The global economy is at a demographic tipping point, about to experience an unprecedented collapse in demand and tax revenue that threatens to destabilize the largest economies in the world.
The best thing for economic health or economic growth is an increasing population of people aged 25-64. People aged 25-64 are usually working, earning income, paying taxes, raising families and contributing towards economic activity across a wide range of sectors and industries.
When the population of people aged 25-64 declines or shrinks, it is very difficult for an economy to grow and the risk of collapse increases dramatically.
This chart shows the average level of income by age group. There’s a big jump from 25-34 as most people enter the workforce and your income tends to increase until your 50s.
On average, your income peaks somewhere in between 45 and 54.
When you’re 65 and over, you’re income drops off sharply as you enter retirement.
Since you earn more and you generally have a home and children, you consume the most in your prime-age years. Total consumption increases throughout your life and usually peaks when you are 45-54. Total Consumption, a big driver of the economy, falls sharply in the 65 and over cohort.
More importantly, the consumption of housing and vehicles are extremely important for the economy because building homes or manufacturing and shipping cars generates a lot of economic benefits throughout the entire economy. Housing and vehicles are called high multiplier sectors of the economy.
The consumption of housing and vehicles peaks earlier than total consumption, in the 35-44 year old bucket and declines by 35% once you get passed 65.
One thing that does rise as you age is the consumption of healthcare services.
The consumption of basically everything else declines as you age. This chart shows the average level of spending excluding housing, vehicles and healthcare and it follows the same pattern.
A (Global) Collapse In Demand
The catastrophic problem for the global economy is that this prime age group that does all the earning and consuming is now declining and is going to keep declining over the next 20-30 years. There is no way to stop this.
The United States, Europe, Japan and China make up 26% of the worlds population but almost 70% of the worlds consumption. We know from the earlier charts that the 25-64 year old prime age group is the best for an economy.
If we add up the population in the big-4 economic regions, the United States, Europe, China and Japan, there were about 1.47 billion people aged 25-64 in 2020. Population growth in this very important age group is declining in the four most dominant economic regions of the world. By 2050, there will be 1.2 billion people aged 25-64. That’s an 18% decline in the working age population for the four largest economic regions, the parts of the world responsible for almost all of global consumption and economic activity.
The 25-64 year old population is actually not declining in the United States, it’s rising slower than it did in the past, but still rising. There are 175 million people aged 25-64 in the United States today and there is expected to be about 190 million by 2050. So slow population growth in this prime-age cohort.
Another way to look at the health or vibrance of an economies demographics is the percentage of the population that’s aged 25-64%. This chart shows that in 1970, about 45% of the population was peopled aged 25-64. That percentage surged for the next 35 years, reaching 53%. Think about the unbelievable boom in demand from all the people moving into their peak spending years.
So the problem for the United States is that while there’s some modest population growth in the 25-64 year old group, the growth in the population of people aged 65 and older is so large that more people are going to be moving out of their peak spending years and into the years with the lowest income and lowest consumption.
The prime-age population is on the verge of collapsing in Europe having peaked about 5-8 years ago with 411 million people aged 25-64. By 2050, there will be 335 million people in that age group, or an 17% decline in prime-age population.
Japan’s working-age population peaked over 10 years ago and is already in free-fall. Japan is expected to lose 26% of their working age population over the next 30 years. 1/5 of their working age population, will disappear
China’s prime-age population is peaking now, around 2022 and will decline sharply in the years to come.
Compared to 2020, prime-age population in the United States will increase about 6.7% by 2050. There will be a collapse, however, in prime-age population in Japan, China and Europe, falling 27%, 19% and 17% respectively.
The problem with a collapsing working-age population stretches far behind declining consumption, declining economic growth, and declining home prices.
People aged 25-64 are working and thus earn the most income and pay the most taxes.
As the population in this key group declines around the world, tax revenue will start to fall which is a massive problem across the major four economic powers as debt levels have continued to increase, reaching 360% of GDP in the US and over 600% in Japan.
So will economic growth follow this trend in population?
The answer is yes. Over the next 20 years, little by little the big four economic regions will have to deal with an 18% collapse in working age people.
This could very well lead to an economic collapse by 2030 because tax revenue will drop in all major nations making debt levels harder to service.
The economy as it’s presently structured will not be able to handle this demographic shift that’s underway in the four major economic regions of the world. Something will have to change.
Europe, China and Japan will have economies that contract almost 20% over the next 30 years based on demographics alone. It’s not sustainable to have a shrinking economy with rising debt levels.
Slower economic growth in these four regions is almost assured.