Global economy set to go ex-growth as world population hits 8bn

Last week saw the global population reach 8bn. Yet as recently as 1950, it was just 2.5bn. Nothing like this rate of growth has ever been seen before in world history. Until recently, this growth in population translated into economic growth. But not anymore.

The chart shows this growth broken down by key segments:

  • Under 25s. For a long time, they were key to population growth as their numbers grew from 1.3bn in 1950 to 3.19bn in 2020
  • Wealth Creators 25-54. This group, of course, is key to economic growth. They were 914m in 1950 and 3.16bn in 2020
  • Perennials 55+. This group were just 219m in 1950, but increasing life expectancy meant they grew to 1.4bn in 2020

The issue is that Wealth Creators and Perennials have very different spending patterns:

  • Wealth Creators are younger and moving on their careers. So their incomes rise, and their needs increase – especially if they settle down and have children
  • Perennials, however, already own most of what they need and their incomes usually decline as they start to retire

The chart confirms this change, comparing US consumer spending in 2000 versus 2021:

  • The number of Wealth Creator households has hardly changed. Their spending in $2021 is also basically the same
  • But the number of Perennial households has risen from 36m to 60m over the same period. And their spending is $12k less at $56k

Of course, as the chart also shows, Perennials’ spend is rising at the moment. Wealth Creators don’t suddenly cut their spending when they reach the age of 55. But by the time they are 75+, they are spending 45% less than Wealth Creators.

  • This is why the central banks tried to cover for this decline after the dotcom and subprime bubbles burst
  • They thought their stimulus programmes could “print babies” by inflating stock and housing market bubbles
  • But now these are bursting around the world and the wealth effect they created is disappearing

The changes taking place in the USA are a model for the rest of the world.

  • Essentially the BabyBoomer generation created a unique demographic dividend
  • It led to more or less constant growth between the early 1980s and 2000
  • But as the chart shows, the number of new Wealth Creators is now slowing fast

And economic growth is slowing at the same time. The world’s Top 10 economies are 2/3rds of the global economy. So they have an outsize influence:

  • As the chart shows, the oldest Boomer, born in 1946, joined the Perennials in 2001
  • The average Boomer, born in 1958, joined in 2013
  • And the oldest Boomer, born in 1970, will have joined by 2025

Worldwide, the number of Perennials has already risen from 800m in 2002 to 1.5bn today. And they will total 1.8bn by 2030.

Total GDP in the world’s Top 10 economies was $65tn last year, as the chart shows. And only one of them is still seeing major growth in the Wealth Creator generation.

But India is very poor, with GDP/capita of just $2227 last year.  By comparison, America’s aging population had a GDP/capita of $69k.

Underlying growth has been slowing since 2000 as more people joined the Perennials generation. Now, the bursting of the central bank stimulus bubbles – combined with the impact of Russia’s invasion – will likely cause the global economy to go ex-growth.