The Notebook: Carbon bounty hunting, the economics of ageing and a cancelled recession
Where the City’s top thinkers get a few things off their chest. Today, Kokou Agbo Bloua, Societe Generale’s global head of economics, takes the Notebook pen
Grey Matters and the Economics of Ageing
Just as the Chinese adage goes, “A peaceful life has nothing to do with the passage of time”. Yet, time has a peculiar way of sneaking up on us, especially when it comes to age. Age, that seemingly innocuous number, has become a topical issue in the mainstream recently. Experts warn of a ‘silver avalanche’, a demographic shift that’s already swept Europe and is making its way to Asia.
Let’s crunch the numbers. Since 1960, global life expectancy has soared from 51 to 72, and by 2050, it’s projected to reach 77. By the end of the century, the world will host approximately 2.4bn elderly (aged 65 or over), making up a staggering 24 per cent of the global population.
But here’s the catch. As life expectancy climbs, family sizes are decreasing. China, for instance, is grappling with the consequences of its ‘one child’ policy with a population that is now shrinking with far-reaching implications for the global economy.
In the latest episode of my podcast ‘2050 Investors’, we delve into the ageing crisis – its economics 101 and its ripple effects. Joining us is Yoda, the wise old Jedi from Star Wars, who was once our AI assistan Siri, but fell victim to smartphone ‘planned obsolescence’ and has since adopted a more advanced, albeit slower, pace of life. Together, we dissect the impact of a shrinking workforce, ballooning pension fund deficits and skyrocketing healthcare costs on fiscal and monetary policies. Later in the episode, Wei Yao, chief economist for APAC at Societe Generale, sheds light on the ageing Chinese economy.
So, buckle up as we navigate the complexities of ageing and its economic implications. After all, ageing is not just a numbers game; it’s a global challenge that demands our attention.
Carbon Bounty Hunting
Although carbon dioxide makes up a measly 0.04 per cent of our atmosphere or 421 parts per million, it is about double the average concentration seen over the past 3m years. All of this extra carbon dioxide accumulated since the pre-industrial era has already caused global warming of 1.1 degrees Celsius, destabilized Earth’s climate and started the 6th mass extinction of biodiversity in our planet’s history.
One solution: put a bounty on carbon’s head and bring it to justice, aka carbon pricing. Since its introduction by the European Union in 2005, the idea of carbon pricing has long been touted by economists as one of the best ways to tackle climate change: making polluters pay for the environmental damage their emissions cause.
In another episode, we travel back in time to the beginning of time itself, the Big Bang, to trace the history of carbon from its cosmic origins to its role in climate change. We also dive into the world of carbon markets and natural capital solutions.
Economic outlook: Recession delayed, indefinitely
Societe Generale economists predicted that most economies would avoid recessions in 2022/23, a forecast that largely held true, barring the UK’s two successive quarters of negative GDP growth. That said, their previous forecasts along with market consensus did predict a shallow recession in the US in 2024, but this “soft landing” scenario now looks more like a “no landing” scenario.
Despite predictions linking monetary policy tightening to recessions, the contrary has proven true. Recent easing in financial conditions, such as declining government bond yields, soaring profit margins due in part to ‘greedflation’ and narrowing credit spreads, resulted in the recession being metaphorically “cancelled”.
‘Fed‘ Up with Carbon: Central Banks & Climate Change
Should the world’s central banks (Fed, ECB, BoE…) launch a coordinated “green quantitative easing” programme to simply print the $3.5 trillion a year needed to finance the energy transition? Is this a realistic solution or too green to be true?
Central banks’ core mission is to manage monetary policy, oversee the banking system and maintain ‘price stability’. But climate change is becoming a major threat to their mandate, posing a real risk to economic and financial stability.