I used to find demographics boring, then I came to my census!

There are several long term global structural trends that are shaping our future from technological breakthroughs, urbanisation, growing wealth in the emerging world, global warming, and demographic change. The most visible and tangible changes we relate to in our lives are technology and climate change. We have all experienced the transformative impact of smartphones on our lives and have seen the visceral images of extreme weather events in the media.

Yet, demographic change has gone largely unnoticed, partially because it is almost completely invisible and takes place at an almost glacial pace. This trend has been identified and monitored using statistics, which given our collective aversion to numbers has made it unlikely to capture the public’s attention. Moreover, demographics do not connect with us in the same way other structural shifts do. Such as the fear we feel when confronted by distressing images of areas decimated by climate change or the excitement we sense when seeing technological breakthroughs.

The developed world is facing a demographic time bomb (ageing then declining population). Fertility rates in much of the advanced world are below replacement level 1 (less than 1.5 children per woman) and our population growth has been driven through a combination of people living longer due to medical advances, and high levels of immigration from the developing world. The primary source of global population growth over the next few decades is set to come from the developing world.

The World population is currently 7.7 billion. The United Nations predicts that the population will grow to 9.7 billion in 2050 and peak in 2100 at 11 billion, before gradually falling over the next century. These estimates are well respected and provide the most reliable expectation of the future. Yet not all demographers agree with these estimates, there is a compelling – but controversial- argument that suggests that the population will peak at 9.7 billion in 2050 then begin declining, falling to around 7 billion by 2100. This huge disparity in estimates post 2050 could have profound consequences for the world.

India and China alone account for almost 36% of the world’s population, however, China’s fertility rate is well below replacement rate at 1.2 while India’s is falling rapidly and is expected to fall below replacement rate (2.1) shortly. It is a similar story in the rest of the world aside from parts of sub-Saharan Africa. It is true that better health care will ensure that people live longer in developing areas and place upward pressure on the size of the population but given China and India’s low fertility rates it is possible that the global population will begin to fall in the latter half of the century.

There are a few factors that cause fertility rates to fall. Typically, as a country’s economy grows, people become wealthier and more urbanised as people move into cities from rural areas looking for work. As a result, women (in particular) are better educated, have good access to health care and are empowered to choose when to start a family. Put simply, as a country becomes more prosperous its fertility rate will decrease. This is a trend we are likely to see repeated across the rest of the emerging world in the coming decades.

The conventional view is that population decline is detrimental, add to this notion the possibility that the global population will start declining far earlier than currently predicted. Then this must inevitably lead to a global catastrophe for economies and societies? Perhaps, but perhaps not. So, rather than adopting a pessimistic view, instead, it may be worth considering what the potential benefits of a declining population may be.

Population decline will lead to fewer workers per retiree, and the cost of health care systems will rise as a percent of GDP. However, this cost may be offset by no longer needing to dedicate precious economic resources to building more housing, schools, hospitals, and roads to support an ever-expanding population. Instead, more spending will be directed towards technology and health care.

A declining population should help us reduce carbon emissions and avoid climate change. It may be too late to avert some of the impact of climate change, but an alleviation of the pressures that the population places on the natural environment may help slow and even stop the damage caused by climate change.

A shrinking workforce will also incentivise businesses to automate, this will increase productivity and real incomes. Unfortunately, low skilled workers are at most danger from automation, so investment in skills and re-training is critical, especially as the pool of workers to choose from will be shallower.

Absolute economic growth will inevitably fall as populations stabilize then decline. However, it is more important that growth per capita continues (achieved by becoming more productive), as this is vital for prosperity. A further economic implication of falling populations is that consumption will likely fall, currently consumption in the developed world is a major driver of economic growth, so policies designed to encourage sustainable growth to correct the current imbalance is sorely needed.

Population decline is irreversible, so developed countries should aim to manage this as a gradual transition, to avoid a sudden disruptive change. In the short to medium term developed countries must address the reasons why some families are discouraged from having more children such as expensive childcare and high property prices. Furthermore, politicians need to move away from anti-immigration rhetoric and design a model that attracts high numbers of skilled workers to the country.

The last 18 months have taught us that as a species, humans are not only resilient to shocks but adapt quickly. However, the most important characteristic we possess is creativity. Human ingenuity is at its best when faced with a seemingly insurmountable problem. We generally find a way...

James Bacon BSc (Hons), MSc, Chartered MCSI, APFS Chartered Financial Planner Wealth Manager


[1]: Replacement rate is the number of children that a couple would have over the course of their reproductive years in order to replace themselves. In advanced economies the rate is set at 2.1 children per woman.

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