The global population is currently experiencing irreversible demographic shifts, from rapid urbanisation to low birth rates.

A combination of economic, social, environmental, and political factors has accelerated this transition, as outlined below.

The following demographic trends will significantly impact the global economy for decades to come.

Urbanisation

The United Nations (UN) estimates that over two-thirds of the world’s population will live in cities by 2050. Generally, urbanisation can be a positive phenomenon in improving national and individual economic performance, reducing poverty, and improving access to basic services.

However, this is only possible when urbanisation is addressed through a sustainable urban governance structure. Multi-levelled cooperation between private and public entities can generate a set of formal and informal practices that provide an urban area with adequate employment opportunities, the necessary infrastructure for water, sanitation, energy, and waste, and equitable housing and services.

Urbanisation has occurred at much faster rates in developing countries, with 90% of all urbanisation occurring in Asia and Africa, according to the UN. In developing countries, national governments often cannot cope with the social and economic pressures of increasing urban demands, leading to densely populated slums with low access to basic necessities such as electricity.

For example, one of Africa’s largest slums Kibera in Nairobi, houses 700,000 people, most of which live in very poor housing conditions where HIV rates are high and access to clean water and sanitation is extremely limited. Urban pressures are only likely to intensify as urbanisation increases. Governments, particularly in the Global South, will be forced to increase public spending to accommodate growing urban cities.

Lowering birth rates and aging populations

Countries have traditionally followed a similar transition from high to low levels of fertility and mortality rates. Improvements in healthcare and well-being have led to higher life expectancy rates across all age groups, while an improvement in social and gender equality, better sex education, and rising costs of raising children have all contributed to lower birth rates. Stable populations have a fertility rate of approximately 2.1 live births per woman, the ideal replacement rate for a population to maintain its size. However, in many developed countries, birth rates have fallen well below that threshold.

For example, China reported its first decrease in population since 1961 in early 2023, with a reported birth rate of around 1.28. Rapid industrialization and restrictive child policy laws, such as the one-child policy, were some of the factors that contributed to this shift. In the long term, lower birth rates and an aging population will interfere with China’s economic aspirations. China will no longer be able to fulfil its self-imposed role as the world’s manufacturing hub, with the cheap young labour that skyrocketed the country into becoming one of the world’s leading powers. As a result, China will have to lean on technology, automation, and immigration to replace the lack of cheap young labour.

A complicated demographic situation

Steep demographic shifts present a challenge for future governments. Changing population dividends will continue to raise living standards in lower-income countries while aging populations will burden government spending in many high-income economies. This might lead to the living standards of working-age adults being squeezed by the high spending on these growing non-working populations. High urbanisation will also contribute to higher public spending on housing and social infrastructure.

As populations in Europe, North America, and East Asia continue to age, many countries are turning towards migration to boost fertility rates and population numbers. Migration can be a beneficial strategy for a country’s economy when it is conducted appropriately. Migrants tend to be younger and can decrease the age-dependency ratio of populations. They can also reduce the strain on a country’s economy, fill skill gaps in the labour market, and boost productivity. However, without appropriate support structures and accountability frameworks, migrants are extremely vulnerable to mass exploitation by public and private entities.

Government and demographic shifts

Governments must be proactive in addressing these demographic shifts. If not, unintended consequences will increase inequality and breed social unrest. Technological advancements can help alleviate the pressures associated with rapid urbanization and aging populations however, lower-income countries with less access to these resources will be asymmetrically impacted by the negative effects of demographic shifts.

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