There are basically two big demographics stories in the world right now:
The populations of emerging economies are young and growing, while the populations of developed economies are ageing and/or shrinking.
You can see them both in the charts shared by HSBC’s James Pomeroy below, where India is proxy for the former and Japan is a proxy for the latter.
When it comes to emerging markets, countries like India, the Philippines, and many in Africa have the populations are large and young. And that means more demand and more potential output in the near future.
(The one sort-of outlier here is China, which is starting to see its working-age population shrink for the first time ever. And although it has recently retired the one-child policy, the impact from that won’t be seen for some time.)
On the flip side, developed economies have seen lower birth rates combined with better health care for older folks, leading to populations where there are more older people and less younger and working-age folks. And that, opposite of the EMs, suggests that there will be less demand and less potential output going forward. In other words, the prospects for economic growth are worse.
Alone, the developed economies’ demographic story looks kind of dim. However, when you put the two trends together, “the global demographic outlook is much better than we may otherwise think, if we view the world as a global labour market,” notes Pomeroy in a recent note to clients.
Basically, emerging markets are growing at faster rates than developed markets are shrinking, so the global population — and thus, the global working-age population — is still growing.
“However, most wealth is still in [developing markets] and the biggest potential supply of labour is in the [emerging/frontier] markets,” he adds. “This mismatch will need to be tackled if the [former’s] pressing demographic problems are to be addressed. Greater flows of capital could be one solution and greater flows of people another.”
Interestingly, Europe’s migration crisis fits into this, as huge numbers of people from emerging markets migrate into developed ones. And, this has already had an effect on demographics stats. For example: Germany’s working-age population was forecast to fall by 4 million over the next decade, but it has now taken in 800,000-ish migrants, which is about 1% of Germany’s estimated population. Meanwhile, Sweden’s population is expected to grow 3% by the end of 2016 due to the influx of migrants, “having huge repercussions for growth in the near term,” notes Pomeroy.
Nevertheless, it’s important to add as an end note that more people does not automatically translate to more laborers. There are always issues with integration, which depends on things like labour market flexibility, language skills, local political agendas, etc.
And, to date, “there is considerable variety in the extent to which different [European] countries have been able to effectively integrate migrant workers in to the workforce and employment,” Citi’s Tina Fordham previously noted.
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