Global population growth is slowing. After peaking at just over 2% per annum (p.a.) in the late 1960s, the world’s population is currently growing at 1.1% p.a. and is expected to moderate to 0.5% p.a. by 2050. As population growth slows, the world is also ageing. In 1950 there were just 9.9 people aged over 65 for every 100 people aged 20-64. Today, there are just over 14 and that is likely to rise to 28 by the middle of the century.
Naturally, these trends vary significantly across countries and regions (see chart 1). Population growth in the least developed countries did not peak until the 1990s and will probably remain above 2% p.a. until 2030, while the old-age dependency ratio is not likely to reach the current global average until 2055. By contrast, population growth in the most developed countries is not far above zero and is anticipated to turn negative in the 2020s.
Meanwhile, there are already 28 old people for every 100 working-age people and this ratio could reach 50 by 2050. These demographic trends are worst in Europe and developed Asia. Japan, Korea, Germany, Italy, Portugal and Spain all have very low fertility rates and are likely to have a dependency ratio of two-to-three by the middle of the century.
Demographics are not the be-all and end-all of economic growth, but they are very important. The sweet spots for economies are the decades after a surge in the birth rate, when rapid growth in the working-age population is boosting growth in the labour force and the vast majority of resources are being devoted to society’s most productive cohorts. The developed economies’ demographic dividends are well behind them, China’s has just expired, while India, the Philippines and Vietnam are coming into theirs now.
On the other hand, ageing populations have to deal with increased demand for healthcare and public pensions at a time when the number of workers is growing slowly or even contracting. Such negative effects are compounded, when, as is the case for many OECD countries, relatively generous public pension schemes have not been pre-funded in an actuarially sound manner.
Although there is plenty of scope for productivity enhancing reforms to partially offset these demographic headwinds, they are unfortunately in short supply at present.
