Falling fertility rates are driving significant demographic changes worldwide, leading to potential population declines in major economies. Two-thirds of the global population now resides in countries with below-replacement fertility rates. By 2100, some major economies may experience population reductions of 20 to 50 percent. Age structures are transforming from pyramids to obelisks as older populations grow while younger ones shrink. These shifts pose challenges for economic growth, labor markets, consumption patterns, and public finances. The current economic models cannot sustain existing income and retirement norms without substantial changes.

Demographic Transformation and Its Impact on Economies

The declining birth rates are reshaping global demographics, leading to a youth deficit and an aging population. This shift is particularly pronounced in advanced economies and China, where the working-age population's share will drop to 59 percent by 2050. Emerging economies face similar challenges within one or two generations. The resulting economic pressures include slower GDP per capita growth, increased dependency ratios, and strained pension systems. Businesses must adapt to changing consumer and workforce demographics, focusing on productivity improvements and innovative support systems.

In detail, falling fertility rates have caused significant demographic changes that challenge traditional economic models. In advanced economies and China, the working-age population's decline will reduce economic output and increase the burden on younger workers to support growing elderly populations. For instance, Germany has seen a 26 million shortfall in births since 1960, while seven million more seniors are alive due to increased life expectancy. This net reduction of 19 million people highlights the profound impact of lower fertility rates on population size. To mitigate these effects, countries need to enhance productivity, extend working lives, and promote migration.

Navigating the Future: Strategies for Later Wave Regions

Later wave regions, including Emerging Asia, India, Latin America, the Middle East, North Africa, and Sub-Saharan Africa, have time to prepare for demographic changes but face the challenge of achieving economic prosperity before their populations age. These regions must boost productivity, invest in human capital, and create sustainable support systems for seniors. Sub-Saharan Africa stands out with its growing working-age population, offering opportunities for economic development if jobs and infrastructure improve.

To elaborate, later wave regions have a unique opportunity to leverage their youthful populations for economic growth before facing demographic challenges. However, they must accelerate productivity gains to reach high-income status before their populations age. For example, Brazil needs to achieve higher productivity levels to match those of advanced economies. Additionally, improving female labor force participation can significantly boost GDP per capita. In India, increasing female labor force participation by ten percentage points could raise GDP per capita by 4 to 5 percent. Investing in education, healthcare, and infrastructure is crucial for developing skilled workforces and fostering innovation. Policy makers should also design sustainable pension systems and promote financial inclusion to ensure long-term economic resilience.