What will happen to global growth?

There’s a lot of nervousness about the outlook for global economic growth. Will the pace and location of growth in the world change? What impact will our aging population have? Jaana Remes and Richard Dobbs, partners of McKinsey Global Institute, discuss what will happen in this short video:

In 1964 the world economy was approximately the size of China’s economy today in terms of purchasing power. Since then we have had a remarkable era of growth on a global scale. In the last 50 years the global economy has become 6 times larger. The reason is two-fold; the labour pool expanded and productivity for all those workers increased.

Demographic tailwind

The global economy has on average grown 3,6 percent per year the last half century. We have in other words had a phenomenal demographic tailwind.

But now that will come to an end because of our aging population. We are approaching flat demographics. Consequently global growth will slow down significantly unless we can increase productivity substantially. Wolfgang Fengler of Brookings Institution took an interesting look at demographics in our world in “How your birthday reveals global demographic shifts” 

Will India, as some predict, continue to grow well beyond 2050?
Will India, as some predict, reach its peak long after China?

Peak in 2050

The number of workers in the world will reach its highest level in 2050. In quite a few developed economies that has already happened. For instance in Germany, Italy and Japan. But between 2020 and 2025 it is estimated that even China and South Korea will peak. Needless to say this will have an enormous impact because they have both been growth engines during the last 50 years. India and Nigeria, however look likely to have their peaks later on.

If economic growth stays the same as the last 50 years global GDP will decline by 40 percent. In other words the global economy will only grow by 2 percent a year as opposed to 3,6 percent.

Did you know how our aging population is likely to impact global growth? Are Jaana Remes’ and Richard Dobbs’ predictions likely to take place? Do you believe we can increase productivity enough to compensate for the fall in the number of workers? What are your suggestions? In what areas of the world are you predicting we will have the highest growth? How can we in the West increase productivity? 

Video: McKinsey & Co. Photo: World Economic Forum

44 thoughts on “What will happen to global growth?

  1. Demographic Features of India are very positive and powerful.It has highest, youngest population, 60% Population in the age group 15- 55 yrs. – If the leading MNC’s invest here it can contribute a lot. World must now look towards decreasing rich and poor gaps . Future growths will not come from Developed world but from up-coming nations. Poverty has opportunity.

      1. Dear Catarina Alexon,

        it feels nice to communicate with you after long time . You always bring topics which are touching my heart. I am also Pursuing My PhD
        on this topic . Thanks for appreciation.

  2. Hello Catarina

    Every time I learn about something new from your post.
    India is coming forward in many fields and as far as most of the growth is concerned, obviously it will be in technology. Everyday new technology is introduced. Few days back I was watching a video of 3D printed building in China. Saw a flying car video as well. I think that on the basis of last 50 years, we can just assume things and can say that there will be only 2% growth but we can not be sure, may be there is increase as compared to last 5o years.
    Downsizing is going on everywhere and robots are replacing humans in each field, I can not even think that the productivity will not improve. With the utilization of technology in more field it will improve.

    1. Absolutely, Andleeb, technology is key to increased productivity. But unless salaries start going hand in hand with increased productivity again, poverty will increase. Don't need to tell you what happens when a lot of people are unemployed and poor.

  3. Catarina — what wasn't mentioned is the falling birth rates in developing countries, particularly in Europe. It's become almost a crisis in Italy, which isn't even replacing its population. I saw a documentary a while back that small towns are literally shutting down for lack of young adults. Italian men continue to live with their parents long into their 30's and 40's. So I don't believe it's so much a problem of aging but a problem of lack of population growth in the developing countries.
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    1. Absolutely, Jeannette, the falling birthrates is the main factor that gives us an aging population. In most Western European countries we don't even replace ourselves. And that phenomena is spreading world wide. China with its one child policy is a good example. In a lot of developing countries though they more than replace themselves. So that's where we will have growth.

  4. The aging population of the west has been known for a long time and the effects of it have been debated for just as long. Modern corporate society has depended on increased productivity by individuals and I agree that this is likely to continue however like most shifts this one too will reach capacity. It will be interesting to watch that’s for sure.

