Demographics And Global Savings Glut

There is growing evidence that demographic changes have played an important role in driving Asia’s economic transformation by generating high savings rates.In this report, the author argues that high savings rates help sustain high growth rates in two important ways. First, it generates the resources needed to support high investment rates (which in turn drive high employment growth and ever more savings). Second, it allows these countries to accumulate foreign exchange reserves in order to build a bulwark against the stresses caused by hyper-growth – implying that high growth countries export rather than import capital. This model implies that the excess savings of these countries will find their way to the comparative safety of developed financial systems. The world’s demographic configuration suggests that this will result in a savings glut over the next decade and, therefore, low long-term real cost of capital .This should not necessarily be seen as a problem by the developed world but as source of cheap financing.