New research from Goldman Sachs challenges the prevailing narrative of economic decline due to ageing populations, suggesting that longer, healthier lives are translating into longer, more productive working careers.
For years, the prospect of an ageing global population has loomed like a “demographic time bomb” over economic and chemicals-demand growth forecasts.
Understanding demographics is clearly essential to forecasting chemicals demand growth as I’ve been discussing since 2011. Also important are changing social norms, great leaps in human health and life expectancy and government policies and budget.
The Goldman research focuses mainly on developed markets. Can governments in developing markets, such as China with its rapidly declining population, build the healthcare and pensions systems necessary to compensate for ageing? Politics and well as affordability are likely factors here.
We further need to consider the impact on demand of climate change and rapidly developing technologies such as AI.
What’s clear to me is that we need much more complex models, very probably enabled by AI, to forecast chemicals demand. The standard approach of multiples over GDP, in my view, no longer works.
Healthier Lives, Longer Careers
According to the report, a person who was 70 in 2022 had the same cognitive ability as a 53-year-old in 2000. This improvement in functional capacity means that chronological age is becoming a less reliable indicator of an individual’s potential for productivity.
This extended period of good health is naturally leading to longer working lives. The report highlights that median expected life expectancy in developed economies (DMs) has increased by 5% since 2000, from 78 to 82 years, adds the study.
Crucially, this has been outpaced by a 12% rise in the median effective working life, which has climbed from 34 to 38 years over the same period, says Goldman Sachs.
Participation Rates Defy Expectations, Bolstering GDP Per Capita
The most striking finding from Goldman Sachs is that despite a significant decline in the DM working-age ratio (ages 15-64) – which has fallen from 67% in 2000 to 63% today and is projected to hit 57% by 2075 – the share of the total population in employment has actually increased. From 46.0% in 2000, this figure has risen to 48.3%.
In simple terms, this means that even with fewer people in the traditional “working age” bracket, more people overall are participating in the workforce. Consequently, contrary to fears of rising burdens, DM dependency ratios have actually fallen. This suggests an adaptive response to increased longevity, occurring even without significant changes to official pension laws in many countries, the report continues.
This resilience in labour force participation is key to understanding the nuances shaping GDP growth. While the overall rate of GDP growth might slow as global population growth itself decelerates – the Goldman Sachs report notes that global population growth, which peaked at 2% fifty years ago, is now 1% and projected to fall to zero over the next 50 years – the picture for GDP per capita is more robust. By people working longer, and remaining productive, the economic output per person is maintained or even enhanced, countering the demographic headwind, says Goldman Sachs.
Nuances and Remaining Challenges
While the Goldman Sachs analysis offers an optimistic take, it’s important to consider some critical nuances:
- Quality of Extended Work: While people are working longer, are these extended careers in highly productive, full-time roles, or are they increasingly part-time, less demanding, or lower-paid positions? The impact on average productivity (GDP per worker) needs careful consideration, even if total employment rates rise.
- Public Sector Pension Costs: The report acknowledges that “rising public sector pension costs remain a concern for some economies.” While extending working lives alleviates some pressure, it doesn’t entirely negate the fiscal challenges of public pensions and healthcare systems dealing with a larger proportion of older, albeit healthier, individuals. The demand for healthcare, especially for very old age, is still likely to increase.
- Emerging Markets’ Trajectory: While the DM experience is encouraging, will emerging economies (EMs), which are currently at their “demographic turning point,” be able to replicate this trend of extended working lives as effectively? Different labour market structures, social safety nets, and health disparities could pose unique challenges.
Beyond Demographics: A Complex Web of Factors
This positive demographic story from Goldman Sachs is a significant shift, but it’s part of a much larger and more intricate global economic narrative for 2050.
Global Population Trajectories to 2050: Overall, the global population is still projected to grow, albeit at a slowing pace. The UN’s medium variant predicts a global population of around 9.7 billion by 2050. However, the geographical distribution of this growth will be highly uneven. Sub-Saharan Africa is poised for substantial population increases, potentially doubling in size, while Asia’s growth will slow, and Europe is expected to see consistent declines.
Climate Change: The Unforeseen Economic Headwind: Even with a more optimistic view of labour force participation, climate change introduces significant economic challenges. Wildfires, droughts, and floods are already exacting a heavy toll, and these impacts are set to intensify by 2050.
- Wildfires, exacerbated by hotter, drier conditions, are causing billions in direct damages to property and infrastructure (e.g., the 2018 Camp Fire in California, costing an estimated $16.5 billion). Beyond this, they disrupt tourism, incur massive healthcare costs from smoke inhalation, and destabilise insurance markets.
- Droughts are a slow-motion disaster, devastating agriculture, impacting hydropower generation, and disrupting crucial inland waterways, leading to food price volatility and energy shortages. Regions like the Horn of Africa and the Western US are already seeing severe consequences.
- Floods, both sudden and prolonged, destroy infrastructure, agricultural land, and supply chains. The 2022 floods in Pakistan, for instance, caused an estimated $30 billion in damages. These events lead to massive rebuilding costs and can render areas uninsurable, creating “climate ghettos.”
These climate impacts are disproportionately affecting the Global South, where adaptive capacity is lower, potentially exacerbating existing inequalities and hindering economic development.
Climate Migration: A Looming Challenge: The scale of climate-induced migration by 2050 remains a subject of intense debate. While some estimates, like those cited in Gai Vince’s “Nomad Century,” project figures as high as 1.5 billion people, mainstream organisations like the World Bank offer more conservative estimates of up to 216 million internal climate migrants by 2050 under pessimistic scenarios.
The credibility of these extreme numbers is debated, as they often assume limited adaptation and broad definitions of “climate migrant.” However, even conservative projections indicate significant internal displacement, particularly in regions like Sub-Saharan Africa and South Asia, putting immense strain on urban areas and social services. Adaptation efforts, such as climate-smart agriculture and resilient infrastructure, are seen as critical to mitigating these displacements.
A New Lens for Economic Growth
The Goldman Sachs research provides a useful piece of the puzzle: A more robust and resilient labour supply in an ageing world. This positive outlook on the demographic front might mean that chemicals forecasters looking out to 2050, the focus could shift more intensely to other critical drivers of economic growth. Or maybe not for the reasons highlighted above.
The impacts of climate change, with its escalating economic costs and potential for mass displacement, will undoubtedly remain a significant headwind. However, the potential for technology, particularly AI and automation, to further enhance productivity and extend working lives could become an even more pivotal factor in shaping the economic landscape. This interplay will ultimately dictate demand for essential materials, including chemicals and polymers, in a world that is older, but potentially far more productive, than previously assumed.