    1. Our aging population has been a fact for a long time, Tim. But there's not much of a debate about it. It's actually ignored by politicians that presumably hope the problem will go away. If US politicians took it seriously they would, like their European counterparts. be more positive to immigrants from the developing world since they frequently have a lot of children. Instead Capitol Hill is dead set against immigration and immigration reform.

  5. These are issues that will make a difference in how we live and work. In Canada we’re seeing the very beginning with the age you can work before getting a pension rising. Again as more people find it unaffordable to retire early they’re continuing to work or taking up another part-time job in their golden years. Go into a local McDonalds midday and it’s most likely a 55plus person you’ll see serving you.

    With health care we’re seeing more 90 and even 100 plus people checking in through ER for fairly minor ailments. As people take better care of themselves and health care is able to do more to stop illness and injury or decrease their severity this will become more common. This may help offset the health costs of an aging population.

    1. True, Pat. We have the same development in Europe. But Swedes seem to be reluctant since only 5% work after they have turned 65. Politicians are discussing the possibility of raising the age when people become pensioners to 75. The best way to counteract our aging population however, is migrants that have a lot of children. Refugees that have settled in Europe since the US invaded Iraq frequently have 5-6 children per couple. That should be compared with Swedes having less than 2 per couple on average.

  6. Gosh, is there ever an easy answer for this? It’s not a surprise that as the population ages, we become aware of the challenges that represent. As the older generation leaves the workforce, reducing staff and asking the new generation to step up seems a bit unfair. To me, the best way to increase output is to get creative and find ways to improve production utilizing better technology. The hard part for the next generation will be to find ways to replace the brain trust that’s leaving – if they even see that as a loss. Hum, I could say a lot more, but these are just my thoughts at the moment.

  7. Hi Catarina,
    Your blog is one of my new areas of learning. I know very little about the International business scene. Every time I read one of your posts I see the enormity of it all; it's mind boggling. It seems to be that if there's such a decline in growth on the horizon that what has worked in the past won't work in the future. wouldn't this be the groundwork for an entirely different type of economic growth?

    1. Yes, it's complex and we will need to find new ways of increasing growtn, Pamela. But not at the expense of unemployment, with all the problems that entails, becoming sky high. If that happens anarchy will become increasingly normal.:-)

  8. It is a time of confusion for economic predictions. The world is changing so fast, business I trying to meet that speed of change. You combine that uncertainty with unpredictable events, such as an economic downturn or some cataclysmic natural event, and then there is no way of predicting will happen to the global growth. It will be certainly be exciting to see which predictions come true.

  9. That’s all pretty scary stuff actually Catarina. especially if western countries are peaking in what is now only a few years away. Increasing productivity is a tough call, and certainly in countries where the maximum load is already being expected. The US is already a nation of workaholics, so I don’t see that happening. Interesting post as always.

    1. Thanks, AK. Most Western countries, including the US, have already peaked. It's going to be really tough. How can workaholics work even more? Take drugs so they don't need to sleep?:-)

  10. The more our work can be streamlined, the more work we are asked to do. So of course we are asked to do the work of several people and to be constantly plugged in and reachable. Not good for our life balance, but that’s what happens. It seems to me that spreading jobs and workers out where they are needed will be best served by working online from wherever we live. Interesting, thoughtful article, Catarina.

    1. Absolutely, Beth. But there is a huge problem with that scenario, especially for the West. All countries have citizens that range from geniuses to imbecilles. Most however, as you know are in the middle. But what will people with a lower IQ and no skills do? Be forced to take a job in a factory in a developing country? In the future the market will be increasingly global, not least when it comes to employment But in the near future that's not going to happen. You have a huge problem in the US already with people in that category earning so little they can't survive on it. What would they do online? Another huge problem is that the more desparate and without hope people feel the more likely they are to turn to crime, or worse, terrorism. The former you have long experience of in the US and the latter is starting to become a problem.

      1. I’m afraid that the latter isn’t just starting to become a problem. Too many young people have found that they can earn more by dealing drugs than working a low paying job. Yes, it’s a huge problem as you said.

