McInerney, Co-CEO, BMO Global Asset Management. "The long-term trends are clear. The birth rate is dropping everywhere, workforce growth is dramatically slowing, the median age is rising as people are living longer – and this is more pronounced in developed economies."
The report notes that, in many advanced economies where life expectancy was already relatively high, it has increased by nearly 10 years since 1970 alone. In developing economies the increase tends to be higher.
"While we should applaud the improvements in health care, diet and lifestyle that have permitted this trend to longevity, we need to recognize that, back in the 1970s, this was not anticipated and not embraced in forward planning," noted Mr. McInerney. "Governments and others have been playing a game of catch-up ever since."
The report describes the advent of a rapidly changing global population with steadily fewer workers and, in particular, fewer workers relative to the number of retirees. In turn, economic growth is likely to slow, and the remaining workforce members may struggle to maintain their overall living standards.
Notably, the report found that the working-age population is now starting to shrink in the developed world. This will deduct approximately 0.3 percentage points annualized from global GDP growth over the next 35 years, whereas, in the previous 35 years, it had added an average of 0.4 percentage points annualized to GDP growth. The combination of the two means a comparative negative growth differential of 0.7 percentage points annualized in the next several decades.
"From an asset management perspective, behavioural economics now becomes a very important study," said Mr. McInerney. "A global legion of retirees will need income and security, spend a significant amount on healthcare, tend to be downsizing housing rather than upsizing, and are likely to be patronizing different types of retailers than younger people. In turn, the investment opportunity may lie outside the developed world, in emerging and frontier markets."
The report concluded that the world will need the people of working age to be productively employed, given the vast number of retirees sitting back hoping that someone is out there generating the wealth to fund their pension or social security benefit. This could benefit countries that are still experiencing booming population growth, such as India and larger African nations.
