The world’s population is ageing. Who will pay the bill? Europe, Japan and China reshape the global economy

The global economy is entering a period in which one of its most important resources, labor, is becoming scarcer. The world’s population is still growing, but more slowly, while the working-age population has already begun to decline in many developed economies.

Europe and Japan are furthest along in the transition, and China is moving rapidly into the same phase. Smaller generations entering the workforce mean a narrower base of contributors supporting a growing number of pensioners and healthcare users. Economic growth therefore cannot rely as heavily on a larger labor force and must depend more on productivity and capital.

“The basic mechanism is relatively simple. Economic growth depends on labor, capital and productivity. When the number of working-age people begins to fall, productivity and the efficient use of capital must compensate for an increasing share of the difference,” analyst Raul Putilean said.

Japan illustrates the shift clearly. People aged 65 and older accounted for 29.3% of the country’s population in 2024, one of the highest proportions worldwide. In the European Union, low fertility is a major factor, with the rate falling to 1.34 children per woman in 2024, well below the roughly 2.1 level considered necessary to replace generations.

The OECD estimates that the working-age population across its member economies could fall by 8% between 2023 and 2060. In several economies, including parts of Central and Eastern Europe, the decline could exceed 30%. Governments are considering higher retirement ages, greater workforce participation, changes to benefits, higher taxes and public borrowing. Longer working lives could ease pension pressure and retain experienced workers, while automation, artificial intelligence, productivity gains and immigration offer other possible responses. For investors, ageing brings both risks and opportunities.

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The basic mechanism is relatively simple. Economic growth depends on labor, capital and productivity. When the number of working-age people begins to fall, productivity and the efficient use of capital must compensate for an increasing share of the difference.