No amount of fiscal stimulus by President-elect Donald Trump will be enough to offset the deflationary effect of slowing global population growth, argues Columbia Threadneedle.
President-elect Donald Trump has promised to spend US$1 trillion on infrastructure over 10 years, cut corporate tax and increase defence spending – leading to suggestions the incoming president could be inflationary for the world economy.
Speaking to InvestorDaily, Columbia Threadneedle portfolio manager Jonathan Crown said that while bond yields are "backing up" at the moment, they are unlikely to rise much from here.
"My argument would be that [bond rates are] backing up, but they’re not going to back up that far," Mr Crown
"We’re in a world where you’re going to have an extended period of a decade, if not longer, of long bond yields being reasonably low."
The reason, Mr Crown said, is that structural realities within the demographics of developed nations mean that inflation is unlikely to take off.
"Population growth peaked in the 1960s at 2.2 per cent. Today, population growth is 1 per cent," Mr Crown said.
"Look at the rich economies in the world – that’s 20 per cent of the world’s population. That’s going to reduce to 15 per cent by 2050," he said.
Furthermore, the 'dependency ratio' (ie, the ratio of workers to non-workers) is expected to reduce from 2/1 today to 1.5/1 by 2050, Mr Crown said.
"That’s not good for growth. I think there are deflationary pressures around the world," he said.
"Donald Trump can boost growth over the next few years by undertaking various infrastructure projects, but I don’t think you can fight demographics."