Page 39 - Nuvama | IC Report 2023

INDIA: THE 5D ADVANTAGE

High debt, adverse demography: A recipe for slow growth
Not only are debt levels high globally, but large parts of the world – China and Europe – are staring at
demographic deterioration (refer to Demography section). This combination of high debt and adverse As the real
demography is a recipe for a structural slowdown, a la Japan post-1980s. In Japan, as the real estate estate bubble
bubble popped after a debt boom, growth stagnation followed—not just for years but decades. A popped in Japan
shrinking workforce played a role in this dynamic. after a debt boom,
growth stagnation
China finds itself in a similar situation. Like Japan, China’s corporate as well as household sectors are ensued for decades
heavily indebted and its working age population is shrinking. In such a backdrop, cyclical tools for
reviving growth (like monetary policy) are ineffective.
No wonder, despite a cut of more than 10 percentage points in China’s reserve ratio over the last
decade, its domestic consumption has hardly revived. The country’s nominal GDP has slowed from
mid-teens at the start of the decade to low single digits. Unless the government makes a serious
attempt to rebalance the economy towards domestic demand through aggressive use of fiscal levers,
China’s economic trajectory runs the risk of mirroring that of Japan in 1990s.

24 25 Exhibit 6:
Monetary policy
becoming
21
20 ineffective
in China…
18
15
(%) (%,YoY 4QMA)
15
10
12
5
9
6 0
Sep ‘02 Sep ‘06 Sep ‘10 Sep ‘14 Sep ‘18 Sep ‘22
China RRR China nominal GDP (RHS)

900 Exhibit 7:
800 8x in …similar to Japan
20 years
700
600
(Indexed to 100) 500
400
300
1x in
200
20 years
100
0
Sep ‘02 Sep ‘06 Sep ‘10 Sep ‘14 Sep ‘18 Sep ‘22

Bank of Japan balance sheet Japan nominal GDP
Source: BIS, Bloomberg, Nuvama Research
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