Get that money working again, says BlackRock

Virtually every corporate leader I talk with these days tells me the same thing: business is actually beginning to be better than expected, but things continue to feel really bad. So, lacking confidence in the future, they’re continuing to build their cash even as earnings improve.

At the same time, individual investors are confused and frustrated about stagnant incomes and low yields. They don’t see how they’ll ever be able to save enough for their future.

As a result, trillions of euros are simply sitting on the sidelines. Companies in the STOXX Europe 600 are sitting on €561bn of cash, equal to 10.5% of their stock market capitalisation. Cash is being hoarded across the world, even though many of those deposits are delivering negative returns after inflation. That’s one sure way to guarantee savers won’t build the nest egg they need for retirement. Even in fast-growing China, too much money is in short-term savings.

Despite hopeful signs of a tentative economic recovery and rebounding markets, there’s a gnawing sense that things are not right. The changes that are fuelling this crisis of confidence are not passing trends. We are living in a new world. Powerful forces are driving a fundamental transformation in the global system.

A Great Ageing is placing major strains on the global system. The UN forecasts that the over-60 age group will roughly triple in size to two billion people by 2050 – and fewer workers will be available to support their needs because birth rates are declining, testing the solvency of social security systems and health plans. To put this in context, in Germany there were 32 people aged 65 and older for every 100 people of working age in 2005. The Federal Statistical Office projects that this dependency ratio will more or less double to around 64 by 2050.

Coinciding with this Great Ageing, a Great Leveraging is under way in Europe and the United States as governments, the financial sector and individuals reduce debt and de-risk in the wake of the financial crisis. This deleveraging is depressing consumption and the housing market, slowing demand, and will shape investment and returns for years to come.

At the same time, a Great Migration of the engines of growth is shifting jobs and economic opportunity to emerging markets. In developed and developing countries, those not adept at navigating a global economy are left behind – fuelling income disparity and social unrest. Over time, this shift of economic opportunity will help create a more stable world, but for now it is fuelling the global anxiety.

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