Investors wrestle with Europe’s demographic time bomb

A hundred years ago, London had the largest population in the world of 6.5 million, closely followed by other European cities like Paris and Vienna.

But in a reflection of how fast populations can change, today Europe is experiencing unprecedentedly low fertility levels that are not compensated for by gains in life expectancy or migration, said Melinda Mills, professor of demography and population health and director, Leverhulme Centre for Demographic Science, University of Oxford.

Now countries like India, Indonesia and Nigeria count as the most populous while Japan, Germany, Hungary and South Korea face sharp declines.

She said the few bright spots stalling population decline include the fact that fertility is shifting to women having babies later in life.

“Women are having children successfully later in their lives because of medical interventions, and they’re healthier for many different reasons – they actually recuperate some of that fertility,” she said at the Fiduciary Investors Symposium at Oxford University.

Life expectancy has also increased over time, and now disruptors like GLP-1 will also probably, positively influence life expectancy.

Governments paying women to have children doesn’t work

Mills warned that oftentimes governments put in place the wrong policies to try and fix the problem. South Korea has declared a national emergency with just 0.6 births per woman; Hungary spends five per cent of GDP on pro-natalist policies – compared to around 2% on defence.

In Hungary, policies include tax incentives and giving women loans for each child. Once a woman has had four children, the loan is waived. Yet Mills said research shows women who had four children, always planned to have large families.

“Governments paying women to have children doesn’t work,” she said.

More successful policies comprise ensuring women with children can work close to where they live without a long commute. People also plan their families in line with economic security and housing. “When you have a precarious job, it’s hard to predict the future and if you can’t buy a house it stops people from having children.”

Cultural norms also need to change. In Korea, she noticed women are reluctant to have children because they already “take care of their husband and his parents.”

“Try and crack that in a room of policymakers where, like, you know, 95 per cent are male.”

Investor opportunity

Mills said that a shrinking European population will trigger significant changes in economic growth and investor opportunities. Certain areas will experience depopulation as highly skilled workers leave, creating a loss of services and fuelling political instability.

The future in many countries will be female because women outlive men. Demographics are also shifting consumer behaviour. Today, Gen Z (13-28) are the largest population characterised as high spenders and reachable by digital channels. In Japan, manufacturing has moved from producing baby diapers to adult diapers; in South Korea, it’s moved from infant formula to protein drinks for older people.

Cities will also change with shifts in demography – particularly given 70 per cent of the world’s population will be urban by 2050. This will equate to centralised services and a new configuration of transport systems – perhaps taking the elderly to hospitals. Expect the repurposing of schools into housing, and fewer family homes.

“We’ll have a lot of housing and things built for an older population. It will be interesting to see how that will be repurposed.”

Is immigration the solution?

Immigration is one panacea. For example, in the United Kingdom, foreign, highly-skilled care workers are essential to staff the NHS. But it is complicated by political tension and the rise of the far right.

In 1970, about 5 per cent of the population in the U.S. was migrants. Now it’s about 24 per cent. But she noted the high level of inter-country and inter-continent migration due to different migration rules impacting countries’ ability to hang onto migrant populations with different health profiles, different needs, and languages.

Companies will increasingly re-skill their current employees and give better benefits to try and retain people.

Technology will also do the work of people, but she predicted that the rise of AI won’t negate the need for populations, arguing instead that technology and AI will open up a new economy.

“If you take the long view across history, people argued that things like the printing press or the steam railways would take everything down. But at the same time, a new economy emerged and whole new jobs were created. And I think that’s kind of how we have to see AI as well too.”