In a stark warning, Piper Sandler has called the slowdown in global population growth “the mother of all risks.” This demographic shift has profound implications for economic stability and global growth.
Slowing population growth, especially among the working age group, is expected to create significant economic headwinds.
Declining global population growth:
Global population growth has been on a downward trajectory since it peaked in 1964. The working-age population (15-64 years) peaked in 1979, and its subsequent decline has contributed significantly to the slowdown in global GDP growth.
Piper Sandler adds that the world’s population will peak around 2080, six years earlier than previously expected.
Population aging and dependency ratios:
One of the most pressing concerns raised is the high dependency ratio of the elderly. As the proportion of pensioners increases relative to the working-age population, the economic burden on them increases.
This shift will put pressure on social security systems and public health services, and could lead to increased government debt if structural reforms are not implemented. The United Nations expects the global old-age dependency ratio to rise from 16% in 2024 to 32% by 2070.
Geographical disparities:
The effects of slowing population growth will not be evenly distributed. Developed markets are expected to face more severe challenges due to already high levels of elderly dependency and high levels of public debt.
For example, Germany and Japan have been highlighted as countries where the economic burden of population ageing will be particularly severe.
In contrast, the United States is in a relatively better position because of its relatively low dependency ratio and the potential for immigration to boost the working-age population.
Government debt and economic stability:
The rising old-age dependency ratio is likely to push up government debt. Developed markets, with their extensive social safety nets, will face significant fiscal pressures as they try to support a growing number of elderly people amid a shrinking labor force.
This dynamic could lead to higher levels of government debt, putting long-term economic stability at risk.
Implications for politics and economics
The need for structural reforms:
To mitigate the economic risks arising from slowing global population growth, structural reforms are essential.
Governments need to consider policies that boost productivity, encourage higher birth rates, and facilitate the participation of older people in the labor market. In the absence of such reforms, economic and financial pressures will intensify.
Immigration as a barrier:
Immigration can act as a crucial buffer against the decline of the working-age population in certain regions. For example, the United States and Germany can partly offset their demographic challenges through strategic immigration policies.
However, countries like Japan, which have more restrictive immigration policies, will find it more difficult to mitigate these demographic headwinds.
Focus on productivity gains:
With a shrinking workforce, improving productivity becomes critical. Investments in technology, education and health care can help maintain living standards despite a shrinking workforce.