1. Long-run equity returns 1. In the long run total return on equities approximates to initial dividend yield plus growth rate of dividends and growth rate of dividends is dominated by growth rate of national output. Economic growth is fundamental to the capital gains that make equities attractive relative to higher-yielding investments, such as bonds, convertibles or property.

2. Long-run equity returns 2. Assume the following:- 1. Productivity growth 1 1/4% a year 2. Employment contracting by 1/2% a year 3. Ratio of profits to GDP falling by 0.2% a year Then, what is the trend rate of profits growth, and so of long-run capital gains p.a. in real terms? Answer = 1/2% a year

3. Productivity growth in the Euro-zone 1996 - 2000 1996 1.1% 1997 1.6% 1998 1.2% 1999 0.9% 2000 1.3% 2001 1/2% ? Average growth rate of productivity is little more than 1% a year.

4. SLOWING PRODUCTIVITY GROWTH IN THE EU

5. What do we mean by “Europe”? 1. o

6. What do we mean by “Europe”? 2

7. Europe’s demographic problems 2000-2030 1. Chart shows projected population of working age for Europe as a whole. Projection based on 1994 World Bank data

8. Europe’s demographic problems 2000-2030 2. Chart shows projected falls in population of working age, 2000-2030,%. Projection based on 1994 World Bank data

9. Europe’s demographic problems 2000-2030 3. Chart shows projected fall in population of working age in all those countries where it is falling. Decline is about 1/2% a year.

10. Europe’s demographic problems 2000-2030 4. Chart shows projected fall in population of working age in “falling” countries and rise in “rising” countries, between 2000 and 2030.

13. THE LATEST ASSESSMENT 1. Population of working age in millions, according to 2002 World Bank projections

14. THE LATEST ASSESSMENT 2.

15. THE DECLINE IN FERTILITY Chart shows number of births per woman, on average

16. INTERNATIONAL COMPARISONS Number of births per woman, on average

19. EU’S DEPENDENCY PATTERN EU15’s dependents as % of population

20. THE OVER-BURDENED STATE Number of people aged 19 and under, and 60 and over, as a percentage of working age population

25. Falling populations 1. What do they mean for economies? Fall in total population implies: 1. Reduced need for residential space 2. Sharply reduced need for new houses 3. Reduced demand for food relative to other products Fall in working-age population implies: 1. Reduced demand for commercial and industrial space 2. Sharp demand cut for new buildings 3. Reduced no. of journeys to work

26. Falling populations 2. What do they mean for profits? Labour shortages, rising marginal productivity per worker and rising wages Rising ratio of wages to national product Falling ratio of rents/profits to national product Rents/profits rising more slowly than national product

27. EMPLOYMENT IN EUROPE IN THE 1990s Chart shows % change in employment

28. Immigration into the UK, 1991-1999 Chart shows net immigration in thousands

29. Non-British entrants to the UK,1998, excluding visitors