The world in 2040: expect water shortages and a bellicose China

Jonathan Compton predicts the key economic and political changes investors should factor in over the next two decades.

Futurology: “the systematic forecasting of the future, especially from present trends in society”. The sole difference from Voodoo is that the latter sometimes works, so strong is the belief of its adherents. The most famous forecasters used to be sci-fi and fantasy writers such as H.G. Wells or Aldous Huxley, but later “futurists” (they liked to give their Voodoo a scientific gloss) abandoned ripping yarns in favour of pedantic tub-thumping – witness authors such as James Lovelock (Earth as “Mother Gaia”). 

The most successful was Herman Kahn, founder of the Hudson Institute and role model for the insane eponymous Dr. Strangelove in the Stanley Kubrick film. A one-hour consultation on the future cost thousands and his forecasts, like all eminent futurists’, proved as reliable as tarot cards. So while trying to avoid their pratfalls, I give you the world in 2040. 

Three key trends to keep an eye on 

If economic history teaches a single lesson it is that extrapolating current trends is foolhardy given that politics and economics are cyclical. Still, three long-term trends seem set to continue. By 2040 the world’s population will never have been so old, fat and thirsty. 

The dominant economic drivers since 1973 have been the global population doubling to 7.8 billion and a shift from a mere quarter of the population living in open market economies to three quarters doing so. This has accelerated consumption and production. These two factors alone explain the extraordinary increase in economic growth and wealth. But the party’s over now.

Although the global population will keep increasing, the growth rate has been declining since the 1970s, from over 2% per annum to 1.1% now; by 2040 it will have dwindled to 0.7%. Later this century the world’s population is expected to shrink – great news for the environment. My hunch is that the tipping point will be sooner than expected. Why? One reason is infertility. In advanced countries the rate in males has been rising steadily since the 1970s, while in women infertility is also rising, but at a slower rate. This is odd given the collapse in smoking and better diets, but no-one has yet discovered any definitive causes. 

Far more important, however, is that in every country where real incomes have risen above subsistence levels and women have had a choice along with access to contraception, they have opted to have fewer children; hence live births per female have halved since 1970 (to 2.5) and in the next 20 years are expected to fall to or below the replacement rate of about 2.15. When China ditched its one-child policy, young married couples settled on 1.76 babies, just above the two notoriously shrinking nations of Japan and Italy. 

So the population bulge we have seen and which will continue for a while is increasingly a function of better life expectancy. A male born in the UK in 1950 could expect to live to 68 (hence the government setting the state pension at 65). Now it is 81. The same applies to all advanced countries. In less developed ones the change has been dramatic, such as in Ethiopia; there life expectancy has doubled over the same period, to 66. 

The work force as a percentage of the total population peaked in 2015 at 65%. Given the number of children alive now we can predict that in 20 years’ time national workforces will be 10%, 20%, 30% and 40% smaller in China, Europe, South Korea and Japan respectively. These shrunken pools of labour will be expected to carry the cost of an ever larger number of the old and ill. The strain on first-world countries is already visible; for others on the way up it is simply unaffordable. It does not bode well for living standards; taxation can only rise. In 20 years we will be paying young skilled workers to immigrate.

A planet of thirsty blobs

What will this workforce look like? Wheezing and obese. According to the Body Mass Index (BMI) gauge, a BMI of 20-25 is good, 25–30 means you are chubby and over 30 denotes obesity. According to the World Health Organisation global obesity has tripled since 1975. Two billion adults, a quarter of the world’s population, are now obese. It is the number-one cause of death. Not that wealthy countries are eating more – calorie intake has been falling steadily – but people are moving less and are kept too warm. But the most depressing fact is that no national diet-programme has ever reduced obesity. Around 40% of the world wearing XXXL underwear by 2040 seems a certainty.

They will be thirsty too. In 2004 the Coca-Cola company was embroiled in a scandal: its new Dasani water at 95p per bottle, it transpired, was not sourced from pristine alpine glaciers but from the mains via a tap in Sidcup. Moreover, it contained a potentially carcinogenic bromate. Red faces all round, but none anywhere in those governments overseeing failing or polluted water supplies. Most of the world’s giant rivers are suffering volume shrinkage, with many becoming toxic – the Ganges, the Yellow River, the Nile and the Jordan. That is less eye-catching than Coca-Cola’s blunder, but infinitely more damaging. 

Fresh water is in short supply. Only 2.5% of the world’s water is fresh and of that only a fraction is accessible. Water misuse and pollution are unlikely to be addressed until there is a major shortage. For many countries this will happen before 2040. The “water stress” scale measures how much of its water resources a country uses. Below 10%, the country has very low stress; 40% is too high, anything over 60% is very bad. 

Damp Britain is in a good position at only 5%, but over half the world’s population live in areas of high stress: almost all of Africa, the Middle East and the Indian sub-continent (which scores 45%), as well as parts of China. Clean water availability is a good proxy for wider environmental issues and the one most likely to have an enormous impact.

To read the whole of this article, subscribe to MoneyWeek magazine

Subscribers can see the whole article in the digital edition available here

Recommended

A weakening US dollar is good news for markets – but will it continue?
Currencies

A weakening US dollar is good news for markets – but will it continue?

The US dollar – the most important currency in the world – is on the slide. And that's good news for the stockmarket rally. John Stepek looks at what …
3 Dec 2020
The charts that matter: precious metals and bitcoin swoon
Global Economy

The charts that matter: precious metals and bitcoin swoon

As gold and bitcoin both slide, John Stepek looks at what else has happened this week in the charts that matter the most to the global economy.
28 Nov 2020
Once Covid-19 is over, we’re going to see an economic boom
Investment strategy

Once Covid-19 is over, we’re going to see an economic boom

After the dust from the pandemic has settled, we’re in for a consumer boom and a huge bout of government spending, says John Stepek. Here’s how to tak…
24 Nov 2020
Asia's RCEP: free trade without the red tape
Global Economy

Asia's RCEP: free trade without the red tape

Regional Comprehensive Economic Partnership (RCEP), Asia's new trading block, shows that it is possible to create large single markets without making …
22 Nov 2020

Most Popular

Time for investors to be fearful, not greedy – and sell?
Investment strategy

Time for investors to be fearful, not greedy – and sell?

The Covid-19 crash proved a great investment opportunity. Does the vaccine mean it’s time to sell?
23 Nov 2020
How to avoid inheritance tax by giving your money away
Inheritance tax

How to avoid inheritance tax by giving your money away

Ruth Jackson Kirby explains how to avoid inheritance tax by passing money on to your family while you are still here.
24 Nov 2020
Once Covid-19 is over, we’re going to see an economic boom
Investment strategy

Once Covid-19 is over, we’re going to see an economic boom

After the dust from the pandemic has settled, we’re in for a consumer boom and a huge bout of government spending, says John Stepek. Here’s how to tak…
24 Nov 2020