The great demographic reversal: ageing societies, waning inequality, and an inflation revival

The rise of China to the status of economic superpower has been the dominant feature of the last three decades. China’s rise, the main characteristic of globalisation, in conjunction with a beneficial sweet spot in demography, drove output up and inflation down in the advanced economies. But these trends are now reversing, and China’s greatest contribution to global growth is now past. Its working age population is now shrinking, while the ranks of the old expands, there and worldwide. This great demographic reversal will lead to a return of inflation, higher nominal interest rates, lessening inequality and higher productivity, but worsening fiscal problems, as medical, care and pension expenditures all increase in our ageing societies. Meanwhile debt has been massively accumulated, especially as a consequence of the Covid pandemic. This will make control of inflation much harder in future decades. Be warned, the future will not be at all like the past, and in many ways even more difficult to manage.