A global population crisis is coming. Japan is first. Its’s working age population has been falling since 2003. And, according to the latest UN predictions, it will continue to fall until Japan has just 45% of its peak population left by the end of the century. Meanwhile, Europe’s working age population has been falling since 2019, while that of China will start falling off a cliff after 2027, until there’s only 30% of Chinese workers left in just 75 years.

However, despite these massive population centers losing so many people, the UN predicts that the world’s population of workers will actually grow till 2072 because of a,

massive population boom in India, the Middle East, AND, especially Africa whose workforce will dwarf all others by the end of the century,

So, what does this population earthquake mean for the world? To answer that question, here on Money & Macro, we are again going to be diving deep into the scientific literature, which includes projections from advanced models about the global economy, balance of power, and migration flows as well as a case study from the only country in the world that has already entered its population crisis phase: Japan.

And, actually, because demographic trends like fertility and ageing don’t change too quickly, and can be calculated way before they happen, I’m confident enough to make five concrete predictions about

How the coming population crisis will change the world

Essentially, I found 3 core ways that the world will be changed by this dramatic population shift: (1) an economic transformation, (2) big migration shifts, and (3) a dramatic shift in the global balance of power.

When it comes to the economy, economists pretty unanimously agree that rapid ageing will be bad for the economy.

To see why, let’s have a look at one popular way to calculate total economic output, or GDP. Using this formula, total the total output in the economy is a function of the total hours worked multiplied by the average productivity of those hours. For example, a small nation may produce one million Dollar’s worth of goods and services, by working 200k hours and producing, on average, 5 Dollars worth of value each hour.

This means that to grow an economy, a country’s has two options. Either it needs to become productive. Or it needs to work more hours.

While this may seem obvious, Japan’s experience shows us that taking this into account is extremely important. After all, Japan’s politicians have for decades been trying to get their economy going again by lowering interest rates. However, if we look at Japan’s economy through this lens, we will see that actually they did pretty well, given their declining working age population.

Yes, on the surface Japan’s economy did really poorly between 1991 and today… Their GDP grew at just 0.83% per year in this period, while the US economy grew at 2.58%. However, if we take into account hours worked, we can see that, in this period, US workers worked just over 1% more hours every year, while Japanese workers worked about 0.43% less. The reason for this was mostly worker population growth in the US and decline in Japan. On the other hand, Japan’s productivity per hour grew at about 1.26% per year, compared to US productivity per hour of 1.53%.

Therefore, Japan’s low economic growth was not a sign that they mismanaged their economy. It was simply a consequence of so many workers leaving the workforce.

This brings us to my first prediction about how the population crisis will change the world, it will lead to the further ‘Japanification’ of all major economies in East Asia and Europe. This includes Germany, South Korea and China.

The good news is that Japanification has really not been so bad given that Japanese people themselves are still living relatively good lives. But, Japanification has meant reduced economic significance on the world stage, and rapidly rising government debt.

However, even a rich country, like Japan, government debt cannot rise forever.. without consequences. To make matters worse, many poorer countries are now also facing Japanification. So, they will surely hit a debt ceiling much more quickly than Japan did .

Therefore, my second prediction is that, as the global population crisis intensifies, we will see more and more countries hit a government debt limit, that either will result in a debt crisis or cuts to the welfare state.

So, countries where the fertility rate is below the replacement level of 2.1 babies per woman, which are all orange countries on this map, will all ..eventually face the Japan scenario. After all, dropping fertility rarely bounces back significantly. But, does that mean that green countries on this map, with high fertility, will start overperforming? NO. Sadly, it’s not that simple.

To see why, it’s important to remember that ,actually, only people of working age … tend to work. So, yes, a big group of elderly people is a huge burden on the economy. But, a big group of children is an economic burden as well. Only societies that have many workers compared to children AND the elderly have an economic advantage, a so-called demographic dividend. These countries have a low dependency ratio, meaning that the number of young & old people are just a small percentage of the number of workers.

Not surprisingly, economists have found that countries with low dependency ratios tend to have higher economic growth. Therefore, looking at the dependency ratio can give us some really surprising insights into what economies will do well and when. For example, we can see here that China’s development miracle almost entirely coincided with a massive fall in its dependency ratio, which happened so quickly thanks to its one child policy.

Another striking insight the depency ratio reveals is that Japan is the only country that has already been really feeling the economic burden of its ageing population. Rapidly ageing China has NOT YET felt the drag on its economy as its workers has been able to work more as they had fewer and fewer children to support. Also note that, despite the horror stories about Chinese demographics, their dependency ratio is still well below the United States, which is known for having pretty healthy demographics.

Meanwhile, Africa may be young. But, so far, its economies are NOT benefiting from that at all. For example, Kenya, which has a fertility rate of 3.3 babies per woman, currently has roughly the same dependency ratio as Japan.

On the other hand, as you can see here, India’s demographic dividend has really just begun as it has only recently dropped below the dependency ratio of the US and is still above that of China.

