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Emerging Economies’ Demographic Challenge

WASHINGTON, DC – Population aging is often cited as a major economic challenge for the developed world. But a new report from the McKinsey Global Institute (MGI) shows that shifting demographics pose an even greater threat to the growth prospects of many emerging economies.

Over the last 50 years, the world's 1.6% annual population growth fueled a surging labor force and a rapid increase in GDP in many emerging economies. Employment more than doubled in China and South Africa, and at least tripled in Brazil, India, Indonesia, Mexico, and Nigeria. In Saudi Arabia, employment increased almost nine-fold.

But, with population growth slowing, average annual employment growth in emerging economies is expected to drop from 1.9% to 0.4%. In absolute terms, the decline will exceed that of developed economies, where annual employment growth is expected to fall from 0.9% to 0.1% the coming years. In most economies, employment is expected to reach its peak within the next half-century; in China, the labor force could shrink by 20% over this period.

Of course, there are exceptions to this trend. Indonesia and South Africa are projected to continue to experience rising employment (albeit at slower rates). Nigeria's labor force is expected to triple from 2014 to 2064, and many other economies in Sub-Saharan Africa will experience similar levels of growth.