How the dearth of babies will affect the global economy

The world’s population is going to peak before the century is out and then enter into a big decline, putting serious pressure on economic growth, according to a new study.

Schoolchildren in Kenya © BSIP SA / Alamy Stock Photo
It might soon be time to welcome more people in
(Image credit: © Alamy)

What’s happened?

A major new study of global population trends was published in The Lancet last week, by researchers at the Institute of Health Metrics and Evaluation (IHME) at the University of Washington. It forecast that the number of people in the world will peak around 2064 – far earlier than expected – and will never be as big as demographers had previously assumed. This is due, in large part, to their assessment that fertility levels will fall faster than previously predicted, especially in sub-Saharan Africa and other less developed countries. The IHME’s central forecast is that, having peaked at 9.7 billion, the global population will fall to 8.8 billion by 2100, about a billion higher than it is now, and then continue falling. That compares with a prediction of 10.9 billion in 2100 by the UN’s Population Division, the most widely used forecast of global population growth.

How did they arrive at their numbers?

Principally, they have made different modelling assumptions about two of the key drivers of global population growth: the pace of fertility decline in sub-Saharan Africa; and what happens to countries after fertility levels drop below a “total fertility rate (TFR)” of 2.1, widely considered by demographers to be the minimum rate needed to maintain the population level (the “replacement rate”). Broadly, they think the fertility assumptions made by previous studies have been too skewed by historical data drawn mostly from European countries where population is declining and have not factored in up-to-the-minute evidence on country-specific trends. In particular, the IHME authors have incorporated into their model changes in the drivers of fertility – such as education levels among women and the availability of contraception – rather than relying on extrapolation from past trends.

Which countries will be most affected?

If the IHME projections are accurate, the world is facing dramatic changes with vast social, economic and geopolitical consequences. China’s population is projected to peak in four years’ time at 1.43 billion and halve to 732 million by 2100. India will soon be the most populous country (some estimates suggest it is already), peaking in 2048 at 1.6 billion, but then falling as well, to 1.1 billion by 2100. Some countries are projected to see massive growth in population. Nigeria is projected to grow fourfold, leapfrogging China to 790 million (while neighbouring Niger grows ninefold to 185 million). Egypt’s size is set to double to 200 million, Afghanistan’s will more than quadruple to about 130 million. In all, 55 countries will see population fall by more than 25% and in 23 cases the fall will be by more than half – including in Spain, Italy, Japan, Thailand and Ukraine. The UK, US, Australia and New Zealand are all projected to see small rises over the course of the century, sustained by immigration.

Subscribe to MoneyWeek

Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE

Get 6 issues free

Sign up to Money Morning

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Sign up

What are the economic implications?

Nothing is certain, given that this will be the first sustained fall in the global population in modern history. And as demographers Brienna Perelli-Harris and Jason Hilton point out in The Conversation, predicting population trends is a highly uncertain business and the notes of caution struck in the original study have all been forgotten in the rush to create some alarming headlines. It wasn’t too long ago, of course, that we were all supposed to be worrying about the effects of overpopulation.

But assuming they’re right?

Then the consequences are likely to be severe, as the expectation of lower future growth has a self-reinforcing effect: companies invest less in innovation, older workers stockpile savings, interest falls and growth stagnates. Japan’s long-term malaise, for example, began as its working-age population started to shrink. The main economic challenge is that populations are going to be much older. China’s working-age population (20-64) will decline from 950 million in 2017 to about 360 million by 2100, according to the forecast, while India’s will fall from 762 million to about 580 million. Nigeria’s, by contrast, will jump from 86 million in 2017 to 460 million in 2100. Such trends will challenge the ability of states to meet their social commitments.

Why will it be a challenge?

Because if you have more retirees than workers, the state’s finances begin to look shaky. That is projected to be the case globally by 2100, when the “dependency ratio” – the non-working adult population compared with the working-age population – is projected to reach 1.16 globally, up from 0.80 in 2017. The number of countries with a dependency ratio higher than one is expected to increase from 59 in 2017 to 145 in 2100. And countries experiencing sharp falls in population can expect to see especially “profound shifts in age structure”, says the IHME report. In countries set to see 25% declines, there will be on average 1.5 people aged over 80 for every child aged under 15. That’s almost ten times as many as today.

What is to be done?

Policymakers might try to encourage women to have more children. As a short-term measure, they might boost participation in the labour force by older workers and women. But the easiest solution is more liberal immigration policies – the route pursued by Canada, Australia, New Zealand and the US for most of the past three decades. If immigration can be combined with effective assimilation, it is likely to be the “optimal strategy for economic growth, fiscal stability, and geopolitical security”, the report concludes. That’s a big if, of course. But Professor Chris Murray, the lead author of the study, predicts the second half of the century will be marked by “frank competition for migrants”. Unless countries can do without economic growth, there’s a “coming scramble for labour”, says Janan Ganesh in the Financial Times. “Employable people are going to be precious,” and the “hunt for them will have to be passport-blind.”

Simon Wilson’s first career was in book publishing, as an economics editor at Routledge, and as a publisher of non-fiction at Random House, specialising in popular business and management books. While there, he published, a bestselling classic of the early days of e-commerce, and The Money or Your Life: Reuniting Work and Joy, an inspirational book that helped inspire its publisher towards a post-corporate, portfolio life.   

Since 2001, he has been a writer for MoneyWeek, a financial copywriter, and a long-time contributing editor at The Week. Simon also works as an actor and corporate trainer; current and past clients include investment banks, the Bank of England, the UK government, several Magic Circle law firms and all of the Big Four accountancy firms. He has a degree in languages (German and Spanish) and social and political sciences from the University of Cambridge.