobs. How can both be true?
Shifting winds
As I said at the beginning of my remarks, a sea change in sustainable growth is under way, driven by fundamental shifts in demographics and productivity growth.
I’ll start with demographics. Two powerful trends are evident: We are generally living longer, but birth rates are declining.
The good news is that people are living longer on average. Overall life expectancy in member countries of the Organisation for Economic Co-operation and Development (OECD) has increased from about 60 years in the 1950s to nearly 80 years today (Figure 1), though not for all population groups (see Case and Deaton 2017). And it is expected to grow even higher, eventually exceeding 90 years later this century.
Figure 1
Projections for life expectancy and population growth
Projections for life expectancy and population growth
Source: United Nations (2015). OECD average weighted by population in 2000.
Despite this increase in longevity, population growth is slowing to a standstill owing to falling birth rates. Among the so-called advanced economies that belong to the OECD—which includes Australia—population growth averaged over 1% back in the 1950s and 1960s, but is now running under ½% per year, as shown in Figure 1. United Nations (2015) projections show population growth in this group of countries actually turning negative some 20 years from now.
When it comes to productivity, the changes that are occurring in advanced economies across the world are no less dramatic. In the United States, the catchphrase is “productivity slowdown.” Labor productivity—the amount produced per worker hour—in the United States has been growing a little over 1% per year over the past decade, well below half the rate of the prior decade (Figure 2).
Figure 2
U.S. total factor productivity and labor productivity growth
U.S. total factor productivity and labor productivity growth
Source: Fernald (2014). Ten-year averages, quarterly percent change at annual rate.
The recent pattern of subdued productivity growth is a throwback to that seen from the mid-1970s through the mid-1990s. And a major factor driving the slowdown in the two periods is the same: very slow growth in what economists call “total factor productivity,” or TFP for short (Figure 2). TFP is the measure of productivity that remains after one accounts for changes in the quality of the workforce and the amount of capital investment in the economy, and is often thought to be a measure of innovation and technology.
Some commentators blame the apparent productivity slowdown on failures of economic statistics to keep up with changing times, pointing to the widespread adoption of mobile technology, social media, the gig economy, and so on. Careful study of this issue, however, reveals that these developments present no greater difficulties in measuring productivity than those from the past: that is, the productivity slowdown is real (Byrne, Fernald, and Reinsdorf 2016).
The recent productivity slowdown is not confined to the United States, but rather is a global phenomenon. Averaging over 17 advanced economies—again, including Australia—productivity growth has fallen to below 1% per year over the past decade, less than half the pace seen over the prior 30 years (Figure 3) (Bergeaud, Cette, and Lecat 2016). As in the United States, a key culprit in the slowdown is a sharp decline in TFP growth.
Figure 3
TFP, labor productivity growth for 17 advanced economies
TFP, labor productivity growth for 17 advanced economies
Source: Bergeaud, Cette, and Lecat (2016), OECD, and author’s calculations. Weighted average by 2000 GDP at purchasing power parity, annual percent changes. OECD estimates. Data available online.
Slumping growth
So what do these trend shifts in demographics and productivity mean for future economic growth? For that question, some math comes in handy. Over the medium term, the sustainable growth rate of the economy equals the sum of productivity growth and the growth rate of labor supply. Therefore, the slowdown in productivity growth translates one-for-one into a slowdown in sustainable GDP growth.
Demographics are also holding back rather than boosting economic growth. The decline in population growth eventually implies slower labor force growth. In addition, longer life expectancy combined with more time in school means that people are spending a decreasing share of their lifetimes in the labor force. These two demographic waves are driving labor force growth toward zero, or even below that, in countries like Japan. Even the United States, which historically has enjoyed high rates of labor force growth, is expected to see labor force growth of only ½% per year over the next decade, a significant drop from the past (Congressional Budget Office 2017).
These global shifts in demographics and productivity tell us that the growth we have been seeing in recent years, and thinking of as “disappointing,” “anemic,” and “tepid” when compared to years past, is a harbinger of the future. Research by Kathryn Holston, Thomas Laubach, and myself (2016) aims to quantify the new normal for growth. The estimated trend growth rate for GDP for four economies—Canada, the euro area, the United Kingdom, and the United States—now stands at about 1½%, less than half what it was 30 years ago (Figure 4). The corresponding estimate for the United States alone is about 1½%, broadly consistent with other estimates (Fernald 2016).
