Do Demographics Still Shape the World?
While investors focus on inflation, rates, and geopolitics, demographic divergence is steadily reshaping labour markets, fiscal priorities, investment behaviour, and long-term economic potential.
Economic and geopolitical developments continue to generate a near-daily cocktail of new information. Markets dissect this constant stream of data in search of patterns that might offer insight into the future. In the process, it is easy to overlook slower-moving forces that are less visible but no less influential. This raises a simple question: do demographics really matter?
There are some distinct demographic shifts currently underway globally, often described as a widening demographic divergence. East Asia, including China, Japan, and South Korea, alongside Europe and North America, is facing shrinking working-age populations as societies age. In contrast, many emerging economies, particularly in sub-Saharan Africa, continue to experience steady population growth and a youthful demographic profile.
Ageing populations are largely the result of declining birth rates relative to mortality. In countries such as Italy, Spain, and Sweden, birth rates sit at approximately 1.2 children per woman, well below the 2.1 required to maintain population stability. Combined with rising life expectancy in developed countries, this trend is steadily increasing the proportion of older citizens. These shifts occur gradually, but over time they reshape the structure of societies and the way economies function.
Ageing populations tend to exert a steady drag on economic momentum. Labour shortages and declining economic productivity place upward pressure on wages while simultaneously constraining economic growth. At the same time, public finances come under increasing strain as a larger share of the population becomes reliant on state support.
Japan offers a clear illustration. Its old-age dependency ratio now stands at approximately 50%, meaning there are only two working-age individuals for every person over retirement age, compared with just 12% in 1976. Across Europe, a growing share of national budgets is being directed toward pension obligations. Today, 47% of the European Union’s social protection expenditure is allocated to old-age benefits, while only 9% is spent on families and children. Recent developments in France, including the difficulty of raising the retirement age, highlight how spending priorities are shifting over time.
These dynamics are becoming increasingly relevant as governments also face rising demands for defence spending, energy transition investment, and technological development. Demographic shifts are also influencing political outcomes, with ageing electorates shaping choices at the ballot box.
From an investment perspective, ageing populations tend to drive more conservative asset allocation as larger portions of society enter the decumulation phase and draw down retirement savings. This reduces the pool of capital available for long-term investment and innovation. Monetary policy effectiveness can also be diminished, as retirees exhibit different spending and saving behaviours compared with younger cohorts. There are myriad discernible forces driving these demographic shifts. Economic growth and the increased participation of women in the workforce are often cited as key contributors. In Japan, for example, the appointment of its first female prime minister in October 2025 symbolised how deeply female labour participation has reshaped society over recent decades.
Changing social norms have also played a role. In South Korea, rising levels of childlessness have coincided with a growing proportion of the population over the age of 40 that has never married. There have also been links made between the rapidly increasing cost of living and lower birth rates. Interestingly, research also suggests that perceptions associating poverty to higher fertility in developing countries have also contributed to the observed decline in birth rates. Broader social trends, including more intensive parenting expectations and competitive education environments, have further contributed to the observed demographic changes.
My conclusion is that these slow-moving demographic forces will have a profound influence on how countries and economies evolve over the coming decades. The contrast between ageing societies and those poised to benefit from a demographic dividend in parts of the emerging world will become increasingly pronounced.
These shifts raise important questions around policy design, immigration, and the future shape of the global economic order. In this case, timely and deliberate action will be required to mitigate the long-term challenges posed by ageing populations and to harness the opportunities created by more youthful ones.
At Mazi, we remain focused on identifying long-term forces that shape markets beyond the immediate news cycle. Demographic trends are among the most powerful of these, and they continue to inform how we assess risk, opportunity, and capital allocation across regions and asset classes.
