Sunday, June 3, 2018

What Patient Zero, Japan, Can Tell Us About China & The Developed World At Large

To see the future, sometimes you have to look to the past.  Japan is patient zero in the global epidemic of slowing growth and although Japan was assumed to be the emerging world power in the '80's, we now know better.  The title of emergent power now rests with China...and for the same reasons it didn't work out for Japan, it won't work out for China.  To make my case, I'll use UN population data coupled with EIA total primary energy data (cumulative energy consumption from coal, oil, natural gas, nuclear, and renewables), plus EIA fore-ward looking forecast data (the International Energy Outlook, 2017 or IEO'17).

First, Japan.

The Japanese 15 to 60 year old population peaked in 1993 and declined over 15% by 2018.  The core population will continue falling, down 24% by 2030, and 34% by 2040.  Energy consumption growth began stalling in 1997, consumption peaked in 2006, and has declined 17% from the '06 peak through 2015. However, the EIA estimates the falls seen since '06 will cease shortly and energy consumption will stabilize through 2040.

The chart below breaks down the annual change in the 15 to 60 year old Japanese population versus the annual change in energy consumption.  The twin deceleration should be fairly obvious.

Below, the actual data as above versus the EIA IEO'17 forecast.  While the core population will fall at an even faster rate, the EIA forecasts energy consumption will stabilize (against all logical rationale)?!?
To round out the picture, the Japanese 15 to 60 year old population versus 60+ year old population.  All growth is currently in the 60+ population until it too is projected to peak in 2040 and begin declining.
What does this mean for China?

The Chinese 15 to 60 year old population peaked in 2011 and has fallen 2% as of 2018 but will be 10% smaller by 2030 and 16% smaller by 2040.  The EIA assumes energy consumption will continue to rise (and be 44% higher by 2040) despite the clear cases in Japan, Europe, and elsewhere that energy consumption tracks the core population...down.
Below, detailing the year over year change in the Chinese 15 to 60 year old population versus actual and EIA forecast energy consumption.  The clear deceleration as the core population has turned negative is plain to see...but as the population declines consumption is forecast to be unaffected and instead continue to grow???
Rounding out the picture with the fast declining Chinese 15 to 60 year olds versus surging 60+ year olds.
As for China and Japan's neighbor, South Korea, their 15 to 60 year old population peaked in 2014 and will be 15% smaller by 2030 and fall 25% by 2040.  Against this, EIA estimates energy consumption will rise 40% by 2040???  I'm guessing S. Korean energy consumption will shortly begin it's secular decline.
Again, year over year change of S. Korean core population versus energy consumption.  Simply nonsensical.
South Korean 15 to 60 year old population versus 60+ year old population.
And perhaps the strangest forecast of all...Western Europe.  The declining core population and energy consumption inexplicably turn and begin rising...because?!?
The energy and population declines since '08 are pretty hard to miss.  But somehow the EIA doesn't see the surging population declines nor recognize the impacts on energy consumption.
And what of the state of global importers?  They are a fast declining breed among the core population (which does the majority of all the consuming) versus a relatively responsible and stingy surging elderly cadre.And the annual change among the 15 to 60 year old population that does the bulk of global consumption versus IEO'17 estimates.  The things people will willingly believe.

Make of it all what you will.