According to the recently issued United Nations demographic projections the world’s population will reach 11.2 billion by 2100, a figure that although is largely unchanged from its estimate two years ago, is still startling. In the next decade alone the world’s population will age at an astonishing rate with the number of people over the age of 65 rising by 38%, that’s 250 million more, meaning that we will go from the current rate of 7.5 workers per pensioner to just 6.
In the report, the UN forecast that although Developed Markets (DM) will see their population shrink by 0.3% per year, globally the population will grow by 0.5% to due high birth rates in emerging market (EM) economies. That equates to 25 million fewer workers in developed markets, with 500 million more in emerging markets in the next 10 years alone. Staggeringly, India will have roughly 1 million new workers every month looking for employment, and as it stands the Indian economy does not have the jobs available to soak up the demand for work.
The stark contrast in birth rates will of course have huge differences in the pressures felt by individual economies. Whereas jobs are the concern in EM countries like India and the African continent, DM countries will struggle with healthcare and pension provisions for their aging populations, especially where there is already pressure on public finances. One nation where the exploding population is a cause for concern according to the report is Nigeria, where the UN expects the population to double to 400m by 2050, then double again by 2100. As more of the population starts to look for work, high levels of unemployment and even social unrest are dangers that could materialise if the economy is unable to provide jobs.
High birth rates will create pressures, but low fertility rates also lead to some alarming statistics. By 2050, 48 countries will have smaller populations than they do today and our net foreign asset analysis also suggests that many of these countries with declining populations are also heavily indebted. This will put enormous strains on the finances of these countries, with default or substantial currency adjustments being the only feasible solution. Here at Stratton Street the shift in demographics is something we have been highlighting for some time and led to us launch the Next Generation Global Bond Fund, a little under a year ago.
Of course, migration would at least mitigate some of the problems that both DM and EM will have in the future. If people of working age were to migrate to those countries with falling birth rates that would ease the pressure on EM to provide jobs as well as increase the ratio of workers to pensioners in DM countries. However, as the Brexit vote showed us, this is politically unpopular. This is highlighted by a study by the Migration Observatory at Oxford University, stating that 77% of the UK population wanted immigration either ‘reduced a lot’ or ‘reduced a little’. Also we saw the backlash that the EU, and indeed German Chancellor Angela Merkel suffered when the migrant crisis engulfed Europe last year. Nevertheless, with one UK Treasury prediction that the number of UK pensioners celebrating their 100th birthday will top 1m by the 2060’s, up from the current 15,000, some tough choices will have to be made.