More and more people around the world are gaining access to the internet, and the implications are huge.
“Digital natives” — those who have spent their entire secondary education in a country with at least 50% internet adoption rate — are creating a “seismic shift” that is “too big” for governments and central banks to ignore, HSBC economist James Pomeroy writes.
He points out that the number of “digital natives,” which he estimates will leap from 430 million in 2016 to 2.3 billion in 2030, will have a particularly significant impact on inflation. Specifically, this rapid increased use of technology will result in a “sea change” of consumption trends that will ultimately lead to downward pressure on prices of goods and services.
“This may come via greater consumer information (including comparison websites), improved supply chains, increased access to alternative products or new technologies that are cheaper. All else being equal, this should lead to lower inflation rates,” Pomeroy writes.
This is where central bank policymakers will have to be careful. Traditionally, low inflation is seen as a sign of economic malaise, which encourages central bankers to increase stimulative monetary policy. But this way of thinking may not be reasonable anymore.
“It is here that the headaches for policymakers begin. Governments with high debt levels and central banks with inflation targets are already concerned by low inflation. But if inflation falls because technology improves, it is not a sign of economic malaise (as consumers will benefit) and cuts in interest rates may not be the answer.”
To be clear, the digital native story is about more than the Millennial generation.
In a separate note, Bank of America Merrill Lynch’s Head of Thematic Investing Sarbjit Nahal points out that it’s not just Millennials, but the rise of Centennials, kids ages 18 and under. There’s currently 2 billion Millennials—people ages 19 to 35—accounting for for 27% of the global population. He added that investors need to prepare for the rise of 2.4 billion Centennials, kids 18 and under, who will be expected to live to be over 100 and make up 33% of the global population.
Again, technology will be a defining characteristic of this demographic.
Nahal noted that the average age kids get their first smartphone these days is 10.3 years-old.
“Young cohorts check their phones 150 times per day, 50 billion IMs and 6 billion emojis are sent every day, and human attention spans are falling below those of goldfish. Gen Y and Z are mainstreaming disruptive technologies and both corporates and investors need to step up to the challenge, including via smartphones and apps, social media, instantaneous communication, ‘snackable content,’ omnichannel strategies, and making things shareable,” Nahal writes.
According to Nahal, there are five entry points for investors who want to play into this theme that include Technology, Media & Entertainment, Consumer, Household Formation, Education, and Financials.
Julia La Roche is a finance reporter at Yahoo Finance.