Aging Populations Threaten Growth and Raise Fiscal Burdens

A new report warns that the ongoing demographic decline could shave up to 2 percentage points off global economic growth, while raising pension and health-care costs by at least 5% of GDP in advanced economies by 2060.

Reinhard Kluse, an economist with UBS Global Research, says the focus has shifted from fears of overpopulation to an era of “depopulation.”

He adds that, alongside climate change, artificial intelligence, geopolitical fragmentation and rising public debt, population aging will be a defining megatrend for the coming decades.

Global fertility rates have fallen from roughly five children per woman in the early 1960s to about 2.25 today. More than half of the nations where two-thirds of the world lives are now below the replacement threshold of 2.1, showing the breadth of the shift.

Population Peaks and Regional Shifts

The United Nations projects the world total will top out near 10.3 billion in the 2080s before beginning a gradual decline. Individual country trajectories will vary widely, reflecting local socioeconomic conditions.

Sixty-three nations—accounting for 28% of the global population—have already passed their demographic apex, including China, Germany, Japan, Italy and South Korea.

China’s population is expected to drop 54%, falling from 1.4 billion today to about 649 million by 2100.

Another 48 countries, such as Brazil, Vietnam and Turkey, are slated to reach their peak within the next three decades.

Africa’s share of the world total is projected to climb from 19% now to 37% by 2100, driven by younger age structures in nations like Nigeria, Ethiopia and the Democratic Republic of Congo.

Macroeconomic and Fiscal Implications

UBS, citing IMF estimates, finds that an aging populace will reduce annual global GDP growth by about 1.1 percentage points between 2025 and 2050, and by an average of roughly 2 percentage points over the 2025-2100 span.

The slowdown stems mainly from a shrinking labor pool, weaker capital formation and slower productivity gains.

Given the persistently low birth rates, the ratio of retirees to workers is set to stabilize at higher levels, placing lasting pressure on public finances.

In OECD countries, spending on pensions, health care and long-term care could rise from roughly 16.7% of GDP to over 21.6% of GDP by 2060, tightening fiscal balances.

At the same time, a smaller workforce will curtail income-tax and social-security revenues, deepening budgetary gaps.

Policymakers face what UBS calls the “aging paradox”: older voters tend to oppose cuts to social benefits even as demographic trends increase the need for reforms such as higher retirement ages and broader tax bases.

While AI could boost productivity, the analysis cautions that automation will not fully offset labor shortages, especially in sectors like health and elder care where personal services dominate.

Continued immigration may alleviate short-term gaps in countries such as the United States, Canada and the United Kingdom, yet the “demographic trilemma” warns of tensions between sustaining economic dynamism, preserving ethnic homogeneity and avoiding political conflict.

Without decisive structural adjustments, the fiscal sustainability of many advanced economies could be jeopardized, according to the UBS analysis.