How population decline could upend the global economy

China recently joined the long list of countries that had more deaths than births in 2023, underscoring a declining population trend that could upend the global economy. Demographic changes have major implications.

The United Nations predicts the world will reach peak population around 2086, but I think that figure may be optimistic. One reason is because the pandemic-era baby bust in some countries may have worsened the decline, and the problem appears to be long-lasting. Even in certain African and Latin American countries, where birthrates are historically high, the number of newborns has dropped closer to the replacement rate of 2.1 children per woman. Given these trends, humanity’s population could peak around 2050.

Crossing a demographics point of no return

But what does a planet with fewer people mean for society? It’s a position the modern world hasn’t been in, so we would be crossing a demographics Rubicon.

Demographics influence what people buy and a company’s revenue potential. From an economist’s perspective, it helps determine monetary policy and, ultimately, the well-being of each successive generation.

I prefer to look at countries individually because there are many idiosyncrasies, whether cultural or policy related. Here in the United States, demographic trends are favorable for growth compared to developed economies even though birthrates have dropped rapidly since the 1960s to the current level of 1.7%. That figure may be low, but it is higher than Europe, Japan and other developed economies. I think our population decline will be less severe, in part because our immigration policies are more liberal. Data shows that immigrants tend to have more children.

Japan is likely the most studied example of a shrinking society. The country has seen its population fall off for several decades, and its experience shows how quickly that can snowball. Japan reported 20,000 fewer people in 2008, and that figure has since ballooned to 831,872 fewer people in 2023. Prime Minister Fumio Kishida called the trend “the gravest crisis our country faces.”