Much research and commentary has focused on the impact of population ageing on economic production and output. How it might shape consumer demand and spending has been less studied, but could be just as important: aggregate spending on services could increase, while aggregate spending on goods could decline. What might the implications be for global production networks, trading relationships, global integration, employment opportunities and income distribution?
Rather than leading the global economy’s recovery from the financial and economic crisis, global trade has actually fallen behind. For the first time in decades, global growth is growing faster than trade. Some economists have approached this issue from the supply side, looking at how production networks have shifted, but perhaps there is a demand element as well. Perhaps consumers, especially in the West, have shifted their preference from acquiring physical assets to purchasing experiences and services instead.
There is evidence that consumers across countries shift spending patterns as they age, notably towards greater consumption of health-related services and goods. The pioneering work in this area by economists associated with the National Transfer Accounts project (www.ntaccounts.org) has focused on how public and private mechanisms transfer funds across generations to allow for relatively steady consumption patterns despite changes in income over a person’s lifetime.
However, an unexplored corollary to their work is how population ageing affects aggregate spending patterns and demands within an economy. As 20 cents out of every US dollar of global spending is put on a Visa card, the data that go through our system enable us to analyse broad demographic trends in terms of spending patterns.
Changing consumer preferences with ageing has implications on the sourcing of goods and services in demand. For example, it is not possible to have an authentic dinner at a Parisian bistro in Las Vegas; it might be a good facsimile, but if this is a “bucket list” item, a trip to Paris will be needed to experience it. And if the consumer prioritizes the purchase of the vacation over buying the latest gadget or upgrading of an old car, this could have implications for what is demanded and sold globally.
As older consumers seek services related to experiences and health, demographic change will drive demand for labour in these sectors, and perhaps diminish demand for labour in sectors that see less demand from older cohorts. We have already seen in Canada and the United States that the fastest growing segments in terms of employment have been in leisure, recreation and healthcare.
Shifting patterns of consumer spending in ageing societies has a wide range of potential implications, from inequality to the shifting balance of global power. Jobs in service industries which see increased demand from older demographics tend to be relatively low paying. Could population ageing therefore exacerbate existing inequalities in income?
Many emerging economies produce goods for advanced economies and could see declines in demand for those goods as populations in their export markets age. Could this have effects on their internal stability and anticipated rise to greater geo-economic and geopolitical prominence? Could new models of cross-border trade in services emerge in an ageing world?
We are on the cusp of major generational shifts as the baby boom generation retires and the millennial generation rises. Accurately anticipating the likely shifts in demand as the populations of different countries age at different rates could help to address youth unemployment, maintain the health of economies and direct the future course of globalization.
This piece is one of a number of individual perspectives from the Global Strategic Foresight Community of the World Economic Forum for the Annual Meeting 2015. To read more access the full collection.
Author: As Head of Business and Economic Insights for Visa Inc., Wayne Best is the in-house chief economist and resident prognosticator for the trillion-dollar American payments industry.