Economic impact of ageing populations is obvious, but ignored

Economic growth

SHARE THIS STORY

Fertility Oct13Too many policymakers, companies and investors are continuing to ignore the dramatic changes taking place in the age profile of the global population.  Yet common sense tells us these must have a major impact on the economy.  The impact comes from 2 equally important developments:

  • One is the rise in the number of people in the New Old 55 age group, as I discussed last week
  • The other is the relative decline in the number of young people born since the end of the BabyBoom in 1970, as I discussed 2 weeks ago
  • The chart above summarises the position since 1950 – there has been a 50% increase in global life expectancy to 70 years, whilst fertility rates have halved to just 2.5 babies/woman

The change in fertility rates in the Top 10 economies, responsible for nearly 2/3rds of global GDP is even more dramatic.  Their fertility rates are now below the replacement level of 2.1 babies/woman.  This means their populations are actually in long-term decline, without immigration.  In some countries such as Japan, populations are already shrinking:

  • Its population fell by 268k last year, as there were 1.269m deaths compared to 1.001m births
  • By comparison, Japan had 2.7m babies born in 1949, the peak of its post-War BabyBoom

Ageing populations have an enormous impact on economic growth.  This is because younger adults aged 25 – 54 years do most of the ‘heavy lifting’ in terms of consumer spending.  And consumer spending is around 2/3rds of the economy in most countries.

I wrote about this recently for the Financial Times, and UK data parallels that for most other major economies:

  • The combination of low fertility rates and increased life expectancy means most households are now headed by someone aged over-50
  • These older households spend much less than the younger ones, an average of $24k ($36k) versus £30k
  • Equally important is that spending declines across all major categories after the age of 50
  • Housing and transport costs decline immediately, whereas recreation and food & drink decline after the age of 65

But contrary to the stereotype, these are NOT people using walking sticks with one hand, whilst they swallow pills with the other.

The average Westerner who reaches 65 has another 20 years of life expectancy ahead of them.  And it is only in the last 18 months of life that healthcare costs suddenly begin to jump for most people.

CONCLUSION
Companies and investors thus have a choice ahead of them.  They can either bury their hands in the sand, and ignore the obvious.  Or they can revisit their business models, and refocus on the opportunity to supply affordable and necessary products to the New Old population.

Demographics are destiny, after all, and they also drive demand.  Smart managers will draw the obvious conclusions about future growth opportunities, and how to access them.

PREVIOUS POST

China's PE imports tumble as market slows, local output rises

26/03/2015

Too many policymakers, companies and investors are continuing to ignore the dra...

Learn more
NEXT POST

Hedge funds moving away from 'buy on the dips' strategy

30/03/2015

Too many policymakers, companies and investors are continuing to ignore the dra...

Learn more
More posts
Ageing Perennials set to negate central bank stimulus as recession approaches
10/03/2019

The world’s best leading indicator for the global economy is still firmly signalling recession...

Read
BASF prepares its UK supply chain for Brexit
24/02/2019

BASF has been working with Ready for Brexit (the online platform I co-founded last year) as part of ...

Read
Companies and investors have just 30 working days left to prepare for a No Deal Brexit
17/02/2019

Companies across the UK and EU27 are suddenly realising there are now just 30 working days until the...

Read
The BoE’s pre-emptive strike is not without risk
12/02/2019

The Financial Times has kindly printed my letter below, arguing that it seems the default answer to ...

Read
Flexible working is key to reversing today’s collapse in fertility rates
27/01/2019

Women in most parts of the world are not having enough children to replace our population. This is o...

Read
No Deal Brexit remains UK law unless MPs reverse their previous votes
20/01/2019

“That couldn’t happen” are probably the 3 most dangerous words in the English lang...

Read
CEOs need new business models amid downturn
14/01/2019

Many indicators are now pointing towards a global downturn in the economy, along with paradigm shif...

Read
Chart of the Year – China’s shadow banking collapse means deflation may be round the corner
16/12/2018

Last year it was Bitcoin, in 2016 it was the near-doubling in US 10-year interest rates, and in 2015...

Read

Market Intelligence

ICIS provides market intelligence that help businesses in the energy, petrochemical and fertilizer industries.

Learn more

Analytics

Across the globe, ICIS consultants provide detailed analysis and forecasting for the petrochemical, energy and fertilizer markets.

Learn more

Specialist Services

Find out more about how our specialist consulting services, events, conferences and training courses can help your teams.

Learn more

ICIS Insight

From our news service to our thought-leadership content, ICIS experts bring you the latest news and insight, when you need it.

Learn more