The world is in undergoing extensive demographic change, leading to slowing economic growth and increasing public debt in many advanced economies and potentially increasing political and economic instability in developing economies. Differential demographic developments are giving rise to varying economic and political challenges. Advanced economies have been characterized by very slow population growth, stagnating population levels or even outright population decline. This has led to a significant increase in the share of the elderly population and, in some cases, to decline of the work-age population in absolute terms. Upper middle income countries are undergoing very similar demographic changes, although with a time lag. However, in many instances, their demographic transition has been more rapid, largely due to rapid decline in fertility rate. By contrast, low income and many lower middle income (developing) economies continue to be characterized by rapid population growth and rapid increase in the number of people of working age.
· The world’s population increased from 2.4 billion in 1950 to more than 8 billion last year. In its medium-variant scenario, the UN projects population to peak at 10.3 billion in roughly 2080 and remain at above 10 billion for the remainder of the decade.
· Decades of below replacement fertility rates have begun to translate into stagnating population levels or outright population decline, particularly in countries characterized by low inward and large outward migration. The bulk of the countries experiencing population decline is located in Eastern Europe due to a combination of sharply lower fertility levels and net emigration, mainly to Western European countries.
· Other countries experiencing population decline do so due to economic crisis, civil war or external armed conflict, such as Syria (until recently) and Venezuela. Ukraine, already demographically challenged before the full-scale Russian invasion in 2022, lost 6-7 million people due to Ukrainians fleeing the war. Ukraine’s population has fallen by a third since 1990. It pre-2022 population was 38 million, compared to 52 million in 1990.
Global demographic balances will continue to shift dramatically with advanced and emerging economies aging rapidly in the context of slowly growing, stagnating and declining populations, and developing economies experiencing rapid population growth. The differences in terms of present demographic development between advanced, emerging and developing economies are stark. Virtually all advanced (high income) economies have fertility rates below replacement level, which absent substantial net immigration will lead, or has already led, to stagnating or declining work-age populations. Africa, including North Africa and West Asia will see significant population growth, including a sharp increase in the number of their working-age population. East Asia and parts of Europe will also see, or are already seeing declining working-age population, while North and Latin America will register modest increases over the next quarter of a century, according to UN projections.
· In low-income countries, the fertility rate is 4.6, in middle income countries 2.1 (ranging from 2.6 in lower middle income to 1.5 in upper middle income countries) and 1.5 in high income (advanced) countries. Geographically, the average fertility rate of African countries is above 4, ranging from 6.6 in Niger to 2.3 in South Africa. By contrast, fertility rates are below replacement in Asia (1.9), North America (1.8) and Europe (1.5). In Asia, the rate varies from 2.9 in Central Asia to 1.2 in East Asia. With the exception of Africa and West Asia (and South Asia, barely at 2.2), all regions of the world will experience declining population levels over the next two generations unless fertility rates recover substantially and sustainably, which historically speaking is unlikely.
· By 2050, sub-Saharan Africa’s population will be 2.1 billion (compared to 1.2 billion today), Latin America’s 730 million (660 million), North America 430 million (390 million), South Asia 2.5 billion (2.1 billion), Western Europe 112 million (125 million), Northern Africa 370 million (270 million) and East Asia 1.5 billion (1.7 billion).
· Long-term projections are only as good as the assumptions they are based on as well as the quality of historical data they take as a starting point. The number cited in this comment refer to the UN’s medium variant scenario. Quite likely, this scenario underestimates the speed with which fertility rates will decline in countries that are currently experiencing rapid population growth. Nonetheless, this will do little to alter the sharply diverging demographic trends in advanced versus developing economies.
· A methodological note: The total fertility rate in a specific year is defined as the total number of children that would be born to each woman if she were to live to the end of her child-bearing years and give birth to children in alignment with the prevailing age-specific fertility rates. It is calculated by totalling the age-specific fertility rates as defined over five-year intervals (OECD). In other words, the fertility rate is an unobserved variable.
Politically, aging societies see the emergence of “grey majorities”, which make it more difficult to implement economic reform that negatively affect “acquired rights” and increasingly costly and financially difficult-to-sustain social security regimes. While total population levels may not decline in advanced economies thanks to immigration, they are and will continue to age and see the share of the elderly population increase relative to the working-age population. This emerging “grey majority”, however diverse it may be politically, shares an interest in defending “acquired rights” and oppose cost-saving reform of the social security regime. This raises the medium- and long-term challenges to government finances and might jeopardize economic and financial stability in the context of slowing economic growth. Demographically rapidly expanding societies also face significant economic challenges in terms of integrating an expanding working-age population into the economy. As these countries are often very poor, governments find it difficult to provide education and infrastructure that would support strong, sustainable economic growth and facilitate the integration of young people into the economy. Relatedly, the so-called youth bulge then often makes countries more prone to domestic political violence and instability. Political violence in turn weigh on economic development as well as a country’s ability to attract foreign investment and integrate itself into international supply chains.
· All other things, the combination of demographic stagnation in advanced economies and rapidly expanding working-age population in Africa and the Middle East will translate into greater migration to Europe, including Russia. By comparison, North America will face less pressure given a demographically rapidly maturing Latin America. Migration pressure are not simply a function of demographic pressure, even though the latter play an important role. Political and economic condition in sender countries with large population increases matter, as do the immigration policies of the target countries.
Economically, rapidly aging societies are faced with significant economic challenges, such as slowing economic growth and intensifying distributional conflict. An increasing old-age dependency ratio, defined as “people younger than 16 and older than 65”/ “working-age population, will generally lead to declining savings and increased government pension and health expenditure, or at least political demand for increased expenditure. This in turn will tend to increase government spending and often government deficit as well as public debt, leading to a further intensification of distributional conflict. The dependency ratio can increase even though the population of working-age continues to increase in absolute terms. A relatively and absolutely declining working-age population means that if labor productivity fails to compensate for it, per capita incomes will fall. This does not mean though that demographically challenged countries are doomed economically. They have various options to offset demographic decline. First, liberal migration policies can help offset a shrinking workforce and help keep per capita income growth on an upward trajectory. Second, investment in innovation and technology can accelerate productivity growth. Third, where female labor participation rates are low, policies that help integrate women into the labor market can help. Fourth, policies that create incentives for older people to remain in the workforce for longer (or create disincentives for them leave the workforce) can help slow the impact of a declining working-age population. Fifth, pro-natalist policies may help slow population decline in the longer term, even though in the recent past their impact has been demographically negligible and financially costly. Politically, however, such reform will prove challenging, not least due to the existence of increasingly influential grey majorities.
· The overall dependency ratios in sub-Saharan Africa and North Africa will decline between 2025 and 2050. In East Asia, North America and Europe, the ratio will increase, in some case sharply. In Japan, the overall dependency will reach 95 and the old-age dependence ratio 80, meaning that for every four people older than 65, there will only five people of working age. In China, the overall dependency ratio will reach 55, compared to 23 today. While much lower than in Japan, the speed with which China’s demographic profile will be deteriorating is much greater. By contrast, India’s old-age dependency ratio will rise from 10 to 20, and America’s from 28 to 38. (medium variant).