Figure 4
Estimates of r-star and trend growth
Estimates of r-star and trend growth
Source: Estimates from Holston, Laubach, and Williams (2016). GDP-weighted average of United States, Canada, the euro area, and the United Kingdom. Weights are GDP at purchasing power parity, OECD estimates. Prior to 1995, euro-area weights are summed weights of the 11 original euro-area countries.
Policy implications
So these are some of the causes of sluggish growth…what are some of the consequences?
For starters, the demographic waves and slower growth have driven down the longer-term normal or “natural” real rate of interest—or r-star—to historic lows in country after country.
Slower trend growth reduces the demand for investment, while longer life expectancy tends to increase household saving (Carvalho, Ferrero, and Nechio 2016, Gagnon, Johannsen, and Lopez-Salido 2016, and Eggertsson, Mehrotra, and Robbins 2017). This combination of lower demand and higher supply for savings, along with other factors, has pushed down the “price” of savings, or r-star. With open capital markets, global developments affect r-star in every country, irrespective of local economic conditions.
There is mounting evidence of a sizable decline in r-star across economies. Estimates for the United States indicate that r-star has fallen to between 0 and 1% (Williams 2017b). The weighted average of estimates for Canada, the euro area, the United Kingdom, and the United States has declined to less than ½%. That’s 2 percentage points below the average natural rate that prevailed in the two decades before the financial crisis (Figure 4). Estimates for Japan are also near zero (Fujiwara et al. 2016). These r-star estimates differ by economy, but in all cases the most recent estimates are among the lowest over the past 30 years (Holston, Laubach, and Williams 2016).
A striking aspect of these estimates is that they show no signs of moving back to previously normal levels. Looking ahead, given the demographic waves and sustained productivity growth slowdown around the world, I do not expect r-star to revert to higher levels anytime soon.
The dramatic decline in r-star presents significant challenges for monetary policy and financial stability. In particular, the global nature of the decline in r-star implies that central banks will face daunting challenges in stabilizing their economies in response to negative shocks when interest rates are not far above their lower bound (Caballero, Farhi, and Gourinchas 2016 and Eggertsson et al. 2016).
In a low r-star world, what were once called “extraordinary” policies—like zero or negative interest rates, forward guidance, and balance sheet policies—are likely to become the norm as central banks strive to achieve their macroeconomic goals.
Therefore, policymakers around the globe need to prepare for the challenges of successfully navigating new realities (Williams 2016, 2017a). In the best of all worlds, fiscal and other policies would be put in place that propel long-run economic prosperity and boost r-star on a sustained basis. More on this in a moment. Absent such actions, monetary policy will be severely challenged to achieve stable prices, well-anchored inflation expectations, and strong macroeconomic performance in a low r-star world.
Therefore, monetary policymakers will need to prepare for the next storm by taking appropriate actions in advance to design and commit to a more resilient monetary policy framework that is robust to a low r-star world. It’s imperative to study and debate these issues now rather than wait until the next storm hits.
Another set of consequences of the global slump will be felt by fiscal and other public policymakers worldwide. Unless the trend lines improve, they will likely find that they are repeatedly being asked to do more with less, in some cases much less. Many will face dramatic increases in unfunded liabilities such as pensions and safety net programs.
Countries that fail to act today will find their challenges getting even more severe tomorrow. With the sea change under way, we no longer have the luxury of taking a wait-and-see approach.
This begs the question, what does said action look like?
As a monetary policymaker, I wish I could tell you that it’s within the purview of central banks to solve all this, that the answer lies in raising or lowering interest rates.
Reality, unfortunately, dictates otherwise.
Our long-term challenges are going to require the sort of long-term investments that fiscal policymakers—and private investors—have within their own toolkits: investments in education, job training, infrastructure, research and development…all the things that propel an economy and prosperity over the longer term.
Conclusion
My perspective is that of a statistician and economist rather than a politician or columnist: The data and the analysis tell the same story of a fundamental sea change in the global economy.
While the causes of the global growth slump are well defined, the consequences are yet to be written—and they will ultimately be shaped by choices that policymakers are grappling with across the globe. And, ultimately, the choices made by any one of our nations will impact all of our nations.
John C. Williams is president and chief executive officer of the Federal Reserve Bank of San Francisco.
Abrazos,
PD1: Cada vez más gente con más de 100 años… Es terrorífico!!!
12.000 centenarios en 2017 en España, ¿222.000 en 2066?
Antonio Abellán García, Alba Ayala García. Departamento de Población, CSIC.
