In times of volatility in Global Stock Markets, we look to identify long term trends and no trend is bigger than the world’s rapidly changing demographics. Put simply, the world’s population is growing, living longer and most importantly ageing.


You might ask why population growth is important. Very simply the growth rate of GDP in any economy depends primarily on two factors:


  1. Productivity growth
  2. Population growth


The rapid growth in world population (see below) and by extension workforce over the last 125 years has led to significant growth in the world’s economy.


World population since 500 BC

world population since 500 bc

Source: BoAML


However, the challenge ahead for some developed market countries (Germany and Japan in particular) is that as their populations age, their workforces are actually shrinking. By 2050, the UN projects the number of people over age 65 will outnumber children under age 5 for the first time in the world’s history. In Japan over one third of the population in 2050 is forecast to be over 65 years old. These demographic changes are a major headwind to economic growth in the coming years.


Over the long run, countries that have younger growing populations, as found in many Emerging Markets, will tend to have higher economic growth.


One of our favoured Emerging Markets is India. Approximately, half of India’s population is below age 25. This should fuel a growing workforce for decades to come. Macquarie Bank in a recent report expects approximately 100 million people (see chart below) to be added to India’s working age population between now and 2025. To put this in perspective, India will add over 20 times New Zealand’s population to its workforce over the next decade. The challenge for the recently elected Modi government is to generate enough jobs to satisfy this growth in the workforce. Encouragingly, the Modi government recently announced a “Made in India” initiative aimed at making India a manufacturing hub with the hope of creating 100 million jobs over the next 6 years. India has a history of under delivering when it comes to reform implementation but we are prepared to give Modi the benefit of doubt with the view that India is moving in the right direction. Policy in India is being directed to reducing red tape, making it easier to do business, attracting investment into India and most importantly increasing the skill level of the workforce.


Change in working age population

change in working age population

Note: working age population for most countries defined as 15-64 years.

Source: Global Demographics, Macquarie


What also stands out from the chart above is the challenge China is facing. Its working age population is expected to decline by 29 million over the next decade. While China continues to grab the headlines, we are more excited about the potential in India. In fact, India recently overtook China to become the fastest growing major economy.


In summary, the long term case for India is compelling, helped by one of the most attractive demographic profiles globally. Younger workforces like India’s tend to be more tech savvy and have innovative minds that will underpin economic growth. The growth in the workforce will lead to an increase in disposable incomes and support the strong consumption trend we expect in India over the coming years. Likely beneficiaries of the coming consumption boom include sectors such as consumer discretionary, the property sector and also the private banks that will support credit growth. Given the immense potential of India the Milford Global Fund continues to look for opportunities to tap into this structural growth story.


Stephen Johnston

Senior Analyst

Disclaimer: This is intended to provide general information only. It does not take into account your investment needs or personal circumstances and so is not intended to be viewed as investment or financial advice. Should you require financial advice you should always speak to an Authorised Financial Adviser.