Policy choices will matter crucially amid growing socioeconomic challenges

 Rapid population ageing and declining birth rates are threatening to shave up to 2 percentage points off global economic growth while driving pension and healthcare costs up by at least 5% of GDP across developed economies by 2060, according to a research report from UBS Global Research.

In a report examining global demographic trends, UBS economist Reinhard Cluse warned that demographic change has evolved from concerns over overpopulation into an era of "depopulation" that will reshape public balance sheets, labour supply, and capital markets.

"Alongside climate change, artificial intelligence, geopolitical fragmentation and rising public debt, demographic change will be one of the defining megatrends of the decades ahead," Cluse wrote.

Fertility collapse and population contractions

Global fertility rates have dropped from around 5 children per woman in the early 1960s to approximately 2.25 today, with more than half of all nations - accounting for two-thirds of the world’s population - falling below the replacement threshold of 2.1.

The United Nations projects the world population will peak at roughly 10.3 billion in the mid-2080s before contracting. However, national demographic paths are sharply diverging.

Sixty-three countries - representing 28% of global population, including China, Germany, Japan, Italy, and South Korea - have already passed peak population. China’s population is projected to drop by 54% from 1.4 billion today to 649 million by 2100.

Forty-eight countries, including Brazil, Vietnam, and Turkey, are expected to reach peak population within the next 30 years.

Africa is projected to see its share of the world population surge from 19% today to 37% by 2100, driven by younger age structures in countries such as Nigeria, Ethiopia, and the Democratic Republic of the Congo.

Macroeconomic drag and fiscal strains
Citing International Monetary Fund estimates, UBS noted that demographic ageing is set to reduce global annual GDP growth by 1.1 percentage points over 2025–2050 compared to 2016–2018 baselines, and by 2 percentage points on average over 2025-2100.

The growth deceleration stems primarily from contracting labour forces, lower domestic capital formation, and slowing productivity gains. UBS emphasized that the retirement of the baby-boomer generation is not a temporary shock; persistently low birth rates mean old-age dependency ratios will stabilize at permanently higher levels.

The fiscal fallout poses acute risks for sovereign debt sustainability. In OECD countries, public outlays on pensions, healthcare, and long-term care are projected to rise from an average of 16.7% of GDP to over 21.6% by 2060. At the same time, shrinking workforces threaten to erode income tax and social security receipts.

Policy dilemma: The ’ageing paradox’

UBS highlighted what it termed an "ageing paradox": while demographic decline escalates the necessity for structural reforms - such as lifting statutory retirement ages, broadening tax bases, and encouraging technological innovation - an older median electorate tends to resist welfare retrenchment and public investment in favor of preserving entitlements.

While artificial intelligence adoption could lift productivity and ease labour constraints, UBS cautioned that AI is unlikely to serve as a complete cure. Ageing shifts aggregate consumer demand toward personal services like healthcare and elder care, sectors where automation and productivity gains remain difficult to achieve.

Furthermore, while sustained immigration can cushion demographic deficits in countries like the United States, Canada, and the UK, UBS referenced the "demographic trilemma," arguing that ageing nations with ultra-low fertility will struggle to simultaneously maintain economic dynamism and ethnic homogeneity without significant political friction.