Demographics will shape future growth potential

Demographics represent one of the major underlying forces of our macro-financial projections, as labour is one of the key inputs of production and economic growth. Three important trends will shape the macro-financial landscape over the coming decades.

Shrinking populations in most DM and several EM…

In the absence of immigration, fertility rates are declining below the substitution threshold. Many DM and China have already peaked, a large group of EM (e.g. India, LatAm) should peak in the next decade, while Sub-Saharan Africa should stay above the threshold for the next 25-30 years.

… leads to lower workforce that will reduce potential  economic growth…

Based on current projections, many regions will face a significant decline in the working age population even faster than population ageing. This will increase dependency ratios, albeit at different paces and points in time, and lead to lower potential economic growth.
 

…however Sub-Saharan Africa, India and a few other EM are still enjoying a positive demographic dividend.

Emerging markets will continue to enjoy better demographic dynamics. However, they will face a challenge to employ a younger population while artificial intelligence is transforming the labour market.Overall, these demographic shifts will impact labour force availability, potential growth, consumption patterns, savings and investment preferences.

Mitigating factors to offset negative impacts on potential growth.

These demographic dynamics will challenge the economic transition of main DM and some EM countries and lead to lower potential growth. Three mitigating factors may partially offset the decline in the labour component of GDP growth driven by decreasing working age populations: