GERMANY – A new academic report has argued that demographic ageing is not necessarily a bad thing for German capital markets.
The report explains that the negative connotations of the term “population ageing” are largely unjustifiable.
“Fortunately, there are also economic mechanisms which can soften, or even reverse, the negative impacts of ageing on capital markets,” say three researchers at the University of Mannheim in a report published by Deutsche Bank.
Axel Börsch-Supan, Alexander Ludwig and Joachim Winter of the Mannheim Research Institute for the Economics of Aging argue that the predicted “asset meltdown” will probably not occur.
The acknowledge the “asset meltdown” hypothesis, whereby household demand for financial assets is predicted to fall between 2030 and 2040 and the return on financial investments will fall sharply.
“Although the arguments put forward in this pessimistic view may be correct in the trend they describe, they are incomplete.”
They point to an ageing society’s need for more, as opposed to less, capital, saying that capital must increasingly replace labour.
“This rising demand for real capital increases the return to capital at exactly the same time as pessimists fear the prospect of asset meltdown.”
And they say that full implementation of the Riester reform and more extensive pension reforms could stimulate household saving again.
They say that the internationalisation of the capital markets is vital. They see the fall in the economic support ratio at the heart of the general economic problem of ageing.
“Under these circumstances, it quickly becomes clear why an open and globalised world can help Germans during the ageing process.”
Globalisation “opens up opportunities not only for Germany with its ageing population and dwindling labour supply, but also for those economies that have younger populations and are weaker in terms of capital”.
“Internationalisation of the capital markets will almost totally prevent a fall in the return that is induced by pension reform. Incidentally, this line of argument also shows that pension reform and macroeconomic development go hand in hand.