Monday, April 23, 2018

Economic Growth Considered Through the Lens of Energy Consumption and Changing Populations

Once upon a time, skeptical analysts cross checked stated growth versus energy consumption...looking for discrepancies as fluctuations in energy consumption are a good proxy for the changes in real economic activity.  Nowadays, the model of printing highly politicized and/or skewed economic data has gone very global.  So, today I offer a couple broad variables to gauge global economic activity; 1) total primary energy consumption data by region, cross checked against 2) their consumer bases (the 0-65yr/old populations).  I break the world down into four different regions to gain a better vantage of the purported global recovery, as follows:
  • OECD (List of 35 nations) representing 17% of global population & 43% of total energy consumption
  • Combined Africa / S. Asia (S. Asia = India, Pakistan, Afghanistan, Bangladesh, Nepal, Bhutan, Sri Lanka, Maldives) representing 41% of global population & 9% of total energy consumption
  • China, representing 19% of global population & 22% of energy consumption
  • "RoW" or Rest of the World, representing 23% of global population & 26% of global energy consumption
The first chart below shows total global primary energy consumption in quadrillion BTU's from 1980 through 2015 according to the EIA (US Energy Information Administration).  2016 is estimated based on extrapolating data from the 2017 BP Statistical Review.  The flattening in consumption since 2012 is plainly visible in the upper right and clearly detailed in the year over year columns in the lower right.  The arrows highlight minimal growth or outright energy consumption declines that were associated with recessionary periods.  The weakness of the current period since 2012 is unparalleled from 1980 on...and even more significant than the brief downturn of 2009.
The next chart again shows global primary energy consumption (quadrillion BTU's), but broken out by regions.  As of 2015, the OECD nations are consuming less energy than during the 2009 global recession and in fact are using about 1% less than they did in 2000.  Meanwhile, China has increased total energy consumption about 200% since '00, the combined Africa / S. Asia have increased consumption by about 70%, and the RoW have increased by about 40%.  Quite noticeably, total global energy consumption is essentially unchanged from 2012 through 2016 as the OECD declines have offset minor increases across the other regions.

The chart below shows global primary energy consumption, by region, as a percentage of all energy consumed.  Noteworthy, the long declining OECD portion of total energy consumption, the more than doubling of Chinese consumption from '00, and the flattish consumption from Africa / S. Asia and the RoW.
Next, the EIA total energy estimations through 2040 (chart below).  All regions estimated to move from lower left to upper right.
So, lets cross reference...starting with the changing populations of the four regions (particularly the core 0-65yr/old populations) that drive spending, housing, jobs, credit utilization, and resultant energy consumption.

