Demographics are destiny – and today’s ageing populations are creating a “replacement economy”


Stock markets used to be places where businesses went to raise money – to launch or to expand. But not today. They have instead often become a fast-moving casino.

First, they allowed high-frequency traders to make vast and almost guaranteed profits from other people’s trades.

Then they created one-day options trading, aimed at those who love sports betting. These now represent 50% of all options trading, according to the Wall Street Journal.

And with central banks adding $72tn of stimulus since 2009, players have had plenty of cash with which to place their bets.

So many markets have lost touch with the real world which actually drives company performance and the economy.

This matters, as the World Population Review chart shows. Global populations are ageing fast due to a combination of increased life expectancy and falling fertility rates.

MAJOR CHANGE IS UNDERWAY IN THE GLOBAL ECONOMY

As the detailed charts on Fertility Rates and Life Expectancy in the G20 since 1950 show:

  • Fertility rates are now below Replacement Level of 2.1 babies/woman in all G20 countries
  • They have collapsed since 1950 – quite dramatically in the Emerging Economies
  • Life Expectancy has risen over the same period – again, dramatically in Emerging Economies

Taking a broad look, the G20 Group of countries are 79% of global GDP. And as the chart shows, they fall into 3 groups in terms of GDP per capita and median age:

  • Rich but Old: These are wealthy western countries with GDP per capita around $50k and median age in the early 40s
  • Poor & Young: There are emerging economies with GDP per capita around 1/3rd of the Rich group and median age around 30
  • Poor & Ageing: This group contains just China and Russia. It has similar GDP per capita to the Poor group, but median age is in the late 30s

As we noted a decade ago in the Financial Times:

“Demographics are now taking demand patterns in completely new directions.

“Sustaining future growth thus depends on the G20’s ability to successfully develop and implement new policies, focused on the opportunities offered by the emergence of the Perennials 55+ cohort as major new demand sources for the first time in history.”

Unfortunately, policymakers preferred to believe they could somehow “print babies” via $72tn of stimulus.

But as the chart shows, the Perennials 55+ cohort are now the only source of population growth in the wealthy Most Developed economies:

  • The Under 25 cohort is actually smaller than in 1950
  • The Wealth Creators 25-54, who drive consumption and GDP growth, are now declining in numbers
  • Increasing Life Expectancy means the Perennials will soon almost rival them in numbers

And as US spending patterns confirm, the Perennials 55+ are essentially a replacement economy.  They already own most of what they need, and their incomes decline as they retire.

This is good news from a climate change perspective. But it means GDP growth will continue to disappoint, until we see major changes in political, corporate and financial market strategy.