Youthful South could outpace ageing North
By Yong Jing Teow, PwC Economist
Over the course of the current decade the world will experience dramatic changes in its demographic profile as the figure below shows. Industrialised countries in the Northern hemisphere are expected to see their populations age and exit the labour force – an inevitable consequence of declining fertility levels and increased longevity - while significant numbers of the young in the Southern hemisphere will “come of age” and enter the workforce in droves.
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The biggest changes in Europe are an increase in the median age from 40 to 43 years (clearly the highest of any global region) and a decline in the working-age population as baby boomers entering retirement outnumber those entering the workforce. Similar trends will be observed in Russia, Northern America and indeed China, where the latter’s median age will rise to match that of Northern America by 2020. The demographic challenges that China faces will be great: it will soon have almost 57 million more pensioners that the state does not yet know how to support; whereas in the US the impact of population aging is expected to be cushioned to a degree by an influx of relatively young immigrants from Latin America.
These dramatic shifts in the global North (defined here to include China) pose several challenges. With lower worker replacement rates, there is the prospect that more of the elderly become dependent on a smaller generation of workers to support them. Without changes to retirement ages and pension systems, the public sector is likely to have to bear the burden of covering the costs of healthcare and ever-rising pension liabilities. Europe faces a particular challenge as repaying its high and recently rising government debt burden would become more arduous if at the same time the size of the workforce is diminishing.
By contrast, developing economies in the Southern hemisphere will continue to reap gains from the “demographic dividend”, where the number of economically-active adults are increasing relative to the number of dependants as there are fewer children due to lower fertility rates and fewer older people due to higher mortality in the past. This boosts savings and demand for goods and services, allowing countries to generate higher growth and incomes.
India is also set to overtake China as the world’s most populous country by 2030. With is dependency ratio falling by 15% between 2010 and 2030, India will move into the “demographic sweet spot”, spurring economic growth as its relatively youthful population enters the workforce. This trend also applies to Brazil, other parts of developing Asia and the MENA region – but to a lesser extent – as these regions already have higher median ages relative to India.
Sub-Saharan Africa stands out for having an exceptionally youthful projected median age of just 20 in 2020. However, it faces the challenges of high infant and adult mortality due to the ravages of HIV/AIDS, tuberculosis and other diseases. Unlocking Africa’s growth potential will require significant improvements in healthcare, lower infant mortality and consequent longer life expectancies.
These trends point to the South accounting for much of the world’s growth potential over the coming decade (and indeed beyond). The demographic dividend does not automatically guarantee growth, but if countries are able to harness the economic power of the demographic dividend and put its labour force to productive use, a youthful population will likely be a boon to the South.
Contact: Yong Jing Teow | Tel: +44 (0)20 7804 4257