A primero de enero de 2017 viven en España 12.183 centenarios, dieciséis veces más que en 1970, según los datos provisionales publicados por el INE (Cifras de población, 29-6-2017). Su evolución se ha mantenido estable hasta principio de este siglo, pero en los últimos años aumenta notablemente, y lo hará aún más en las próximas décadas. En 2066, fecha máxima de la última proyección de población del INE, habrá 222.104 centenarios (Figura 1). A partir de 2050, el número de centenarios crecerá fuertemente como consecuencia de la llegada de las cohortes del baby-boom (los nacidos entre 1958-1977), y de las cohortes previas que también eran voluminosas.
Figura 1.- Evolución de los centenarios. España, 1970-2066
Fuente: 1970-2010, Human Mortality Database; 2020-2066, INE: Proyecciones de población.
La mayor parte de los centenarios son mujeres, aunque nacen más niños que niñas como en la mayoría de los países (51% de niños, 2016). Este desequilibrio al final de la vida traduce la sobremortalidad masculina a lo largo del ciclo de vida; a los 50 años las mujeres representan el 54% de toda la población de esa edad o más años; a los 65 años ya son el 57% de todas las personas mayores; son el 63% de todos los octogenarios, el 71% de los nonagenarios, y el 81% de los centenarios. La figura 2 representa gráficamente la estructura por sexo y edad de los centenarios, con una apreciable asimetría entre hombres y mujeres.
Figura 2.- Población de centenarios por sexo y edad. España, 2017
Fuente: INE: Cifras de población a 1-1-2017, provisionales.
La mayoría de los centenarios viven en viviendas familiares (72%) y eso es más frecuente en el caso de hombres (Censo de 2011); en alojamientos colectivos, donde vive el 28% de los centenarios, casi todos son mujeres. De los que viven en viviendas familiares, solo 2% viven en pareja, sin hijos, y un 20% viven con algún hijo. Predominan los hogares de otro tipo, es decir con otras personas no cónyuge ni hijos (52%); llama la atención que casi uno de cada cinco centenarios vive solo (19%), que realmente es sola, por tratarse principalmente de mujeres. Los hombres suelen vivir más en pareja, sola o con hijos, que las mujeres, como sucede en el resto de edades de la vejez.
¿Dieciocho veces más centenarios en 2066?
Con la última proyección del INE, se estima que España alcanzará los 222.104 centenarios en 2006, calculados con un escenario de mortalidad que mejora ligeramente el actual, y que acerca a hombres y mujeres, aunque éstas seguirán teniendo mayor longevidad.
Las mujeres habrán pasado de significar el 81% de los centenarios en 2017, al 67% en 2066, gracias a la mejora de la mortalidad masculina que reducirá las diferencias existentes en esperanza de vida entre mujeres y hombres. La esperanza de vida al nacer se habrá incrementado en 8,3 años para los hombres y 5,9 para las mujeres entre esos dos años. La brecha en esperanza de vida entre hombres y mujeres se habrá reducido a 3,0 años desde los 5,5 años actuales. Uno de cada tres centenarios será hombre en 2066; ahora es uno de cada cinco.
La probabilidad de llegar a los 100 años ha venido aumentando en las últimas décadas, más en España que en otros países europeos; esto se explica en parte porque las mejoras de mortalidad en la población española son más recientes que en esos países. Por ejemplo, en el conjunto de hombres y mujeres, el número de supervivientes teóricos en España que alcanzaría los 100 años se ha multiplicado por 11 entre 1970 y 2014, cifra más alta que Francia, Suiza, Italia, Dinamarca o Suecia (según las tablas de mortalidad del HMD). Si prosigue esta tendencia, es razonable pensar que hacia 2070 el número de centenarios en España será muy similar al de los países europeos más poblados (Tabla 1), cifras calculadas según la proyección de Eurostat, que difiere ligeramente de la del INE.
Tabla 1.- Población total y centenarios en 2070, varios países
Fuente: Eurostat: Population Projections, Baseline Projections [proj_15npms]
PD2: Vivimos en un tiempo tasado, limitado: nos vamos a morir aunque no queramos. No podemos dejar para otro día lo que podamos hacer hoy, lo que hagamos mal y podamos corregir. No sabemos cuando el final va a suceder. Hay que avanzar, no estancarse, ya que el tiempo es limitado.
¡No empujes, calma! ¡Qué sensación de que el tiempo pasa tan rápido!
