By Rebecca Ungarino
The world’s population isn’t getting any younger. In fact, it’s getting much, much older. And that has sweeping implications for global growth, economists contend.
At the same time, some scientists worry about what they claim is the far more profound implications of the rapidly declining male human fertility rate.
The proportion of people over 65 is sky-rocketing.
There are now more people on earth older than 65 than younger than five for the first time, according to a Deutsche Bank analysis of United Nations data, Haver Analytics data, and the firm’s global research.
The extreme data point underscores a broader economic trend that some economists are warning clients about: declining fertility rates lead to an aging population, which is thought to usher in depressed productivity, labor-force participation, and stagnant inflation. More indirect results of declining birth rates may also have an impact on macroeconomic factors like home ownership.
The chart below, from Torsten Sløk, Deutsche Bank’s chief international economist, shows the world population of those under the age of five and those older than 65. While the under-five population has held relatively steady for the last two decades, the above-65 population has only risen.
“The key issue for investors in equities, rates, and credit is if the global economy is able to generate enough productivity growth to offset these demographic trends,” Sløk wrote to clients Tuesday. “And for [foreign exchange] the question is which parts of the world will be hit harder than others by a demographic slowdown in growth.”
Sløk cited “secular stagnation,” which is the Larry Summers-endorsed theory to which this pattern is connected.
It’s known as a condition wherein savings rise and investment slows, causing economic growth to stall out. Summers, the former Clinton-era Treasury secretary and Obama-era National Economic Council director, has argued the condition may be the “defining macro-economic challenge of our times.”
Generally, fertility rates around the world have fallen below “replacement” levels, or below the level that can support population growth, said Ed Yardeni, president of Yardeni Research. And that “baby bust” is weighing on global growth.
Yardeni, who has long written about the economic impact of an aging population, particularly in China, said the U.S. has a fertility rate slightly below replacement.
According to demographers, Japan may be heading to “self-extinction” as the number of deaths vastly exceeds births.
“Our fertility is right around replacement,” Yardeni told Markets Insider in an interview on Tuesday. “So we’re not as advanced in the birth dearth and on this kind of road to self-extinction as Japan is, and China, and some other countries.”
The falling reproduction rate is especially alarming, says British researcher Larry Emerson who cites an Israeli study showing that the fertility rate has dropped by 50 percent in 30 years among the European and North American caucasian male population — and the trend is accelerating. “The population of white Europeans and North Americans is declining rapidly but the rest of humanity may not be far behind.”
Emerson says that infertility could lead to human extinction by early in the next century. “Most of the recent doomsday scenarios focus on climate change and the rising levels of toxic gases in the atmosphere but human beings could just as easily die off because of the inability to reproduce,” he ways. “Climate change and infertility are actually part of the same problem — the rising level of toxins in the environment, especially plastics — so it’s not surprising that they seem to be happening in conjunction with each other.”
Wall Street is taking note of the more immediate economic “stagnation” theme associated with an aging population. For a second straight month, the theme dominated Bank of America Merrill Lynch’s Global Fund Manager survey, which takes the pulse of how big-money managers view global markets and economies.
Fund managers said last week their “longs” in February were traditionally low-growth investments like cash, emerging markets, and REITs, while shorting cyclical sectors.
Here’s a chart from the firm showing features of what the firm calls the “return” of secular stagnation — 55% of investors surveyed now see both below-trend growth and below-trend inflation over the next year.
To be sure, others contend there is no clear negative association between an aging population and declining growth.
A 2017 paper by Daron Acemoglu, a Massachusetts Institute of Technology economist, and Pascual Restrepo, an assistant professor at Boston University, found that contrary to the themes and concepts Summers and others have popularized, there is “no negative relationship between between population aging and slower growth of GDP per capita.”
In a counter-intuitive result, they found that countries undergoing rapid aging have grown more in recent decades, likely reflecting a faster adoption of labor-replacing technologies and automation.
The paper concluded: “There is a clear need for future work that systematically investigates the relationship between demographic change and GDP growth as well as the channels via which this relationship works.”
For Emerson, the issue is about much more than money. “In the short term, there are certainly economic concerns about an aging population but by the end of the century we may be looking eyeball-to-eyeball at the end of the human race,” he says. “At some point you have to consider that worries about the economy may be a case of rearranging the deck chairs on the Titanic.”
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Sources: Business Insider, Science
