How to invest when the population is shrinking

Frederik Anseel

April 24, 2024
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Companies must realize that population decline will lead to a fundamentally different economy than the one we have known in recent decades, writes Frederik Anseel.

This weekend it happened to me again. A dinner with friends resulted in a lament about the world problems of the ‘tepid Twenties’, the lukewarm 1920s. Someone thought to end the conversation with the conclusion: ‘In the end, all those problems have one cause. The explosive population growth is causing our planet to go to waste. The growth must stop.’

It is astonishing how many people still think that we are in a situation of explosive population growth. Globally, we are indeed still some way from the population peak, but that is mainly because the population in Africa will continue to grow rapidly for some time to come. In most countries, birth rates are so low that the population is declining noticeably. I regularly hit the same nail in this column. Companies must realize that population decline will lead to a fundamentally different economy than the one we have known in recent decades.

The number of babies in Japan fell last year for the eighth year in a row. The local population is shrinking by about 100 people per hour. The population fell by 837,000 in the 12 months to October 2023. In China, the number of births fell from 17.9 million in 2016 to almost half, 9.6 million in 2022. In South Korea, the population will be halved by 2100. In 2023, Brazil ‘lost’ 5 million inhabitants due to a lower birth rate than estimated.

In Europe the figures are no better. With 678,000 babies, France has its lowest birth rate since World War II. Italy has more residents over 80 than children under 10.

What makes these birth rates so interesting is that it is one of the few long-term trends that are perfectly predictable, because births are already fixed. For those who want to know where the economic opportunities lie in the coming decades, these trends offer a wealth of information. A modest attempt to identify three important areas for those who want to invest in the future.

A. The most obvious is of course elderly care. People live longer, need more help, but often also have more money to spend. People will want to live healthily alone for longer. Downsizing and real estate that appeals to an aging generation that is in good financial shape will be in demand. Automation, accessibility and live-in care are becoming more important. Social activities for the elderly, such as wellness, fitness, travel and pets, are investment opportunities. Financial products such as loans, investments and insurance aimed at an aging population are becoming more interesting.

Two. Labor is becoming scarcer and more expensive worldwide, which is not good news for inflation. Business models that depend on massive cheap labor are in bad shape. Companies focused on finding, attracting and developing scarce talent will perform well. This ranges from recruitment and support for labor migration to temporary employment to investments in lifelong learning. Investing in robotics and AI that replaces human labor will be particularly attractive. Governments will struggle with pensions due to changing demographics. People will therefore work longer and alternative forms of pension savings will become a necessity.

Three. The global fertility crisis is partly driven by other family dynamics. People enter into relationships later in life, marry later and there is an increase in singles. Business models aimed at singles are a hit. Investing in fertility solutions, flexible work options and childcare will do well, as companies and governments will invest massively in fertility and family support. Families will also invest more in their only child’s education to give them an edge, causing the private market for specialized education to flourish. Families with one or no child have more free time for hobbies and travel. The combination of affluent boomers with a limited number of (grand)children means that a remarkable intergenerational transfer of wealth to a privileged group is underway.

By focusing on opportunities, I try to shine a positive light on a worrying evolution. The story is more difficult for governments. The problems that a changing population structure entails are predictable. The solutions are anything but.