‘Ageing challenge’: navigating demographic shifts; economic impacts

The global ageing trend, fuelled by declining birthrates and increasing life expectancy, presents significant challenges and opportunities that demand urgent attention, writes Hari Hara Priya Kannan.

Collection of diverse senior American faces smiling

As the world faces an unprecedented demographic shift, the growing proportion of older individuals in global populations cannot be ignored.

This global ageing trend, fuelled by declining birthrates and increasing life expectancy, presents significant challenges and opportunities that demand urgent attention.

Failing to grasp the depth of this transformation could leave economies unprepared for the strain on healthcare systems, pension schemes, and labour markets, ultimately jeopardising long-term sustainable growth.

The latest UN World Population Prospects data, released in July, provides an insightful overview of global demographic changes and future trends.

Its comprehensive and reliable demographic data supports informed decision-making, effective policy planning, and progress toward global development goals.

The 2024 UN World Population Prospects report projects that the global population will peak at about 10.3 billion in the mid-2080s, up from about 8.2 billion in 2024. After reaching this peak, the population is expected to decline slightly to 10.2 billion by the end of the century.

Manhattan skyline in New York. Picture: iStock

The global population’s annual growth rate is currently about 0.86 per cent and is projected to decline gradually. This means fewer people will be added to the population each year compared to previous decades. While the global population will continue to increase until the mid-2080s, the growth rate will steadily slow down each year, according to projections.

This is due to declining global fertility rates – an average of 3.3 births per woman in 1990 has dropped to 2.3 in 2024. In many developed countries, including the top 15 economies, fertility rates are now below the replacement level of 2.1 births per woman.

The replacement level in regards to the fertility rate refers to the average number of children a woman needs to have to maintain the current population size, without accounting for immigration. This level is typically about 2.1 children per woman in most developed countries.

More than half of all countries now have fertility rates below the replacement level of 2.1 births per woman, while some countries have “ultra-low” fertility rates below 1.4. Countries like South Korea, Japan, and Italy have some of the lowest fertility rates globally, contributing to slower population growth, or decline.

One of the most pressing issues highlighted in the UN World Population Prospects report is the ageing population, which is a direct outcome of declining fertility rates. The proportion of people aged 65 and older is rising, and by 2080, this group is expected to outnumber children under 18.

Ageing populations typically result in higher-dependency ratios, meaning fewer workers are available to support retirees, which can strain public resources and reduce economic growth potential.

The global population’s annual growth rate is currently about 0.86 per cent and is projected to fall gradually.

Another factor contributing to the global ageing of population is the increased life expectancy worldwide, which has rebounded after a temporary decline during the Covid-19 pandemic.

According to the UN’s 2024 data, global life expectancy increased by about 10 years over the past 50 years. In 1974, global life expectancy was about 59 years, and by 2024, it has risen to about 69 years. This reflects improvements in healthcare, nutrition, and living conditions worldwide, though disparities remain between different regions and income groups.

A declining number of working-age individuals can hinder economic growth and innovation. With fewer people entering the workforce, consumer spending and economic dynamism can decline.

Measures are being taken to counter ageing, especially in countries like Japan and Italy, where governments are reforming pension systems, raising retirement ages, and investing in healthcare for the elderly to address this challenge.

Nations such as Germany and South Korea are encouraging higher female labour force participation, automation, and retraining programs to maintain productivity.

Fertility rates are especially lower in counties that are more developed and economically well off. According to UN data, fertility rates in more developed countries stand at 1.46, compared to 2.36 in less developed countries, and 3.89 in the least developed countries.

This disparity underscores the greater challenges young people in more developed nations face when it comes to starting and growing ­families.

In developed countries, high costs of raising children, such as those for education, healthcare, and housing, often deter young people from having larger families. Career priorities and personal development also frequently take precedence over family life, leading to delayed or fewer births.

Urban living, with its higher costs and limited space, also encourages smaller families, while higher educational attainment, especially among women, often leads to delayed child-bearing as individuals pursue their careers.

Lifestyle choices, including a focus on personal freedom and travel, further contribute to this trend. Additionally, balancing work and family life can be challenging due to limited parental leave and inflexible work hours.

The population is set to decline to 10.2 billion by the end of the century. Picture: iStock

In light of these challenges, countries must encourage and facilitate family formation by making it easier for young people to have children. This can be achieved through pro-natalist policies.

Countries like Hungary and France offer financial incentives, extended parental leave, and subsidised childcare to encourage higher birthrates.

Scandinavian countries have introduced policies to improve work-life balance, making it easier for families to have children while maintaining their careers.

Australia, with a population of 26.5 million and an annual growth rate of 1.0 per cent, is relatively well-positioned compared to many of the world’s largest economies.

As the 13th-largest economy according to the latest IMF data, Australia ranks second among the top 15 economies for its annual population growth rate, trailing only Canada at 1.2 per cent.

Both Canada and Australia have implemented immigration policies aimed at attracting young, skilled workers to counteract their low fertility rates.

Australia’s fertility rate of 1.64 is the fourth-highest among the top 15 economies, surpassing the United States, the United Kingdom and Canada, which have fertility rates of 1.62, 1.56, and 1.35, respectively.

Although still below the replacement level of 2.1, this relatively higher fertility rate, combined with a high life expectancy of 83.9 years, underscores Australia’s demographic advantage.

Australia’s balanced demographic structure, bolstered by immigration, supports a beneficial dependency ratio, providing a stable environment for long-term investments and economic growth.

Australia’s working-age population (ages 15–64) accounts for 65 per cent of the total as per the 2023 estimates. By 2043, Australia’s working age population is expected to increase by 12 per cent.

When compared to the 15 largest economies, Australia ranks third for the highest increase in working-age population, surpassed marginally by Mexico at 12 per cent and India at 15 per cent.

South Korea has recorded the biggest loss in this cohort of top economies, its working-age population declining by 26 per cent, followed by Italy’s which declined by 23 per cent.

View of an alley of the Kwangjang market at night, with people eating street food at stalls in Seoul, Korea. Picture: iStock

These countries are grappling with rapidly ageing populations and low fertility rates, which have implications for their economic futures.

On the other hand, India, which has a younger population and higher fertility rate, faces different challenges related to education, employment, and urbanisation.

Overall, Australia’s relatively younger population, high standard of living, and open immigration policies make it a desirable destination. Moreover, Australia’s economic policies and strong institutions provide a secure environment for investment, enhancing its appeal on the global stage.

In addition to these demographic strengths, Australia boasts a GDP per capita of $64,964, placing it favourably among high-GDP nations.

While Australia is currently well-positioned globally, we must address the challenges of a rapidly ageing population. To promote sustainable population growth, encouraging family formation is essential.

As all nations face ageing populations, finding young skilled migrants will become increasingly difficult, intensifying global competition for young workers. Therefore, Australia must implement family-friendly policies.

Given Australia’s high life expectancy, reviewing and adjusting pension policies is crucial for long-term sustainability. Increasing the mandatory retirement age and creating incentives for older workers could be economically beneficial.

Proactive investment in health and care-related infrastructure, along with planning and building accessible cities, is necessary for supporting an ageing population.

We should also promote active and healthy ageing policies, expand community services, and implement programs to reduce isolation and improve the quality of life for older adults. By addressing these challenges head-on, Australia can create a more sustainable and supportive environment for its ageing population.

Hari Hara Priya Kannan is Data Scientist at The Demographics Group

Originally published as ‘Ageing challenge’: navigating demographic shifts; economic impacts