The impact of shifting demographics on economic growth

Last month, the world's population hit the 8 billion mark, with China being home to the most people in the world and India expected to overtake it as the world's most populous nation in the next year or two. While the pace of growth of the world's population is expected to decrease in the future in line with fertility rates, people are expected to live longer than they did in the past. These shifting demographics have significant implications for economic growth and investment strategies globally. Izak Odendaal, Investment Strategist at Old Mutual Multi-Managers, joined CNBC Africa to discuss the impact of changing population dynamics on portfolios and economic outlooks. Changing demographics, such as an aging and shrinking population, are reshaping the economic landscape worldwide. In Western countries, including rich nations like Japan and Germany, aging populations and declining birth rates are challenging traditional economic growth models. As populations age, there is a greater need for social and medical care, impacting government spending and pension obligations. This demographic shift alters the focus of economies from production and consumption to elder care and support services. On the other hand, in Africa, where the population is younger and experiencing rapid growth, there are abundant business opportunities. By 2050, Africa's population is projected to reach 2.5 billion, with countries like Nigeria, the DRC, Egypt, and Tanzania expected to host massive populations. While this presents potential market expansion for businesses, the region must address existing socio-economic challenges to support such large populations sustainably. Investment implications of these demographic trends vary based on geographical differences. In regions with younger populations like Africa and parts of Asia, opportunities lie in companies that can cater to growing and youthful consumer bases. However, in aging populations like Japan, Europe, and eventually North America, long-term investments may need to consider low inflation, low interest rates, and sluggish growth similar to Japan's economic landscape. Understanding the relationship between population growth, inflation rates, and interest rates is crucial in positioning portfolios effectively. Regarding inflation and interest rates, the post-pandemic era's economic recovery and continued demographic shifts will play pivotal roles. While current inflation rates are influenced by pandemic-related factors and fiscal stimulus measures, central banks are focused on controlling inflation. Over the next year or two, inflation rates are expected to stabilize, reflecting a blend of short-term economic factors and underlying demographic trends. In conclusion, as the global population evolves, so do the economic opportunities and challenges across different regions. Understanding the implications of aging populations, shrinking birth rates, and rapid growth in various parts of the world is essential for investors and policymakers alike. Adapting investment strategies to align with demographic shifts can enhance long-term portfolio performance and mitigate risks associated with changing economic landscapes.