According to a new report from Oxford Economics, the potential output growth for China could fall from around 4% in the 2020s to less than 2% by the 2050s.
But not only is there the fundamental issue of not having enough people to do the legwork to keep the economy moving, there’s also the knock-on impact of lower consumption—and hence less business investment, a slower pace of innovation, and increased government debt as leaders seek to support an older population with fewer people to provide for them.
“As populations age, the younger cohorts are often smaller than older ones due to declining birth rates. This raises the dependency ratio, with fewer working-age people supporting a growing number of retirees,” wrote Oxford Economics’ Marco Santaniello and Benjamin Trevis late last week. “We anticipate this pressure being felt most acutely in developing economies like China and Brazil, where populations are still relatively young but aging fast.”
As a result, per Oxford Economics’ calculations, the dependency ratio in China (the working age population age 16–plus compared with people age 65 or older) will shift by 60 percentage points between 2010 and 2060.
In Thailand, this figure sits at a little over 40 percentage points, while Brazil sits at approximately 35.
By contrast, the United States sits at a little over 10 and the United Kingdom at approximately 15, though the economists point out that “dependency ratios in developed economies will rise more slowly … because developed economies are already experiencing rising dependency ratios, so the starting point is higher.”
Developed economies also have a further option available to them: powering their GDP with labor gathered from around the world.
“Immigration helps ease some of the strain by increasing the working-age population. For example, we have shown that in the U.S., if immigration grew from 1.1 million in 2023 to 1.5 million by 2033 and stabilized thereafter, it would provide a notable boost to economic potential by 2050,” Santaniello and Trevis explained.
In developed nations like the U.S., the conversation about declining birth rates and aging populations is already in the mainstream.
Likewise, figures such as BlackRock’s Larry Fink have called on the government to begin a national conversation about the public’s need to save for retirement, instead of relying on the state for support.
“It’s beyond that. We refuse to talk about, how do we get more broadening of our economy with more Americans participating in that? That’s why we have to have a conversation in Washington, this has to be considered a national priority and a national promise to all Americans.”
To this end, the Oxford Economics report shows, America’s debt-to-GDP ratio could spiral beyond 250% by 2060 as the government tries to keep up with payments to support its aging population.
“In economies with less-developed social safety nets, the burden of aging populations increasingly falls on households via informal caregiving responsibilities,” the economists wrote.
Meanwhile, in nations with more “generous” welfare systems: “Without reform, such as raising retirement ages or boosting labor force participation, many welfare systems risk becoming unsustainable. In our scenario, public debt rises sharply across most advanced economies and in several emerging markets. Heavily indebted countries will be least able to absorb the economic impact of demographic change, and will struggle to respond to future downturns with limited fiscal space.”
