September 14, 2015

BNY Mellon Explores the Sources of Growth in the World's Four Largest Economies

Has the post-crisis slump lured investors into premature pessimism?

HONG KONG, Sept. 14, 2015 /PRNewswire/ -- In its second white paper on the world's four largest economies, BNY Mellon, a leading global investments company, cautions against "premature pessimism", arguing that it is too soon to conclude that global growth will disappoint over the rest of this decade.

The Federal Reserve's hesitation ahead of its closely-watched rate decision illustrates a sobering economic truth: the post-crisis recovery in the developed world has been underwhelming, even as the slowdown in emerging economies has been unsettling. Against this backdrop, it is tempting to accept mediocre growth as the "new normal".

"But just as the pre-crisis boom tempted people into overconfidence, the post-crisis slump may have lured people into premature pessimism," notes Simon Cox, BNY Mellon Investment Strategist. "It is too early to say that the underwhelming growth of recent years constitutes a new trend.  There is still a lot to play for."

Cox looks at Japan, America, China and India, the world's four biggest economies, by purchasing-power parity. Despite recent setbacks, this quartet is benefiting from some promising macroeconomic trends. Deflation is receding in Japan; inflation has eased in India; unemployment is declining in America; and despite China's stock market turmoil, its property market shows signs of stabilizing.  BNY Mellon calls them the G4.

In its first white paper, BNY Mellon argued that the G4 had substantial "room to recover" as demand revives. The second white paper turns from demand to supply, looking at how the G4's productive capacity will evolve until 2020. It pays close attention to workforce trends, capital accumulation and productivity gains – the ultimate "sources of growth". 

Highlights include:

Labor: Many people believe that labor shortages will bedevil China and doom Japan. Contrary to popular belief, however, demographics is not destiny.  China's working-age population grew by only 0.5 percent from 2010 to 2014. Yet that did not stop its GDP growing by over 35 percent over the same period. While China's working-age population is now falling, the decline will be fairly gentle over the next five years and may even pause in 2019-2020, because the cohort retiring at that time is unusually small.[1] Economic recovery has also trumped demographic decline in Japan, where employment has actually increased over the past five years.[2]

Capital accumulation:  In Japan, America and India, investment in new capital has been lackluster in recent years. That has left a backlog of necessary capital expenditures that should yield decent returns as economies revive. In the U.S. private fixed assets are now the oldest they've been since the 1950s.[3] Even in China, notorious for its "overcapacity", there is considerable scope for further capital spending. China's stock of capital per person is still small, leaving many areas of "undercapacity".

Technology: Some technophiles believe we are in the midst of a third industrial revolution which will yield driverless cars, artificial minds and refurbishable bodies. But brisk technological progress has yet to translate into rapid economic gains. To boost output per worker, improved technologies have to be widely deployed by firms.  That requires investment.  The technological revolution may, therefore, become an economic revolution only when capital formation finally booms. China and India, for their part, still have great scope to enjoy "catch-up growth", benefiting from technologies that are not new to the world, but are new to them. This progress will not be interrupted by the "middle-income trap", Cox argues, because such a trap is largely a myth.

The full analysis is available at

BNY Mellon's G4 scenario envisages growth over the rest of this decade averaging 2 percent in Japan, 3 percent in America, 7 percent in China and 8 percent in India.  By questioning the glum consensus, the firm aims to create a robust discussion that helps investors think through all potential growth scenarios. 

BNY Mellon is a global investments company dedicated to helping its clients manage and service their financial assets throughout the investment lifecycle. Whether providing financial services for institutions, corporations or individual investors, BNY Mellon delivers informed investment management and investment services in 35 countries and more than 100 markets. As of June 30, 2015, BNY Mellon had $28.6 trillion in assets under custody and/or administration, and $1.7 trillion in assets under management. BNY Mellon can act as a single point of contact for clients looking to create, trade, hold, manage, service, distribute or restructure investments. BNY Mellon is the corporate brand of The Bank of New York Mellon Corporation (NYSE: BK). Additional information is available on Follow us on Twitter @BNYMellon or visit our newsroom at for the latest company news.

This press release is qualified for issuance in Hong Kong and is for information purposes only. It does not constitute an offer or solicitation of securities or investment services or an endorsement thereof in any jurisdiction or in any circumstance in which such offer or solicitation is unlawful or not authorised.  Any views and opinions contained in this document are those of the authors as at the date of issue; are subject to change and should not be taken as investment advice. BNY Mellon is the corporate brand of The Bank of New York Mellon Corporation and may also be used as a generic term to reference the Corporation as a whole or its various subsidiaries generally. The Bank of New York Mellon, a banking corporation organized and existing pursuant to the laws of the State of New York (member FDIC) and a wholly owned subsidiary of The Bank of New York Mellon Corporation, has its principle place of business in Hong Kong at Level 24, Three Pacific Place, 1 Queen's Road East and is subject to regulation by the Hong Kong Monetary Authority and the Securities & Futures Commission of Hong Kong. Principle place of business of BNY Mellon Investment Management Hong Kong Limited: Level 25, Three Pacific Place, 1 Queen's Road East, Hong Kong.  Authorised and regulated by the Securities and Futures Commission.  A BNY Mellon CompanySM

[1] National Bureau of Statistics

[2] Japan Labor Force Survey

[3] Bureau of Economic Analysis

Kyoko Altman (BNY Mellon)         
+852 3926 0660       

Christine Wood (FTI Consulting)             
+852 3768 4557