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The world economy stands on the brink of a massive swing in global savings, driven by a global aging process that is set to become faster and more synchronous in the coming decades. Demographic change can be a powerful influence on long-term asset returns. So how will this shift play out? More specifically, will the global aging process reverse the global savings “glut” of the early 2000s and apply upward pressure to interest rates?

We envision a tug-of-war between two opposing forces. On the one hand, as more workers retire and labor force growth slows, the demographic change will act as a source of downward pressure on both economic growth and equilibrium interest rates. Trend growth could decline around 50bps over a 10- to 15-year horizon, reducing interest rates by about the same amount. On the other hand, as people save less in retirement it will drive a large downshift in overall savings. We estimate that the reduction in savings – all else equal – will raise interest rates by 25bps-50bps over the next 30 years.

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ABOUT LONG-TERM CAPITAL MARKET ASSUMPTIONS

Our Long-Term Capital Market Assumptions are part of a deeply researched proprietary process that draws on in-depth quantitative and qualitative inputs from experts across J.P.Morgan Asset Management. We, and many of our clients, rely on the output as a foundation for multi-asset class investing.

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