Blog: Dave LeggettEurope's population problem

Dave Leggett | 5 December 2003

The latest European market figures published by JD Power-LMC provide some cheer for the car companies in Europe, although the extent to which companies are using incentives to get sales growth is a little unclear. But at least LMC is saying that more conventional demand drivers played a role in November's 'positive' result (market down, but seasonally adjusted annualised running rate is healthy) and that the economic backdrop is helping.

Maybe the manufacturers need to really make hay with the next up cycle as I've just come across something a little disturbing about Europe's economic growth prospects in the 2010s and 2020s. A shortage of people of working age is the basic problem.

Here's Tim Congdon, respected economist of Lombard Street Research, speaking on business website He sees Europe's longer term growth prospects as 'disastrous' due to falling population. Here's some of what he had to say:
"Q. You’ve argued that the eurozone’s long-term growth prospects are poor. Why is that?

A. Growth prospects aren't poor, they're disastrous. In fact, I think the question even arises whether economic growth will continue at all. The growth of a nation’s output depends on two things. It depends on the increase in output per person employed and then in the increase in employment, or an increase or possibly reduction. I say that because the problem that many European nations have is that over the next 20 or 30 years employment is likely to fall because, quite simply, there will be fewer people.

The population of the working age will be going down in nations like Italy and Germany by 0.5 per cent to 1 per cent a year in the 2010s and 2020s. For them to have economic growth at all, they need to have an increase in productivity running at over 1 per cent a year. Now in the old days back in the ‘50s and ‘60s, they used to have productivity growth of 3, 4, 5 per cent a year. So you might say what's the problem? I'm afraid in the last few years, productivity growth in these nations has typically been under 1 per cent a year. So if you’ve got the productivity growing by under 1 per cent a year and employment falling by 1 per cent a year, the national output actually contracts and not on a basis of a cycle, but on the basis of it going down over a period of years as a matter of trend. There isn't trend growth. There is trend contraction."


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