OECD
The 35 nations that make up the OECD represent 17% of global population but 43% of total primary energy consumption.  The OECD core population is now outright declining and by 2040, is estimated to see a 6% decline (this estimate includes and relies upon ongoing immigration at current levels).  This is also assuming birth rates and fertility suddenly, and unlikely, surge as the UN and Census have been wrongly projecting ever since 2008.  However, assuming birth rates and fertility continue their decade plus downward trend &/or immigration wanes, even more significant declines will ensue and the under 65yr/old population will be below the mid 1980 levels by 2040.OECD annual 0-65yr/old population change versus OECD actual and projected total energy consumption (chart below).  Despite the 50%+ fall in energy prices since peak consumption (way back in '07), OECD demand continues declining.
CHINA
19% of global population, 22% of global energy consumption.  China's core population began declining in 2017 but the pace of decline is accelerating, so much so that China is estimated to see a 10%+ core decline from '18 to '40 (but as with the OECD, this assumes a surge in fertility rate that is not happening (Termination of China's "One Child" Policy...Much Ado About Next to Nothing )...so actual declines are likely to be significantly larger than 10%).  Growth, once as many as 20 million more potential core consumers annually, has turned to declines of millions every year...indefinitely.
China annual 0-65yr/old population change versus China actual and projected total energy consumption (chart below).  The accelerating population decline versus ongoing energy growth imply a rapidly increasing demand, per capita.  A decelerating economy doing less with ever fewer people but taking ever more energy to do it?!?
Rest of the World
23% of global population, 26% of global energy consumption.  10% increase in core population from '18 to '40 but growth is significantly decelerating.
And RoW annual 0-65yr/old population change versus RoW actual and projected total energy consumption (chart below).  Again, a decelerating growth versus anticipated accelerating energy consumption.
Africa / S. Asia
41% of global population but just 9% of global energy consumption (fyr - the combined regions likewise consume just about 9% of the total Chinese exports).  From 2018 to 2040, combined core population growth of 30% while YoY growth remains elevated at current levels (Africa's accelerating growth offsetting India's decelerating growth).  As of 2018, these combined regions represent 83% of annual under 65yr/old global population growth...but by 2040, Africa alone will represent 100%+ of the fast decelerating annual under 65yr/old global growth.
Africa / S. Asia annual 0-65yr/old population change versus actual and projected total energy consumption (chart below).  Population growth is projected to remain centered and extremely high for the next quarter century, particularly in Africa .  Yet, despite the combined size and expected growth, the combined Africa / S. Asia region total energy consumption is estimated to grow only two thirds as much as China...despite China's fast declining population (est. +47q/btu for China vs. +33q/btu for Africa/S. Asia).
Global Oil Consumption
Similar to the total energy consumption chart above (and discussed previously HERE), OECD oil consumption peaked in 2005 and as of year end 2017, OECD oil consumption is back to levels last seen in 1997 (over a 6% total decline in consumption).  Still, the 3mbpd decline among the OECD has been more than offset by the 5mbpd increase in China, 7mbpd increase among the RoW, and 3mbpd among the combined Africa / S. Asia.
As an aside, OECD oil consumption trend growth ended as of Q4 '07 (chart below)...and quarterly variations in consumption have been "unusual" since.  Despite the halving of energy costs, despite the implementation of ZIRP, massive growth in federal debt, central bank balance sheets, and stimuli of every sort...the OECD demand is back to levels first breached in the mid 1990's.
Conclusion:
Finally, for those who don't understand the gravity of the broken trend-line in the chart above...the OECD is the global import engine that provided the growing markets for developing nations of the world to export their way to prosperity.  What began post WWII with Germany and Japan, spread to Taiwan, Korea (etc.), and eventually China.  However, as the OECD and potential import growth capacity has waned, the exporters have a progressively deteriorating viable rationale to grow their capacity, their jobs base, their GDP (previously discussed HERE).

China alone since 2000, as a quasi "communist" state, was able to "compel" its corporations and local governments to undertake massive debt fueled build-outs to achieve pre-determined "growth" targets (previously discussed HERE).  New factories, housing, malls, infrastructure, etc. were built for a domestic population now embarking on a large decline and a global import base which has indefinitely stalled.  Now the massive Chinese overcapacity sits pumping out deflation and no other nation (of significance) can similarly compel their corporations and the like to undertake like levels of bad debt to keep global "growth" going.

This notion of an imminent "S-Curve" lifting India or Africa to prosperity is simply (and sadly) ludicrous.  That a fast growing group of poor in Africa and S. Asia, in need of selling their labor and resources to a now declining base of buyers in the OECD, China and decelerating growth among the RoW (already with too much and still growing capacity as it is), is delusional.  Very unfortunately, a synchronous and intertwined financial, economic, and currency collapse is highly likely as central banks and federal governments worldwide are undertaking progressively worsening policies and interventions to extend and pretend...even if it's just buying months now instead of years.  Of course, I've been wrong more than once...so perhaps I'm wrong again.  And really, that would be okay.

Extra Credit (below), gauging asset appreciation in the US (using the Wilshire 5000, representing all publicly traded US equities) versus the measuring stick of total US energy consumption.  Make of it what you will.