Ageing populations and falling fertility rates pose grave global challenges

Many countries are facing the twin challenges of ageing populations and falling fertility rates, which create wide-ranging economic, social, and political problems.

Current trends in global populations are pushing the world into new territory, with fertility falling below replacement levels and societies ageing more rapidly than ever before!

“These shifts in demographics are a key megatrend that will shape long-term economic performance,” according to Oxford Economics.

Weaker demographics affect the economy primarily through a declining labour supply. This happens through three main channels: fewer young workers slow innovation; ageing populations reduce demand; and smaller workforces increase the strain on welfare systems. The researcher’s baseline forecast projects that the global population will reach 10.2bn by 2060. However, some evidence suggests that demographic decline is happening faster than expected. In a ‘Secular Stagnation’ scenario, the global population falls over a billion below our baseline, to 9.1bn by 2060. A smaller share of young workers holds back investment and innovation, which slows productivity growth. With less value being added per worker, wage growth stagnates.

Conversely, Oxford Economics ‘Tech Revolution’ scenario includes the UN’s high fertility projection, resulting in a global population of 11.4bn by 2060 – over a billion higher than baseline. This younger, larger workforce drives stronger demand and increases economic potential. Over time, rapid technological progress boosts the economy further.
Regional differences will create winners and losers. Ageing societies are facing stronger fiscal pressures and tough decisions on their policy responses.

Meanwhile, younger regions such as sub-Saharan Africa will account for half of all new entrants into the global labour force by 2030, offering long-term growth potential if supported by strong institutions.

The researcher previously identified four core megatrends – demographics, technology, institutions, and globalisation – as the key drivers shaping the long-term outlook.

A key demographic trend is the change in fertility rates, defined as the average number of children born per woman, which are falling worldwide. At the same time, life expectancy continues to rise, with record lows in child mortality and highs in longevity.

Together, these trends are accelerating population ageing and slowing the growth of working-age populations globally. Meanwhile, migration will continue to reshape population patterns, but it will not be enough to offset the demographic headwinds that ageing economies face.

These trends were earlier seen to have significant implications for growth, public finances, and investment opportunities. In ageing economies like China, this slowdown in the growth of the labour force will act as a drag on potential growth.

In some regions, demographic decline is happening faster than expected. For example, fertility rates have recently fallen below the UN’s low fertility scenario in several countries, including Chile, Colombia, and South Korea.

In the Eurozone, there is growing evidence that the pandemic had a stronger-than-expected negative impact on birth rates, with the number of babies born in 2023 showing the largest annual decline since 1961. Lower fertility not only reduces population growth but also reshapes the age profile, leading to ageing societies and shrinking workforces as fewer young people enter the labour market.

With fewer people of working age, labour supply decreases, reducing productivity and economic growth. More retirees depend on fewer workers, straining pension systems and social security.

Older populations require more medical care, long-term care, and assisted living facilities, raising public expenditure.

Demand shifts away from housing, durable goods, and education towards healthcare and age-related services, slowing growth in certain industries. Younger populations tend to drive innovation and new business creation; declining youth cohorts can reduce dynamism. Obviously, an ageing population and declining fertility create economic headwinds, fiscal stress, labour shortages, social strains, and geopolitical shifts.

Therefore, countries that cannot adapt either through pension reforms, healthcare efficiency, higher labour participation, migration,
or pro-family policies are very likely to face stagnation and inequality.

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