Here are three.
1. Slower growth. While the United States’ demographic advantage suggests it will grow faster than other developed countries, growth is still likely to slow without an influx of immigrants or a change in fertility rates. Over the long term, a country’s growth rate is a function of just two things: growth in the labor force and productivity. Unless everyone suddenly becomes more productive, an aging population suggests slower growth relative to the post-WW II average.
Market Realist – The previous graph shows the increase in dependent population all over the world as estimated from 2010 to 2050. The number of dependents per 100 of people of working age, 15–64 years, would climb up from 49 in 2010 to 66 in 2050. This would put a pressure on the labor force and productivity.
The U.S. (IVV) would have a lesser number of dependents per 100 people of working age in 2050 than countries like China (FXI), Japan (EWJ), Brazil (EWZ), and South Korea in 2050. However, it would still suffer from lesser productivity and slower growth. Countries like India (EPI) and South Africa are better placed in this context.
2. Lower rates. As populations’ age, people do two things: they borrow less and buy more bonds. As a result, older populations tend to have a lower equilibrium point for real interest rates. This suggests that an eventual rise in real rates may be more tempered than many analysts expect.
Market Realist – Continue reading the next part in the series to understand the U.S. economic implications due to entitlement programs for the aging population.