The third major headwind facing the United States as well as many developed and emerging economies are negative demographic trends. As Baby Boomers retire and start drawing entitlements the burden on the economy increases. Moreover, America’s birthrate of 1.7 live births per woman is currently below the replacement level of 2.1. If this rate does not increase or if immigration does not add to the overall population, an increasing fiscal burden will be placed on a shrinking base of workers.
Yet compared to many of its large economy peers, America is in great shape. The table below highlights the world’s top economies and compares their birthrates. All the top twelve countries have birth rates below the replacement rate of 2.1, including the four “BRICs” countries of Brazil, Russia, India, and China.
Source: GDP estimates – International Monetary Fund, Birth rates – The World Bank
Sadly, as demographics start to skew older, economies become less dynamic. This problem was recently explored in-depth in an excellent cover story from “The Economist.” Older citizens look to their governments to maintain a certain level of comfort at the cost of long-term economic growth.
It is Swan Global Investments’ belief that the private sector is far more productive than the public sector and that bloated governments tend to drag down economic growth.
The maps below show how the world’s demographics have shifted and will shift over the coming decades. Japan was the first country to tip into the yellow “old” zone, currently with a median age of 48.4.
It is worth noting that the Japanese market and economy peaked in 1990; since then both have been in an extended malaise.
It is forecast that virtually all of Europe, as well as China and South Korea, will join the ranks of the “old” countries in the coming decades.
Source: “How a Vast Demographic Shift Will Reshape the World,” The New York Times, Lauren Leatherby, July 16, 2023