Despite the topic sounding highly complicated for those of us who are new to the whole stock trading game, once you get a handle on the basics of how the stock rates flow, you will understand the relationship between demographics and the stock market. As you probably know, the European Union’s stock exchange, also known as, Euronext, is one of the top five biggest stock exchanges in the world. In order to better understand the fluctuations within the European stock exchange, in addition to the fluctuations taking place in the United States’ markets, we have to take note of the changes causing those fluctuations. Here are some of the changes in the EU population’s statistics, as well as, trends that are able to provide an explanation for most fluctuations in stock prices.
#1 Population Growth
After a slump in the growth rate of the total population of inhabitants in the European Union in 2016, the European Statistical Office noted a significant increase – by about 1.5 million – at the beginning of 2017.
“The population of the EU-28 on 1 January 2017 was 1.5 million higher when compared with a year before. Population growth in the EU-28 during 2016 was slower than in 2015 when the EU-28’s population had increased by 1.8 million inhabitants.”
The population increase is expected to remain on the rise due to the fact that the recent turmoil in the middle east has resulted in more and more people leaving their countries and seeking refuge within the EU.
A growth in population usually means an increase in demand from consumers which is met by an increase in supply since the EU possesses a lot of resources. The increase in production leads to direct economic growth which means that people would have higher spending power and are in a state where they are looking to accumulate wealth rather than make ends meet which more often than not, signifies a growth within the stock exchange due to an increase in the demand on shares.
#2 Ageing Population
Owing to the leaps taken by technology in the healthcare field, it does not come as a surprise that the EU does not suffer from a high mortality rate. In fact, according to the World Bank Group, the mortality rate in the EU went from 104.555 in 2013 to 100.959 per 1,000 adult males in 2014 preceded by a relatively stable decline in mortality rate since 1995. On the other hand, the European Statistical Office does record some irregularities which are only natural given the ever-changing state of the world.
“The number of deaths in the EU-28 has remained relatively stable, generally at just under 5 million each year since the 1970s, rising just above this level in 1985, 1993, 1995 and again in 2012, 2015 and 2016, when the total number of deaths in the EU-28 numbered 5.13 million. The EU-28 crude death rate — which measures the number of deaths per 1 000 inhabitants — was 10.0 in 2016. “
We must keep in mind that mortality rates are not the only thing to measure when judging the average age of a population. We must also take into consideration the life expectancy rate which has been regularly increasing; in the EU more than other regions, according to another entry by the European Statistical Office.
“Historically, life expectancy rose in Europe in advance of most other regions of the world, as a function of economic development, improved lifestyles and advances in healthcare and medicine. These changes have resulted in continuous and rapid increases in life expectancy at birth across the EU. Indeed, over the past five decades, life expectancy at birth has increased by about 10 years for both men and women, and this development is expected to continue with an increasing share of very old persons (considered here as those aged 85 years and over) in the EU’s population.”
The latter means that people in the EU now live longer than most people all over the world which means that the overall European population consists of a larger slice of elderly people rather than children.
How does this affect the economy?
Having a child means that parents will be spending a lot of money on immediate expenses such as education, clothes, entertainment, and electronics. With most of the money being pumped into direct expenses, little is left for investing. On the other hand, as a population gets older, the amount of money available for investment increases since, not only there are fewer expenses to cover, but also, individuals start looking forward to their retirement which leads them to invest in the stock market so as to provide for themselves a financially secure post-retirement life.
#3 Decreasing Labor Force
The low fertility rates, combined with the European Union’s life expectancy ratio are considered a cause of the lack of fresh workforce. Most EU laborers are either of old age or closing in on retirement which means that in addition to being less productive than a young workforce, they automatically lean more towards savings and investments rather than spending.
A decrease in the labor force leads to a decline in economic growth because of the negative effect it has on production rates, spending rates and consequently the aggregate forces of supply and demand.
To sum up, the EU stock market is affected by three main trends; the change in population levels, the average age of that population and the labor force. Any change in the rates that control those trends immediately results in fluctuations across several economic indicators. While websites like www.asktraders.com/ would give you a lot of information about trading, one thing you need to know is that when it comes to economics, everything is connected. Meaning that, understanding the EU market is a surefire way to help you understand the U.S market even more. It would only take a couple of hours of going through data and performing your own research, for you to realize how sensitive each market is to the changes in the other market and its region’s demographics.
Disclaimer: This content does not necessarily represent the views of IWB.