Weekly economic briefing: Voice of Asia, Edition 3 – Demographics fuelling Asia’s shifting balance of power

The Weekly Economic Briefing is written by two senior Deloitte Economists, David Rumbens from Deloitte Access Economics in Australia and Ian Stewart Deloitte’s Chief Economist in the UK. They provide a personal view on topical financial and economic issues. Subscribe to receive the Weekly Economic Briefing in your inbox!

In this week’s blog:

Australian economic briefing
UK economic briefing
International economic briefing

Australian economic briefing by David Rumbens

This section of the briefing provides a snapshot of key economic data and issues of relevance to Australia.

Voice of Asia, Edition 3 – Demographics fuelling Asia’s shifting balance of power

The third edition in the Voice of Asia series outlines how demography—the fundamental driver of all economies—is shifting the balance of power in Asia. India’s young economy is on the rise, Japan’s big budget deficits are being worsened by ageing, and both China and Australia are getting older at a speed that will re-fashion their business landscape.

Over the next decade, Asia’s over-65s will be the largest and fastest growing market in the world, growing from 365 million in 2017 to more than 520 million in 2027. And by 2042, there will be more over-65s in the Asia Pacific region than the populations of the Eurozone and North America combined. Hong Kong is set to be hit harder than anywhere else in Asia as its workforce ages fast, but the likes of China, Vietnam, and Australia will all see their economies witness slower growth due to their ageing population—with Thailand and New Zealand not far behind.

However, there are exceptions. The likes of India, Indonesia and the Philippines will contribute strongly to workforce growth in the region. India, in particular, is set to rise as an economic superpower, driven in part by a surge of young people entering the workforce — young people who are more educated than in times past. Following the rise of Japan and then China in decades past, India is expected to drive the third great wave of Asia’s growth. In fact, India is expected to supply more than half of the increase in Asia’s potential workforce over the coming decade.

The chart below shows working age residents as a proportion of the total populations of key Asian economies. India is forecast to experience a further rise in the proportion of its working age population, while China’s working age population has just hit its peak and is likely to follow Japan’s downward path over the coming decades.

Chart: Working age as a percentage of total population—Japan, China, India

Australia is well positioned to capitalise on the growing older markets in parts of Asia. The main opportunities are likely to be in the health care industry as the increasing number of over-65s demand more health care products and services. In addition, the growing number of older and wealthier Asian residents is likely to spur on demand for Australian tourism, agribusiness, education and wealth management.

The third edition of Voice of Asia explores the impact of demographics on growth in Asia, focusing on a number of countries where demographic change will be influential for the region’s economic future.

For more information on the Australian brief, please contact the co-authors, David Rumbens and Tom Heagney.

 

UK economic briefing by Ian Stewart

A personal view from Ian Stewart, Deloitte’s Chief Economist in the UK. Subscribe to and view previous Monday Briefings at: http://blogs.deloitte.co.uk/mondaybriefing/

51st thing that made the modern economy

  • Invention lies at the heart of industry and economics. The question of what systems best foster innovation and which innovations have the greatest effect on economic welfare have long occupied economists.
  • Over the last year the author and economist Tim Harford has presented a BBC radio series describing the fifty innovations he believes have ‘made the modern economy’.
  • Some entries that are less surprising than others. The dynamo, radar, battery and robot feature, but so too, do seller feedback, Ikea’s Billy bookcase, management consultancy and double entry bookkeeping. In making his choice Mr Harford has a preference for ideas that have made an impact in subtle or surprising ways.
  • Many of the great innovations have to come to fruition through a haphazard and serendipitous process. The final application of a technology is often distant from what its originator had imagined. Ideas build on themselves, in a chaotic and free-market fashion, with countless failures and dead ends along the way. The writer Matt Ridley memorably described this as ‘ideas having sex’.
  • To conclude his series Mr Harford asked listeners to send in their own additions to his list. Here’s the six entries from the six members of the Economics Team and a short explanation.