        1. Yes, Beth, the US has for quite some time had the highest prison population per capita in the world. But this phenomena is now spreading and will unfortunately increase. It's estimated that in 20 years time half of the jobs today will have been taken over by technology. What do you do then to avoid anarchy? One concept that's being discussed all over it basic income. Let's see what happens.

  11. An interesting post, Catarina, but I think there are a few considerations:
    – Although the global economic growth rate has averaged 3.6% since 1964, the population growth rate has averaged 1.6% during the time, meaning we have around 2.22 times more people in the world today than in 1964. This means that the world economic growth rate has risen at around 2.25 times the population growth rate, simplistically (3.6 / 1.6).
    – Projections I've seen for population growth to 2050 show an average over this period of 0.75%, so a 2% economic growth rate in this period would still be 2.67 times the rate of population growth. In other words, the world would continue to get richer overall – perhaps even at a slightly faster rate per capita.
    – The aging population means people can, and will want to, continue working longer. Partly because they are too mentally and physically active to retire at 60-65 and partly because longer lifespans will necessitate a longer working life to pay for this. This will offset the decline in population growth to some extent.
    – An aging population will, of course, give rise to new industries to cater for this – from healthcare to housing and leisure. The needs and wants of this aging, relatively wealthy population will be a good bit different to those of the previous generations, and in this will lie opportunity.

    All in all, I'm actually pretty optimistic about the next 30+ years and hope to be an active part of them 🙂

    1. Good points, Guy. Another factor that works in favour of the West is migrants that have a lot of children. Frequently 5-6, or more as opposed to Western families that have, on average, less than 2 per couple.

  12. There is no easy answer for this. The aging population issue has been staring us in the face for some time now. Most have preferred to stick their heads in the sand and pretend the issue does not exist. If there is a silver lining to be found it may be that although the population is aging most are still active way beyond what they used to be in years gone by. People can be and could remain productive longer than in past years.

    1. True, Cheryl. But apparently that's not enough to increase productivity and hence global growth. Migration to the West is actually helpful. In Europe many of the families from the developing world have a lot of children unlike Westerners who on average have less than 2 per couple. More young people in the West counteract the problems with our aging population.

  13. Do you know what the average rate of global growth has been since 2008? Curious as to what impact the recession had on the 50-year growth average

    1. As we all know the global economic meltdown had a huge effect on global growth, Ken. In fact the worst years in history. But I'm sure that's included int McKinsey's calculation. If you look at the US alone beetween 1998-2007 your economy was growing with 2.99%. In the years 2008-2013 it was down to 0.73%.

  14. Asking fewer workers to take on more work has been the catalyst for driving increases in production since the beginning of the Industrial Revolution. Just read a book on one of the first strikes in my hometown (and the birthplace of the Industrial Revolution in the US) that was caused by workers being asked to run 4 looms instead of 2. As someone who has spent his entire career in manufacturing, I often wonder where the next boom in productivity will come from. We (hopefully) will never see the ramp up that took place during WWII (regardless of which side your country was on). Don’t know if an aging population is a large enough crisis for humans to make the changes needed. There will always be those select few who see the big picture, but it takes a major event to turn the herd.

    1. Correct, Kire. But that will not solve the problems we are facing because it will increase unemployment enormously. Most people of importance in the world see the big picture. Catch is, above all in the US, they have to do what their donors want i.e. short term profits. If Keynesian economics had been implemented on a global scale after the recent economic meltdown i 2008 the world would be a better place today. A major war may actually take place because of ISIS or, less likely, Putin.

  15. This is an interesting post. I don’t know enough about the situation to venture a prediction on what will happen with global economic growth. I’d be interested in reading more about the likely impacts of a slower economic global growth.

    1. Yes it's an interesting issue isn't it, Donna. The global slow down in growth has already started. But it will get worse because of our aging population. So we have to find ways of compensating for that. Procuctivity is the name of the game. But how in the West, without incresing unemployment?

  16. Interesting content in the link about how our birthday buddies might affect our global growth.

    Jaana Remes’ and Richard Dobbs’ predictions? I suppose that makes me want to ask, what other variables did they consider in getting to their prediction? We really cannot predict for new technologies, or revolutionary ideas, now can we. So I would take predictions with any other crystal ball reading. I'm not saying there isn't a dilemma but that we may not be able to see the future for this.

