SINGAPORE (Aug 29): DBS economist David Carbon has reiterated what former Minneapolis Fed president Kocherlakota said in his recent commentary, that the difference in population growth among countries have distorted the perception of which countries are performing well and which ones are not.

Carbon goes further to emphasise that on a per-capita basis, growth in Japan and Germany has surpassed the US and France since 2007.

According to Carbon in a note on Friday, there have been no signs of a slowdown in growth in output per working age person in the G3 since 1980. The slowdowns in GDP growth were entirely due to a slower population growth.

The key lies in the growth of the working age population, which has fallen even faster than that of the general population. As such, the US, Japan and Europe had already been growing at their potential rates or better, since 2013.

Now, as working age population growth drops even further, Carbon believes that the GDP growth in the G3 will be slower in five years, and not faster.

“If you’re worried about slow growth, get used to it. Growth is likely to be even slower five years from now and slower yet five years after that,” says Carbon, adding that a slowdown in GDP from slower population growth matters less than the actual income per person.

In fact, he points that a GDP growth slowdown may even be a good thing. “In Asia, the drivers of slower GDP are reversed from the G3. In Asia, most of today’s slower GDP growth owes to slower productivity growth, in turn the result of rapid increases in per capita income.”

So what does this mean for global central banks?

Carbon believes that with growth running at-or-above potential, there is “little need for further QE or negative interest rates in Japan and Europe and no need for near-zero interest rates in the US” as these are unlikely to improve growth in any way.

“Indeed,” he emphasises, “The fact that economies are already running at potential partly explains why QE, ZIRP and NIRP policies have failed to lift growth in the first place.”

Furthermore, he also adds that slower growth does not dictate that inflation will remain low, as changes to inflation are reliant on whether actual growth rises above or falls below its potential rate, and not on the absolute rate of growth.

“Lower potential growth implies inflation would rise sooner rather than later other things equal. Core inflation [which excludes food and energy] is rising rapidly in the US and has risen considerably in Europe and Japan over the past year,” he concludes. “Continued GDP growth at-or-above potential will further this trend.”