The notion of population implosion refers to rapid demographic decline in the absence of any of the traditional checks on population growth such as large-scale violence, pestilence, insufficient food supply or other negative external forces; or, to put it more cautiously, without any exogenous forces.
In the absence of war, pandemics and famine, depopulation is a novel phenomenon not witnessed anywhere at any time in human history.
The term “population implosion” is used to describe the situation, prevalent in most developed countries, where birth rates have been below replacement rates for more than three decades. If this term sounds somewhat sensationalist in describing low fertility in the developed world, think again. That’s the advice of the authors of a book entitled Imploding Populations in Japan and Germany*. Depopulation, they advise, is a novel phenomenon, but more importantly, it’s a dramatic phenomenon, without precedent anywhere at any time in human history.
Japan’s projected population loss over the next 50 years is predicted at between 28.2 million (assuming relatively high fertility and low mortality), and 45.4 million (assuming low fertility and high mortality). However the population develops, it is a striking change and one without precedent anywhere at any time in human history.
Within Europe, Germany is at the forefront of population loss. Since 1972, the number of new-borns has not exceeded the number of deaths in a single year. Until 2003, population decline was masked by high rates of immigration. Since then, the overall population has shrunk by more than half a million. The Federal Statistics Office expects that Germany will have between 8 to 13 million fewer inhabitants by 2060.
The broad underlying historical causes of fertility decline that lead to depopulation are still poorly understood. The phenomenon is complex, involving an interaction between, on one hand, economic, political and social change, and, on the other, population dynamics.
In Japan and countries such as South Korea, Taiwan and the German-speaking, Mediterranean and eastern European countries, the fertility rate falls far short of the death rate. Some researchers argue that fertility levels could rise from their current lows, but it is generally held to be ‘evident’ that these countries are set to undergo rapid depopulation in the decades to come.
Longevity and immigration are the two factors that can counteract population decline. These are however extremely hard to predict. Hence the dynamics of depopulation not only cross national borders, they also concern a ‘known unknown’. Experience cannot be a guide.
Population implosion heralds an age of uncertainty:
– Can standards of living be sustained in societies where the labour force shrinks in the wake of population ageing? How can this be achieved at a time of unprecedented debt burdens?
– Is a debt-driven economic model sustainable in the long run in a zero-growth economy ?
– Can increased immigration and/or workforce expansion alleviate the problems?
– How will industry adjust to fewer and older consumers with different needs and demands?
– Will social security funding be sustainable?
– And can a new equilibrium between working and retired people be found?
These are just a few of the questions that arise in the face of population ageing and implosion. Developing policies to address these questions is a huge challenge for governments because there is no precedent. For asset managers, there are of course factors already driving secular trends in financial markets and creating opportunities for investors.