    Do you believe we can increase productivity enough to compensate for the fall in the number of workers? This in part gets back to what I said about new technologies, or ideas, that change the way we do business. Consider the drones being developed and starting to be used for small product deliveries in the USA. How does that impact this when (and if) it takes off?

    One thought I had is around India. Not about India alone but that's where my thought started. Maybe collaborations between countries who are likely to peak later with countries who seem to do so earlier could bring some benefit to the balance around the globe.

    Thanks Catarina.
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    1. Some of their predictions may not be correct but the aging population is unfortunately a fact, Pat. In Western Europe it has already happened. Haven't you reached the demographic peak in the US yet? Interesting idea about collaborations between countries that have peaked and those who have not. India is a tricky country, though, because half of the world's poor are on the Indian Subcontinent and they need all the money they can get to move that massive amount of people out of poverty. Besides they have not fully integrated into the global economy and hence were not hard hit by the global economic meltdown in 2008. A simple solution would be that people with low skills in countries that have peaked would have to get a job in countries that have not. But how do you get, say, a US worker to accept a job in a factory in Nigeria or India? The best would be if more and more companies started working in digital ways doing business around the world. For some types of businesses that's already possible but a lot needs to improve such as legislation. We need one global legal system in order to facilitate and speed up that development. Google Hangouts make it easier but if it's a deal worth millions or billions you want to meat in person.

  17. Depends on where you live as to whether productivity can increase, right? There are lots of outside forces that will only allow that if it's paid for in some manner. But some companies have seen this coming for some time…our governments, in spite of overwhelming evidence, are not well prepared. We'll see Catarina. But Love that this brought this issue to the forefront. It's so important

    1. Yes, it's a tricky situation, isn't it, Jacqueline. Western governments seem to believe they can ignore the issue and it will go away. At the same time migration to the West is massive and we are already at a stage where there are no jobs for them if they are not highly skilled. It would be much better for them if they stayed in the developing countries they come from because most of those countries have not yet reached their peaks. But how so you explain to them that to them? They believe life in the West will be like the soaps they watch on television.

  18. Haven’t heard of the issue in terms of aging population, but it does seem like a huge factor. What you say in your comment, Catarina, I have heard quite a bit. Namely, much will be done automatically or by computation, and thus we won’t need quite as many low skilled workers as in the past. I suspect there will still be jobs for the most highly skilled in the STEM fields (science, tech, engineering, math), but the world needs to include everyone else as well.

    Thanks for bringing up an important topic.

    1. It's interesting how our aging population will impact growth isn't it, Leora. And we already see that in many Western countries. Doing a lot automatically or by computation will definitely work, mainly in countries that have not yet reached their demographic peak. But what can we do in the West? We don't need employment to go sky high and the anger, frustration and problems that it entails. Already far too many young, angry men become criminals or terrorists. Even some women.

  19. Asking the workers to increase productivity seems a little unrealistic. We’ve been hearing a lot about the labour force being downsized and the remaining workers have had to take on the additional workload. Asking them to do more doesn’t seem possible. To my way of thinking, the only way to improve productivity, or keep it at current levels, would be by improving production methods and utilizing more techology.

    1. What other way of increasing global economic growth in an aging world is there than to increase productivity, Lenie? What you suggest is the way forward but it will lead to unemployment in countries that have already reached a demographic peak. In for instance India and Nigeria it will not yet however because it will take time before they peak. In other words they will grow much faster than, for instance, the West.

  20. Great post to increase our awareness of this issue.

    Part of the growing issue is the demand placed to all of us about how to increase productivity and continued excellence. This increased pressure changed our priorities thus impact global growth.

    Nothing wrong with transforming ourselves to highly perform at all times but I think the balance must be discussed and be aligned to the demands as well.

    1. Thanks, Mahal. Have worked with global issues most of my life and hence believe people should be more aware of what's happening om our world. We definitely have to increase productivity. But how do we increase it so much that it will compensate for our aging population? And if more and more is done by robots and online unemployment will grow enormously and with that poverty and a multitude of problems. Tricky isn't it. India however, will become enormously important because it will take time before they reach their peak.

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