I remember back in the 1990s looking at long term Canadian stock market performance and thinking how lacklustre it had been. Since then of course things changed: while many markets have fallen back below levels reached in the 1990s (UK, France, Japan, Italy) Canada’s stock market, up until recently, has been ratcheting up one peak after another; its markets have behaved more like developing Asian markets (South Korea, Hong Kong etc).
Commodity price and production increases have played a large part in much of post 1990s economic performance as has a considerable debt financed house price/construction boom and other debt financed consumer expenditure.
With the recent hefty collapse in oil (other commodity prices have been falling for a while too) it is worth asking whether Canada’s mini golden age has passed. Certainly the boost that came from a debt financed property market boom is unlikely to be repeated and the consequences of debt more likely than not to weigh on future economic growth. Additionally, China, a key figure in the growth of world trade and demand for commodities post 1990s is slowing down.
But what of other dynamics? Well population growth and aging are very important and have likely been a major factor in slowing global growth. If we look at employment growth between 2000 and the present point in time we see that Canada has significantly outperformed the US and a good part of its economic performance has likely been due to this superior metric:
Recently a Statistics Canada report eulogised Canada’s population growth, the highest amongst G7 economies but I see more troubling trends behind the data:
The age 65 and over population is expanding rapidly at the same time as under 20s has actually been falling. Back in 1990 12.5% of the US population was over 65 and 28.8% was 19 and below. In Canada the respective figures were just under 11% and 27.7%. By 2013 US over the age of 65 had risen to 14.14% and those under 20 had only fallen to 26%. In Canada the respective figures were 15.3% and 22.3%. The trend is divergent: the working age cohort in Canada started at a higher level and has now shrunk to a lower level and looks set to fall further.
We can see the growth rate of the key 20 to 54 age group has been declining steadily.
We also note that employment growth in the 20 to 24 age group (and hence the 20 to 54) had benefited some from a recovery in growth (long since past) in the 0 to 19 age group from the mid 1980s to the late 1990s. This has now worked its way out of the system.
Canada has seen relatively strong employment growth from the late 1990s to around 2008, which had held up reasonably well post 2008. But if we assume that the 0 to 19 age group is declining and that the surge in employment growth has been due to a temporary surge in growth in the younger cohorts, expect employment and economic growth to suffer. Also expect demand for highly priced properties to abate.
Poor demographics and high levels of debt combined are highly deflationary. Moreover high levels of debt and slow economic growth risk further weakening population growth, compounding growth and debt problems. This to my mind is a key reason why we need to worry a lot more about debt levels.