The assembly line

  • The assembly line method has revolutionised manufacturing, enabling complex machinery and goods to be produced more efficiently and at significantly lower cost. Many attribute its birth to the Henry Ford‘s Model T but it existed in less sophisticated versions for centuries before cars came along. As early as the 12th century, workers in the Venetian Arsenal produced ships by moving them down a canal where they were fitted with new parts at each stop. As well as making mass production possible, the assembly line method has led to the birth of specialised parts manufacturers and enabled geographically diverse supply chains. The European tradition of taking holidays in August is another consequence as workers on assembly lines had to go on holiday simultaneously, shutting down entire factories.

The tin can

  • The tin can is an example of an apparently mundane invention that has fundamentally changed the way we live our lives. The can has made the products we want cheaper, safe and more readily available. In doing so, the can has shaped the way we eat, shop and travel.
  • The method for perfectly preserving food without destroying its shape or taste was first perfected by Frenchman Nicolas Appert in the last decade of the 18th century. His technique used old champagne bottles but the method for using tin was later perfected by English merchant Peter Durand, helped by French inventor Phillipe de Girard. Durand patented the Frenchman’s invention in 1810, apparently recording on the patent certificate that the process was “communicated to him by certain foreigners”. The first commercial canning factory opened in June 1813, not in Paris but in Bermondsey. Durand’s partners soon began supplying the British Navy.
  • Canning soon brought exotic new foods to Western households, opened up export markets, and supported the progress of armies, navies, explorers and the British Empire.

Glasses

  • Optical glass is an old technology, dating back to thirteenth century Italy, but one that had a profound effect on human welfare and development. Being able to see accurately is a vital human skill, but one that is far from ubiquitous. In excess of 60% of people in the developed world have corrected vision, either through glasses, contact lenses or laser vision. In the US and the UK the figure is closer to 70%. The welfare benefits from the invention of glasses have been enabling people to lead more effective and fuller lives. Many basic tasks, such as reading or driving, could not be performed by a sizeable proportion of the population were it not for glasses.

Anaesthesia

  • The advent of modern-day anaesthesia has allowed a multitude of invasive medical procedures, saving countless lives and enabling scientists to better understand the human anatomy. Before modern-day anaesthetics, alcohol, herbs, and even narcotics were used to render patients unconscious. These methods had erratic and often fatal results. A Scot, Sir James Simpson, was the first to demonstrate the anaesthetic properties of chloroform and is said to have played a pivotal role in popularising the drug for medical use. It is believed that Dr Simpson and his two assistants tested different chemicals on each other to establish whether they had an anaesthetic effect. After inhaling chloroform they quickly lost consciousness, and as soon as they woke the next morning, they knew that they had found something that could be used as an anaesthetic.

Online networks

  • Online networks have had a rapid and widespread impact. In just a few decades they have transformed the way we interact with each other, the way services are delivered, the flow of information and even our political systems. It started with the BBS, the Bulletin Board System. These online meeting places were effectively independently-produced hunks of code that allowed users to communicate with a central system where they could download files or games and post messages to other users, over telephone lines via a modem. Today, we live in a world of extensive online networks connecting people from almost anywhere on the planet, with less time and effort than was ever before possible. Such networks have also fundamentally changed the business environment. With a wealth of consumer online data waiting to be mined, advertisers and marketers can reach audiences, understand trends and even outsource work they require to the “crowd”. More recently, online networks have also been associated with political change: from their role in helping organise popular uprisings in the ‘Arab Spring’, to their impact in allowing countless campaigns to more effectively communicate with potential voters and supporters. President Trump has been coined the ‘Hemingway of Twitter’ due to his use of Twitter –a platform he describes as the only way to communicate directly with the American people.

