In the second episode of our series Rethinking Asia, we spoke with Manoj Pradhan of Talking Heads Macro in London. He's an expert in the relationship between demographics and capital markets, looking at how aging and labor force changes impact everything from global interest rates and wages to inequality. Prior to his current role, he worked as a macroeconomist at Morgan Stanley.
Manoj gives us unique perspectives on how changing demographic trends in Asia will likely affect future inflation and wage growth. We also discuss the challenges posed by aging demographics and automation. Some of our key takeaways from the exchange with Manoj include:
- The enormous growth of the global labor supply in the 1980s and 1990s—driven in large part by the integration of China's labor force—is now reversing. Demographic changes in Europe and Asia will likely upend most people's expectations regarding future inflation, interest rates, and financial market risks.
- Demographic transitions and smaller labor forces are expected to raise inflation and limit central banks' ability to rein it in without curtailing economic growth.
- Within Asia, demographic trends are not uniform: north and east Asian countries are aging quickly while countries like India and Indonesia are benefiting from a demographic dividend, and their growing labor force could make those countries new global manufacturing hubs.
- An aging and shrinking work force in China is leading to wage growth and helping the economy rebalance by supporting greater consumption as a share of GDP.
- Countries like Japan and Korea face several demographic challenges related to aging: more workers will need to shift into jobs related to aging, governments will be pushed to consider policies to reallocate resources to alleviate inter-generational inequalities, and societies will need to adjust to permanently smaller labor forces.
The views expressed are not necessarily those of the Federal Reserve Bank of San Francisco or of the Federal Reserve System.
