Thursday, 9 April 2009

If you think the recession is bad news read on...

So once the recession is over we will be OK? Right? Wrong according to the IMF. They are claiming that once the recession passes, countries will need to work on closing their gaping fiscal deficits without triggering further collapses in output. They will also need to service bloated national debts. The International Monetary Fund estimates that among the Group of 20 nations whose leaders meet in London this week, the industrialised members will have increased their national debts by an average equivalent to nearly 25 per cent of gross domestic product between 2007 and 2014.

That is a heavy burden. But, to 2050, the cost of this crisis will be no more than 5 per cent of the financial impact they face from the ageing of their citizenry. As the IMF says, “in spite of the large fiscal costs of the crisis, the major threat to long-term fiscal solvency is still represented, at least in advanced countries, by unfavourable demographic trends”.

In the UK, for example, the government expects the extra annual costs imposed by ageing to reach 1.6 per cent of GDP by 2017-18. That is an increase in spending equivalent to the cost of servicing a rise in the national debt burden of about 37 per cent of GDP, according to FT calculations. That outstrips the 29 percentage point rise that the financial crisis and economic downturn are expected to inflict.
The picture by the way is what in my presentations I like to call the Baby boomer tsunami. It is clear that this is coming yet it is so often ignored.
The best we can do therefore is to keep as many boomers in paid work for as long as possible. Does our Government ever read these reports!

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