Satellite Navigation Systems

  • As has been the case with many great inventions, satellite navigation systems are now used for many more purposes than they were originally designed for. The technology works by connecting devices on the ground to signals from orbiting satellites – with the receiving devices subsequently able to calculate their locations to within a few meters. Such satellites were originally set up by the US Department of Defense in the early 1990s before being made available to civilian users in 1996, at President Clinton’s behest. Now, the technology is ubiquitous in modern day life. Perhaps the most obvious impact of these systems has been on navigation, with satellite navigation allowing people to more easily make their journeys and track those of others. This has had significant implications for logistics, maritime travel and the way we personally make our day-to-day journeys at home or abroad. Missing persons and criminal suspects can now also be more easily tracked.
  • GPS technology has transformed the way modern warfare is conducted. Military targeting has become much more precise, protecting civilians in wartime cities by allowing warnings to be issued to evacuate and lessening collateral damage. At the same time, many worry about the removal of much of the human aspect of combat, as satellite technology more readily enables attacks to be launched from thousands of miles away from danger. Satellite technology attached to airborne items also allows the military to track missile paths, bombing patters and aircraft. Soldiers can also now navigate themselves away from dangerous situations with routes suggested to them by technology at hand or by colleagues far away.
  • New developments in satellite technology are enabling precise navigation and tracking indoors, and Deloitte Global predicts that as of 2022 at least a quarter of human and machine uses of precision digital navigation will include an indoor leg or be entirely for an indoor journey.

 

OUR REVIEW OF LAST WEEK’S NEWS

The FTSE 100 ended the week down 2.3% at 7,216, a four-month low as sterling strength weighed on the large proportion of dollar-earning exporters.

Sterling rose to a post-Brexit high whilst UK stocks slipped on hawkish comments from the Bank of England. After voting against a rate rise, the Bank of England said that “some withdrawal of monetary stimulus is likely to be appropriate in the coming months”.

 

International economic briefing by Ian Stewart

Economics and business

  • The UK unemployment rate hit a 42-year low of 4.3% in the three months to July, although real wage growth continued to fall
  • UK inflation rose to 2.9% in August
  • US inflation rose to 1.9% in August, its highest level in seven months
  • The UK Government lifted the 1% public sector pay cap for police and prison officers
  • The FT reports that the rapid growth in Slovakia’s automotive industry is being threatened by a shortage of labour
  • Slovakia makes 105 cars per 1000 people, the highest ratio in the world
  • North Korea fired another missile over Japan, which followed the UN’s agreement of stricter sanctions against the regime
  • President Trump warned China that the US would target their banks if they did not take stronger economic measures against North Korea
  • President Trump blocked the $1.3bn Chinese acquisition of US chipmaker Lattice Semiconductor
  • British Telecom are set to phase out petrol and diesel-only vehicles from its fleet of 30,000, providing a boost to electric cars
  • The UK real ale campaign called for a reduction in business rates for pubs as it revealed that nearly 30,000 pubs have closed their doors since the 1970s
  • JD Wetherspoon, one of the largest UK pub operators, saw its pre-tax profits rise by 15.6% in the fiscal year to July on strong summer sales
  • Goldman Sachs announced it will enter the UK retail market, offering online deposits from the middle of next year
  • Apple unveiled its new iPhone offering, with a “super premium” handset retailing at £999
  • JP Morgan Chief, Jamie Dimon, labelled Bitcoin a “fraud”
  • One of China’s most popular exchanges said it would stop handling the cryptocurrency amid a crackdown from the government

Brexit and European politics

  • Despite Brexit, London maintained its position as the World’s leading financial centre, according to Z/Yen’s Global Financial Centre Index
  • UK Chancellor, Phillip Hammond, said that the UK were seeking a Brexit transition deal which “looks a lot like the status quo”
  • European Commission President, Jean-Claude Juncker, said that the “wind is back in Europe’s sails”
  • Juncker also urged EU countries to push reforms in an 18 month “window of opportunity” after the upcoming German elections
  • The UK said it is open to contributing to the EU’s €5.5bn defence budget post-Brexit
  • HMRC boss, John Thompson has said that the UK will need an extra 5,000 customs and border-check officials following Brexit
  • James Dyson, a prominent Leave campaigner, has said that he doesn’t expect the UK to strike a deal before it leaves the EU in 2019
  • Burberry boss, Christopher Bailey, said that the potential for post-Brexit trade was “enormous”
  • Hungary has defied Germany’s request to accept the EU’s ruling on immigration quotas, its foreign minister warned of a “significant legal battle”

And finally…

  • The legal battle over a world famous monkey ‘selfie’ was settled this week as a judge ruled that Naruto the primate had no claim to the photo he had taken nor its proceeds. Despite this, photographer Mr Slater agreed to give 25% of future revenue from the photo to charities supporting Naruto’s habitat – monkey business

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