Demography is becoming a headwind rather than a tailwind, said Erik Weisman, investment officer and portfolio manager, fixed income, with MFS Investment Management, at this year’s CPBI Forum.
He’s worried about schrumpfende gesellschaft—a German term for shrinking society.
Global population growth peaked in late ’60s/early ’70s, and the outlook going forward isn’t bright. “I think it will be lower, and we’re actually going to a low-growth population sooner than later,” Weisman said.
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Global growth since 1980 averages 3.4%, but much of that is due to demographic factors, not increased productivity, he explained. “You get rid of that, and your global growth doesn’t look very impressive.”
Fewer babies, fewer workers
UN projections of fertility levels are widely spread, but “most of the world is seeing fertility rates that are pretty close to replacement or below,” Weisman explained. In contrast, the fertility rate in Africa is increasing dramatically. “That wasn’t supposed to happen,” he said. “That’s not what demographers were predicting.”
Countries with low fertility rates need to find other ways to increase output or they might disappear entirely, he warned. South Korea is a good example: UN data suggests its population will fall by 90% by 2072. The UN is even predicting when the last person will be born in South Korea: in 2621.
Canada and the U.S. are faring better, but it’s not due to organic growth. “What is keeping Canada growing at an okay clip—and its population growing at an okay clip—is immigration,” Weisman explained. Canada imports workers who can go right to work, while the U.S. imports families, thereby increasing fertility levels, “but they get to the same place,” he added.
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However, other countries are in serious trouble. Japan, for instance, has an inverted demography tree: each generation is smaller than the last. And it has no immigration to speak of, but “you can’t talk about that,” said Weisman. “Japan is in a mess, for a whole bunch of reasons.”
Italy’s in a similar boat. And Russia is in particularly dire straits, due to geopolitical factors such as repeated wars and Stalinism, he added.
Growing old together
An aging population means fewer consumers, fewer workers, lower productivity, lower growth rates and lower wages, Weisman explained.
Developing countries have also experienced a dramatic increase in longevity—which could have a significant impact on pension plans, he said. “If you were planning for longevity to rise by a year or two, and that’s how you did your asset/liability matching, you’re in a world of hurt here.” Weisman wonders why Canada still has a default retirement age of 65, when people today often live many years beyond that.
All in all, “demographics is not destiny,” he concluded. “But it matters—and, in some cases, it matters a lot. And it will matter in a very different way than it has mattered before.”
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