Lower birth rates mean most countries will see shrinking populations by the end of this century, while 23 nations will see their populations halve by 2100, according to research by the University of Washington's Institute for Health Metrics and Evaluation. 1 Japan's population is projected to fall from a peak of 128 million in 2017 to less than 53 million by the end of the century. Italy is expected to see its population fall from 61 million to 28 million over the same timeframe.
At the heart of the problem is the double whammy of a declining birth rate due to greater access to contraception combined with a declining death rate due to massive improvements in health care. If the birth rate falls below 2.1 (since not all children survive into adulthood), then the population gradually loses the ability to replace itself.
The average number of children that a woman gives birth to – the fertility rate – has fallen from 4.7 in 1950 to 2.4 in 2017 and will fall below 1.7 by 2100, the US institute’s research shows. Singapore already has a fertility rate of around 1.3.
The sea-change in demographics means there are now as many people turning 80 as there are children being born. This gradually means an increasingly lower number of people of working age to fund an increasingly higher number of people who retire. It causes an ‘inverted population pyramid’, with more elderly people being supported by ever-fewer youngsters.
And while the global population is still rising – it is set to peak at 9.7 billion in 2064 before declining – much of the growth is in Africa, whose population is seen trebling to 3 billion people by 2100. At current levels of GDP per capita, this would ironically mean that the continent with the best demographics has the lowest chance of funding its pensioners.
It’s a problem that is already reflected in lower sustainability scores for otherwise stable and wealthy nations in RobecoSAM’s biannual Country ESG Ranking. Luxembourg, for example, has seen a downward pressure on its overall score for several years, due to concerns over its future ability to service its ageing population.
“The relevance of demographics for a country’s ESG profile and financial sustainability results from the fact that there are undoubtedly many and multi-faceted economic and financial risks associated with the population ageing,” says Max Schieler, Senior SI country analyst at RobecoSAM and compiler of the Country ESG Ranking.
“A reform of current pension systems is becoming increasingly urgent in order to prevent a collapse of public welfare systems and sovereign debt problems. However, corresponding policies are not easy to implement, particularly in democracies, where older people are tempted to oppose attempts to cut back their benefits.”
“In the long run, investors might also be faced with a decline in the savings rate and a drop in asset markets as retirees dissave and liquidate their assets to support themselves during their retirement.”