Why demographics matter for economics, markets and policy

Demographic change is one of the defining economic forces of our time. Declining fertility rates, ageing populations and global migration flows are reshaping everything from GDP growth, inflation and productivity to public spending and investment returns.

In this blog, we explore the economic and political implications of demographic change, and what policymakers and investors need to be thinking about now.

Why are falling fertility rates a global issue?

Universal decline in fertility rates is prominent almost everywhere, not just in high-income countries but increasingly across emerging economies too. While positive in many ways – linked to reduced infant mortality, improved education and greater opportunities for women – sustained low fertility creates long-term economic and generational challenges.

Many advanced economies, particularly in Asia, are already grappling with ultra-low fertility rates – with South Korea’s now below 0.8. When a country experiences low fertility rates the population replacement balance becomes difficult to sustain, potentially weakening labour markets, consumer demand, economic resilience and also financial stability. While 2.1 is generally considered the breakeven fertility rate, in practice a rate above around 1.7 will typically be manageable in a world of fluid migration flows.

Can immigration help manage ageing populations?

With more people living longer and retiring later, many countries rely on skilled immigration to balance their demographic profiles. However, migration policy needs to be strategic, tailored and linked to national skills gaps, rather than politically reactive.

Evidence shows countries that invest in supporting and integrating migrants, like Germany has, see faster, more positive economic outcomes. Meanwhile, technology and remote work potentially offer other options, enabling economies to access global talent without physical migration.

Which countries are handling demographic challenges well?

Smaller, agile nations like Singapore, Sweden and Switzerland are examples of countries adapting well to ageing populations. They’re encouraging flexible later-life working, adjusting pension and healthcare systems, and investing in healthy ageing initiatives to maintain productivity and reduce long-term costs. In contrast, many larger economies risk unsustainable fiscal burdens, with the cost of pensions, healthcare and long-term care already approaching 23% of GDP in parts of Europe.

How are growth and asset prices impacted?

Numbers of workers, their productivity, and the technology they work with affect GDP growth. The consumption, savings and investments by households, firms and governments translate into demands that, for example, influence inflation, interest rates and house prices.

What are the risks for intergenerational fairness?

One of the most pressing issues is how public resources are shared across generations. Older age groups in high-income countries hold a disproportionate share of wealth and political influence, while younger generations face higher housing costs, stagnant wages and lower GDP per capita growth.

Without careful policy reform – such as fairer pensions, investment in education and skills, and better labour market access for women and younger workers – demographic pressures could entrench these inequalities further. The older population is large and growing, and is more likely to vote in elections, which means they naturally exert more influence on governments and their policies.

Why should markets and policymakers care?

Demographics influence not only liabilities (like pensions and healthcare) but also asset markets, shaping short and long-term returns for equities, bonds, property and infrastructure. For policymakers, long-term planning is essential, but often politically difficult. Encouragingly, some governments are beginning to consider more future-focused strategies, but progress remains slow. To date, smaller progressive economies have displayed greater concern for the wellbeing of future societies than large capitalist democracies, and are leading the way.