Aging and Global Capital Markets

The McKinsey Global Institute (MGI) is in the process of releasing some major new research on the impact of aging populations around the world on global capital markets and, ultimately, the global economy.  It is thought-provoking and rich with implications for the evolution of the global business landscape.

For those of you not familiar with MGI, it is an independent economics think tank operating within McKinsey & Co. It does great research, focusing on the intersection of economics and business.

The findings of this latest research project were presented at the Davos meeting of the World Economic Forum in January of this year.  Diana Farrell, the Director of MGI, did a brief interview with Business Week on the research.  Now the full report can be accessed on the MGI web site. Premium subscribers to content at the McKinsey Quarterly web site can now access an article summarizing the findings and I believe the article will be appearing in the next print issue of the McKinsey Quarterly.

The article abstract gives you the key message:

As people in Japan, the United States, and the countries of Western Europe grow older, bank accounts in these nations, where most of the world’s wealth is created and held, are likely to stop growing. Because people save less after they retire, and younger generations in their prime earning years are proving less frugal than their predecessors, savings rates are set to fall dramatically—with dire consequences for living standards in wealthy and poor nations alike.

The take-away

If no action is taken, the coming slowdown in global savings and the decline in projected financial wealth could depress investment and slow economic growth. A concerted effort to boost savings rates, shrink government deficits, and increase returns on financial assets can help avert this outcome.

I’ll give you my bottom line on this.  It means intensifying competition over the next several decades in financial markets around the world.  It also means growing pressure on corporations of all types to generate improved financial performance.  The quest for higher returns will only accelerate the broader restructuring trends (unbundling and rebundling) that I have been writing about over the past six years.  The dwindling number of safe harbors are rapidly drying up and financial markets will become catalysts for widespread restructuring. If you run a company or invest in companies, you owe it to yourself to look for this important new research from MGI.