Birth rates are plummeting worldwide

The world faces a future marked by low fertility. For this reason, many demographers and policymakers around the world have raised concerns that in recent years women across all regions are increasingly bearing fewer children. According to the United Nations’ (UN) World Fertility Report 2024, the global fertility rate has fallen from 3.3 children per woman in 1960 to merely 2.2 in 2024. The global fertility rate is projected to reach the replacement level of 2.1 in 2050 before falling further to 1.8 births per woman in 2100. The decline in fertility rates has many causes, including a greater focus on career and other life goals, increasing societal prosperity, improved educational opportunities for women, and better access to contraception and family planning advice.

In addition to plummeting birth rates, the world is also getting progressively older

According to the UN World Population Prospects 2024, the global share of people aged 65+ rose from slightly under 5% in 1960 to 10% in 2024. And more than one-third of the inhabitants in the European Union (EU), China, and Japan are expected to be aged 65+ by 2050. The share of people aged between zero and 24 increased from 54% in 1960 to a peak of 56% in 1972 and has since dropped to 40% in 2024. By 2080, the cohort is projected to dip below 30% worldwide. Average life expectancy has also risen, from barely 50 years in 1960 to 73.3 years in 2024, due to the availability of clean water, better sanitation, medical breakthroughs, and improved access to healthcare.

As for the size of total population, the UN currently sees an 80% likelihood that it will peak by the turn of the 22nd century. Specifically, the number of people on the planet is expected to rise from 8.2 billion in 2024 to 10.3 billion in 2080s before falling to 10.2 billion by 2100 – about 6% smaller (or 700 million people fewer) than projected a decade ago. With the exception of Africa, most regions in the world are expected to see a decline in the size of their population. These future demographic trends should lead to the complete reconfiguration of the global economy and international balance of power, as well as to the rearrangement of societies. Many middle- and high-income countries will be confronted with enormous economic and societal challenges associated with a dwindling workforce and the growing burden on health and social security systems of an ageing population.

Longer life expectancy creates a number of opportunities for enhanced economic growth

A longer life expectancy gives individuals more time to accumulate skills and knowledge, thereby increasing investment in human capital. Longer-living workers also contribute to the economy for longer periods, increasing economic output. 

In addition, the demographic shift from young to older workers tends to result in fewer net consumers and more net savers, which has the potential to support capital investment. Given the decline in physical abilities that comes with ageing, longevity creates incentives for higher capital intensity, shifting economic output towards higher-value-added goods and services. 

At the same time, the participation rate tends to decline with age. Collective and individual decisions concerning the age at which people retire determine the old-age dependency ratio. The dynamics of this ratio between workers and non-workers will determine if an increase in longevity is growth-enhancing or if, through the resulting additional burden on healthcare, social security and pension systems, and a shrinking labour force, it is instead a headwind to growth. 

Most G20 economies have seen a decline in the old-age dependency ratio, while life expectancy has risen over the past decade, and rising participation rates are expected to prevent an increase in some countries over the next five years. A notable exception is China, where the old age dependency ratio has risen sharply in the last decade and
is expected to continue to do so in the future. Most European and emerging market countries have been able to offset the increase in longevity through rising labour supply, as the participation rate of older people has increased. The dependency ratio also appears to be the main demographic driver of inflation trends, much more so than longevity, which is more important for consumption patterns. Empirical studies show that a higher dependency ratio is marginally inflationary, as fewer producers have to feed more consumers.

The steady increase in human life expectancy is having a significant impact on consumer behaviour and spending patterns

As people live longer, healthier lives, their priorities and spending habits shift accordingly. With more years to enjoy, people are investing in experiences and products that promote wellness, personal growth, and social connections. One notable trend is the growing demand for health and wellness services, such as fitness classes, nutritional advice, and preventative healthcare. Consumers are also looking for products that support healthy ageing, including organic foods, nutritional supplements, and eco-friendly household products.

The travel industry has also seen a boost as retirees and older adults take advantage of their increased longevity to explore new destinations and pursue hobbies. Another consequence of longer life expectancy is the rise of the ‘longevity economy’. This phenomenon refers to the growing economic influence of older adults who delay retirement and continue to contribute to the workforce in meaningful ways. As a result, industries that cater to this demographic, such as education, consulting, and entrepreneurship, are experiencing growth and innovation.

Overall, as life expectancy increases, spending trends will shift more towards services, especially healthcare but also long-term care and housing costs for utilities and maintenance. At the same time, we expect the demand for transport, durable goods, and clothing to decline. While a significant proportion of services consumed by the elderly are price-regulated, a larger proportion are non-tradeable services, which tend to be more long-lived and subject to price increases.