Demographic change

Consequences and investment opportunities of the demographic transition.

Demographic change is upon us. That’s not news. However, the speed of development and the breadth of consequences are hard to grasp entirely. Especially, as population aging is leading to a dramatic shift in the population structure; demographic change is now taking center stage as the economic, social, and political impact of more people living longer starts to emerge. By understanding these trends, we can gain a glimpse into the future.

In our research, we look at the consequences of the demographic transition and the effect it might have on economic growth. We explore how investors can make the most out of these changes and, using the right strategies, how to transform the upcoming challenges into long-term investment opportunities.

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We explore the consequences of the demographic transition and the effect it might have on the economic growth.

A quick glance at world population growth

Demographic change will vary widely worldwide. While aging will continue rapidly in some regions, others are still in the early stages of a much less pronounced aging process. Population growth will vary significantly as well, with continued high population growth in Africa and population declines in Europe and Japan.


The Eurozone’s population is expected to peak at around 337 million in 2030 and decline to 1990 levels of about 304 million by the end of the century. This is a result of one of the world’s lowest birth rates. Average life expectancy is 82 years at present and will likely increase another five years by 2050. Absent countermeasures, these developments will drag on the currency bloc’s prosperity and could reduce economic trend growth below today’s 1% in the coming decades.


The US has favorable demographics relative to most developed countries. It has been the top destination for international migrants for decades, with New York City alone home to more than three million foreign-born residents. Those migrants also have had higher fertility rates than the native population, helping to keep the population relatively youthful and growing.


Asia Pacific is at different stages of the aging process. While its population is still growing, albeit more slowly, old-age dependency ratios will increase dramatically in the next 30 years. Higher life expectancies will strain pension systems based largely on a defined-benefit format, particularly in Japan, Korea, China, Thailand, and Vietnam.


Latin America can expect one of the highest working age population growth rates in the world over the next decade. Combined with declining total dependency ratios, a consequence of the region’s falling fertility rates and the only gradual rise of older age groups, the demographic trend is favorable in the coming years.


Switzerland has one of the longest life expectancies in the world. It also has one of the fastest-aging populations. Its old-age dependency ratio will nearly double in the next few decades. This challenges Switzerland’s pension system, particularly since the retirement age of 65 (64 for women) is relatively low given the country’s high life expectancy.


The UK has historically been open to immigration, and has reaped the benefits of large inflows of young, skilled workers. Migration has enlarged the population and, crucially, the number of working age adults. Overall, the UK is one of the few developed market economies that enjoys relatively benign demographics. But challenges still lie ahead.

Impact of demographic change

The rapid population growth of the last 75 years has generated various resource and environmental challenges. But in recent decades a challenge of a different kind has emerged: population aging is leading to a dramatic shift in the structure of populations. Longer lives and smaller families inevitably change overall population structures and social systems. We are moving away from the traditional “population pyramid”, a structure that has existed for the better part of demographic history. Countries transition from one stage to the other – from pyramid all the way to urn – at their own pace. The important questions to answer are: What are the population structures? and how do they manifest in different countries? What is their impact on the economy? We explore four different shapes of the demographic change below:

Population pyramid

Population structure:

– Significantly more young people than old


– Better hygiene and medical treatment decrease mortality, in particular child mortality

Population effect:

– Rapid population growth

Population challenges:

– Growing number of people represents a resource challenge
– Risk of a demographic trap, with sustained high fertility if living standards don’t rise

Economic effect:

– Growing workforce leads to higher productivity and rising economic prosperity
– But the right policies are crucial

Countries in current shape:

– Egypt, Nigeria, Israel

Population candle

Population structure:

– Majority of people in working age


– Rising living standards lead to lower birth rates as families depend less on offspring for their livelihood

Population effect:

– Working age population large but total population growth slows

Population challenges:

– Future aging challenge becomes visible

Economic effect:

– Demographic dividend leads to rising productivity and living standards
– Increasing tax revenues and improving fiscal position
– Focus on structural reforms , particularly sustainable social security systems

Countries in current shape:

– Mexico, Brazil, US

Population diamond

Population structure:

– Significantly fewer children and rising life expectancy raise the share of the older generations


– Fertility rate below reproduction rate with women increasingly participating in labor markets and postponing child birth
– Greater life expectancy

Population effect:

– Population growth slowing and population aging visible

Population challenges:

– Aging begins

Economic effect:

– Size of workforce starts to stagnate or shrink
– Labor shortages emerge in some sectors
– Industries adjust to changing supply and demand patterns
– Social security less generously funded
– Economic growth slows without remedial action

Countries in current shape:

– Germany, Italy, Russia

Population urn

Population structure:

– Large share of people will be outside the workforce if conventional retirement ages prevail


– A combination of all mentioned factors
– Rising longevity

Population effect:

– Population decline
– Older population groups increasingly dominate

Population challenges:

– Aging is in full swing

Economic effect:

– Adjustment to needs and preferences of older population
– Risk of declining living standards as large group of economically inactive people reduce growth potential
– Risk of rising fiscal deficits and underfunded social security systems

Investment opportunities in a changing demographic environment

Population growth, aging, and urbanization are robust and predictable long-term demographic trends. They will persist through economic cycles and periods of political uncertainty alike. While in some areas the impact of demographic trends is foreseeable – no one doubts that healthcare services will be in high demand in aging populations – in other areas the exact economic and financial market impact will depend on how policymakers, central banks, and societies as a whole respond to these challenges.

Given these uncertainties, demographics should influence but not dominate long-term investment decisions. When investing in an environment of changing demographics, the composition of the portfolio should be carefully reviewed. International diversification, which aims at benefiting from different demographic stages across countries, should be a prime focus.

Investors holding government bonds of countries with rapidly aging populations and high debt, or fiscal and current account deficits, should assess whether the potential returns sufficiently compensate them for the underlying risk. We expect these countries to encounter more difficulties in expanding their economies, paying their debt, and financing their pay-as-you-go pension systems. We recommend investing in equity markets that benefit from the growth of younger populations or the transition to the consumer economy. But it is not the demographics of the company’s country of domicile that matters; it’s the demographics of the markets the company serves.

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