Population change and markets

The world population keeps growing – and this has a significant impact on markets and economies.

| 7 min read

The world population has reached 8 billion - and it is still growing. The United Nations (UN) thinks we might reach 9 billion by 2037, meaning more consumers and producers working for a living and buying goods and services in the years ahead.

The overall level of growth will increasingly rely on the surging population of Africa and parts of Asia, whilst China, Japan and many advanced countries will see a fall in their populations as low birth rates and an ageing citizenry make an impact. A few countries such as the US will offset weakness in the birth rate with substantial inward migration. This tends to bring in younger people and may also help boost the subsequent birth rate. China, with a birth rate of 1.2 children per woman and Japan, at 1.3, are particularly low where it needs to be above 2 to avoid population decline pre-migration.

Rate of population change and GDP

Within the advanced world there are already wide divergencies. Each year, the US is adding 0.5% to its numbers – thanks to strong inward migration – whilst Japan is experiencing a 0.5% fall each year from a low birth rate combined with few new arrivals. As living standards rely on per capita income it means that the US economy needs to grow 1% more each year than Japan so relative living standards in the US do not fall. It is important when comparing country GDP growth rates to also look at what is happening to population.

In emerging market economies, China is now beginning to experience a decline in population, with a small rate of fall and with a low fertility rate meaning more falls to come. In contrast, India had a 0.8% increase in population so we would expect around an extra 1% of growth in India to avoid a relative fall in living standards compared to China.

If we look at the five most populous countries of the world, four are growing with only China beginning a decline. Indonesia, with a birth rate of 2.1 births per woman, and Pakistan, with a rate of 3.3, add to world totals – as do the US and India.

Outside the top five, the growing countries driving up world numbers include the larger African nations, given the high fertility rates before considering other factors. Congo, with a birth rate of 6.1, Ethiopia at 4, Nigeria at 5.1 and Tanzania at 4.6 are important influences on world numbers. Of the smaller African countries, Niger, with a birth rate at 6.7, and Mali, at 5.8, alongside Chad and Somalia, at 6.1, stand out. There are high fertility rates within the contested Sahel region south of the Sahara in particular.

The pressures of migration

All this means more of the same pattern we have been seeing in recent years. Many more people in low-income countries will be seeking better opportunities elsewhere. Some advanced countries will want to offset the decline of their own populations by granting work visas to many more from poorer country origins. The lower-income countries are more prone to dictatorships, bad governance, civil wars and abuses of human rights, leading more people to take risks to leave them and to seek asylum in a richer country.

Advanced countries adopt a variety of responses to these population pressures. There is general agreement through world institutions to offer development aid, to promote investment in improved infrastructure and services in low-income countries and to strive to make them better places capable of retaining more of their growing populations. The UN climate change conferences increasingly consider how to expand the flow of aid to the emerging markets with more aid to be granted and loans made to foster green growth.

There are efforts through the UN and other diplomatic channels to try to end civil wars and to offer brokered peace and development packages. Some countries like the US accept a lot of economic migrants to fill gaps in their own labour markets, whilst others such as Japan prefer to find technological answers to shortages of lower-skilled workers. Most advanced countries struggle with how to make fair decisions over who is a genuine asylum seeker, and how many to accommodate each year.

The politics of migration

The large movements of people can concern substantial groups of electors in advanced countries. Governments seek to control their borders and try to create some order, determining who should be invited in as an economic migrant to help their economy and who qualifies as a refugee. When the settled community in a country thinks the numbers are too large, worries develop about how to house the new arrivals, what impact they have on wages and the jobs market and how to expand public services and utilities.

In the US, Republicans are attacking President Joe Biden for relaxing controls on the Mexican border. In the European Union, various parties are attacking their national governments and the EU establishment for alleged failures to control numbers. These parties are likely to pick up more votes in the summer European elections. They did well in the recent Italian and Dutch General elections.

Where advanced countries succeed in helping more people to live longer and depress fertility rates as more women wish to spend more of their lives not caring for young children, the balance between workers and pensioners shifts to more pensioners. As society ages, so also the demands on health and welfare services increase relative to the number of taxpayers. Both these trends lead to a deterioration in public finances. There is a trend to higher tax rates and more taxes as governments seek to pay for the increased costs of pensions and welfare. Fewer producers to consumers, and fewer taxpayers to welfare recipients strains a nation’s finances more and may also slow the growth rate.

Current levels of migration are high and are likely to stay so given the imbalance in birth rates between the advanced countries and the lower-income nations.

Population change impacts our work to construct scenarios of the future for investors. We need to look at per capita changes to GDP as well as simple growth figures for country GDP. We need to consider the impact of migration on labour markets and the big social and public finance changes an ageing society can generate.

Current levels of migration are high and are likely to stay so given the imbalance in birth rates between the advanced countries and the lower-income nations. Migration will help provide additional employees in western societies with too few younger people, but it will also be a source of tension in politics in some cases.

The heavily indebted advanced countries such as Japan and some European states will struggle further with the impact growing numbers of elderly have on the balance between public spending and tax revenue. These pressures will mean more borrowings, and more austerity policies as governments seek to control the impact on tax levels.

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Population change and markets

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