On the basis of these principles and UN population predictions, economists Brakman, Kohl and van Marrewijk have calculated that while Europe’s economy is already feeling the negative effects of ageing today, China will only start feeling it in the late 2030s. Meanwhile, India’s demographic dividend will last from the early 2010s until 2070. Finally, Africa will only start benefitting from its high, but dropping, fertility ratio around the year 2050 when its massive population of children will reach the working age.

Thanks to these developments, Brakman, Kohl and van Marrewijk calculate that the economic center of the world will shift from Iran to India, until the 2050s, as Europe’s economy slows while that of India rises. However, from then on, China’s rapid decline and Africa’s rise will cause the economic center of the world to shift towards Africa.

So, based on their calculations, my third prediction about the upcoming population crisis is that both Japan’s and Europe’s economy will underperform from now on. Korea and China will start feeling the pain in a few years. But, when that happens, they will feel it more abruptly. And, finally, India will keep overperforming in the next decades, while Africa will underperform till 2050, after which it will overperform.

But, while Africa won’t benefit too much from its demographic dividend until 2050, the continent will still radically reshape the global economy in another way:

Migration..

You see, right now, many of the top migration corridors in the world are driven by conflict. For example, in 2024, some of the largest migration movements happened from Ukraine and Syria.

However, most migration happened for economic reasons, from developing nations to big rich countries. For example, some of the top migration corridors in 2024 were Mexico to the US, India to the Gulf states, Poland and Türkiye to Germany, and China and the Philippines to the US.

From an economic perspective, these migration patterns are actually pretty weird. After all, you may expect that migration happens from the poorest countries, as people want to leave to get better opportunities and quality of life. However, when looking at the economic development of countries, economists typically observe a so-called migration hump. This means that as a country gets slightly richer, people will actually start to leave to build a better life elsewhere. They always wanted to leave. However, when the country was dirt poor, people simply could not afford the long journey. Thus, the migration hump means that as countries get slightly richer, people start leaving. But, then when a country truly gets rich, less and less people leave given that the best economic opportunities are now at home.

Africa is now slowly reaching this point. This is why, as you can see here in this graph from The Economist, African migration to outside Africa has been steadily rising.

As it slowly gets richer AND its population explodes, we will see a situation where ageing economies in Europe and Asia will need labor, and there are many many young Africans that need jobs.

Of course, thanks to politics, we cannot be sure how exactly migration will pan out. As we see in the US now, there can be huge backlashes to migration. On the other hand, Japan was always very closed off to migrants, and we are now increasingly seeing them open up, as care workers are simply needed more and more to take care of the ageing Japanese population.

Therefore, my fourth prediction is that migration from Africa to some rich nations will change the world, even if I cannot predict exactly to which countries they will move due to politics.

So, there you have these were four of my five confident predictions about how the coming population crisis will change the world:

Number 1: we will see ‘Japanification’ of all major economies in East Asia and Europe, including Germany, South Korea and China, which means slower economic growth and higher government debt.

Number 2 as the population crisis intensifies, we will see more and more countries hit a government debt limit, that either will result in a debt crisis or a cut to pensions.

Number 3: big balance of power changes. Both Japan’s and Europe’s economy will underperform from now on. Korea and China will start feeling the pain in a few years. But, when that happens, they will feel it more abruptly. Finally, India will keep overperforming in the next decades, while Africa will underperform till 2050, after which it will overperform.

However, this leads me to my fifth prediction, which are that the years of prediction number 3 will be wrong. You see, economists like professor Fernández-Villaverde have criticized the UN predictions for making overly optimistic predictions about how fertility rates will bounce back or stabilize in many countries, even though we have seen them continuously drop for decades. For example, here’s the US fertility rate, and here’s the prediction of the UN, on which they forecast that the US population will be quite stable.

Or, here’s the UN assumption for Korea’s fertility rate, which shows an optimistic bounce back of the fertility rate.

This seems extra unrealistic given that there are now new reports coming out of Japan that fertility is dropping faster than they expected and there are huge doubts about the fertility and even population data in China.

So, my fifth prediction is that the years in my fourth prediction will be wrong. The world will age faster than the UN predicts.

Luckily, I’m more confident about prediction number 4 though which is that migration patterns will radically change, as traditional corridors of immigration, like east to Western Europe, and Latin America to the US dry up during the century. Meanwhile, ageing economies will need more and more workers if they want to maintain their standard of living. A huge African labor pool will be available to fill that gap. But, whether or not countries want to use it, will be up to politics.

But, yeah, that is my take. What do you think? Will the current backlash against migration last, or will ageing force rich countries to open up again?

Our advertising sponsor, The Economist believes that migration from Africa will literally change the world.

If you want to know more about that, I’ve linked two fascinating articles from them in the comments below. After that, I highly recommend you check out this podcast from the Economist about Europe’s demographic destiny, where their correspondent visits Europe’s fastest ageing region.

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