Global interest rates may remain low for at least 20 more years, according to an economics paper by economists at US investment bank Goldman Sachs.

The credit boom of the last decade, which ended with the onset of the so-called credit crunch on Aug 09, 2007, was partly fuelled  by excess savings from Asia, resulting from the recycling of the surplus of the gains from globalised trade back to advanced countries. In the aftermath of the Asian financial crisis of 1997/98, governments sought to build up currency reserves by keeping currencies undervalued and the current account deficits of countries such as the US and UK were partly financed by such a strategy.

Long term interest rates influenced by what was termed a 'saving glut,' were pushed down to then historic lows, which helped to fuel asset booms in badly governed countries of the West, in particular.

Goldman Sachs economists, Dominic Wilson and Swarnali Ahmed, focus in the paper, Current Accounts and Demographics: The Road Ahead, on how the influence of demographics over the next 20 years and beyond may affect current account positions. Importantly, they say it is the portion of a population of ‘prime saving’ age (on their estimates, roughly 35-69 years old) that matters most, and not the size of the working age population, as is commonly discussed in policy debates. That group is still growing globally, even in the developed world, and will likely rise in most of the EM (emerging markets) world, including China, for at least two decades. They says the common intuition that China is demographically more like a developed market than a typical emerging market is only true with respect to working age population. In terms of ‘prime saving’ dynamics, China is more like an EM than a DM (developed market)  economy.

The economists say the proportion of prime savers in the developing world, including China, will rise more and peak later than in the developed world, thereby maintaining a 'saving glut' and downward pressure on global rates..

Financial Times columnist, John Plender points to the rise in corporate surpluses parallel with rising household saving in South and South-East Asia.

He says although the Japanese are known as big savers, the Organisation for Economic Co-operation and Development, shows that household saving has dipped from 10% of disposable income in 1989, when the Japanese bubble burst, to just 2.3% in 2009. Yet the overall  national savings rate of about 27% is at much the same level as a decade ago thanks to a huge increase in the surplus of Japanese corporate savings over investment.

Japanese companies keep dividends low while in China apart from a cultural resistance to paying interest, state companies in particular have large cash surpluses.

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World counts on Chinese consumers to spend more but new survey suggests they will remain cautious

Finfacts Asia Economy News Page