The future of an economy is determined heavily by its evolving demographics. Knowing how young or old a country's population will be is crucial for investors and businesses.
Many point to population growth in developing nations as a source of rising domestic demand. But there's a lot more to be considered. For example, the Arab Spring was an extreme, but important reminder of what can happen when you have a young and able workforce with little access to jobs.
With that in mind we drew on George Magnus' presentation to The Conference Board titled "The Age of Ageing: Global demographics, destinies and coping mechanisms." In it, Magnus highlights five big demographic trends shaping the world right now.
1. The ratio of children to older citizens is declining: The ratio of children to older citizens stands at about 3:1 but is declining. By around 2040, there will be more older citizens than children. By 2050, there will be twice as many older citizens as there are children. Some exceptions to this however are China and Russia.
"The number of over-60s in the rich world is predicted to rise by 2.5 times by 2050 to 418 million, but the trajectory starts to level off in about 20 years time. Within this cohort, the number of people aged over 80 will rise six times to about a 120 million.
"In emerging and developing world, the number of over 60s will grow by more than 7 times to over 1.5 billion by 2050, and behind this, you can see a 17-fold increase in the expected population of those aged over 80, to about 262 million."
Conference Board/George Magnus
2. There has been a sea-change in the nature of illness to non-communicable diseases: One of the consequences of rapid aging and rising longevity is the "sea change in the nature of illness and disease and therefore scientific and pharmaceutical businesses," said Magnus. "I'm referring, of course, to what the World Health Organization has called the invisible epidemic of non-communicable diseases, which is now responsible globally for about 60% of deaths, and nearly half of the actual and effective life years due to disability." "By 2030, depression is expected to become the biggest single cause of disability affected life years, which is a composite measure of years of life lost to premature death and disability. The arrows show a complete turnaround in the principal burden of disease."
Conference Board/George Magnus
3. The speed of aging is rising rapidly in emerging economies: The time taken to double the share of those over 60 years old from 7% to 14% of the population took a long time in western countries. But the emerging markets are aging "at an astounding pace," according to George Magnus.
In France it took over a century to cross this milestone. And in most developed countries it took about 40 - 80 years. In emerging markets, however, the process is playing out in about 20 years with China taking the lead in speed. "It's this that gives that rise to the common mantra of 'growing old before you get rich,'" said Magnus.
What this means is that emerging markets have far less time to build the financial infrastructure and social security systems to deal with consequences of an aging and rising old age dependency.
Conference Board/George Magnus
4. Old age dependency ratio is rising rapidly in Japan, European countries, but at a slower pace in Anglo Saxon economies: The rising dependence of those over 65 on the working age population is referred to as the old age dependency ratio. This is a product of weak fertility and rising longevity. The old age dependency ratio in countries like Germany, Japan, Italy, Spain is expected to rise rapidly. These countries are characterized as the "hares" because of the rapid progression of old age dependency. The number of workers per older citizen is expected to fall from about 3-5 today to about 1.5 by the mid-century mark.
Meanwhile, the Anglo-Saxon economies like Sweden and France are "tortoises" by comparison. Here the support ratio will fall from 4-5 workers today, to about 2-2.5 by the mid-century. This is because of higher fertility rates and a more open immigration policy..
Conference Board/George Magnus
The tortoises of the emerging markets have a support ratio of 10-20 workers per older citizen, and this is expected to get to where developed countries are by mid-century. But in some countries in sub-Saharan Africa, the pace of aging is much slower than say in Indonesia, Turkey and Brazil. India is a "demographic darling" because one-third of its population is aged under 14, and its working age population will grow in the next 20 years, to more than the existing stock of working age people in Western Europe today.
Conference Board/George Magnus
5. It's getting harder to exploit demographic dividend: This is a phase that countries go through when child dependency is falling and the working age population is expanding. But they're also in a phase just before old age dependency starts to rise. Typically, this phase comes with stronger trends in income, savings, investment, and technical progress. This is where where other emerging markets countries hope to be in the next few decades. Once the old age dependency ratio starts to rise, however, the demographic dividend can't be exploited and it tends to drag on growth. The demographic dividend creates the opportunity to draw on these benefits, but doesn't guarantee it. Exploiting your demographic dividend depends on four Is, according to Magnus — better institutions, investment climate, infrastructure, and innovation.
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