A recent report by the McKinsey Global Institute (MGI) highlights a pressing concern: declining fertility rates and aging populations are poised to significantly impede economic growth, particularly in countries like Hungary and various emerging economies. Countries will need to raise fertility rates to avert depopulation—a societal shift without precedent in modern history.
Hungary has been proactive in addressing its demographic challenges, implementing policies such as subsidized housing loans and financial incentives for families. Despite these efforts, the fertility rate remains below the replacement level of 2.1 children per woman. The Wall Street Journal reports that even with substantial investments - over 3% of GDP on family support - Hungary's fertility rate has not seen the desired increase.
Hungary is not alone battling low fertility rates as two-thirds of humanity lives in countries with fertility below the replacement rate of 2.1 children per family, according to the report entitled “Dependency and depopulation? Confronting the consequences of a new demographic reality.” The authors highlight that by 2100, populations in some major economies will fall by 20 to 50 percent, based on UN projections.
This persistent low birth rate contributes to a shrinking workforce, which, coupled with an aging population, threatens to decelerate economic growth. To counteract these trends, governments must focus on enhancing labor productivity and encouraging higher workforce participation among older individuals. Additionally, creating an environment conducive to family growth, beyond financial incentives, is crucial.
Emerging economies at a crossroads
Emerging economies have historically benefited from a youthful demographic, fueling labor force expansion and economic growth. However, as fertility rates decline globally, these nations face the risk of a demographic shift before achieving high-income status - a phenomenon often referred to as "growing old before getting rich."
“Even if global fertility rates were to jump overnight to the replacement rate, it would take 20 years, give or take, for those additional babies to become adults and begin contributing to economic growth through work,” the report notes.
The McKinsey study emphasizes that without significant improvements in productivity, emerging economies could experience a substantial slowdown in GDP growth. To mitigate this, these countries must invest in technological advancements, education, and infrastructure to boost productivity. Moreover, policies that support workforce participation, such as childcare services and flexible working conditions, can help maintain economic momentum.
Global implications
The challenges faced by Hungary and emerging economies are indicative of a broader global trend. The Financial Times highlights that many of the world's wealthiest nations will need to at least double their productivity growth to sustain historical improvements in living standards amid sharp declines in birth rates.
In conclusion, addressing demographic shifts requires a multifaceted approach. While financial incentives play a role, they must be part of a broader strategy that includes enhancing productivity, supporting workforce participation across all age groups, and creating environments that encourage family growth. Failure to act could result in diminished economic prospects and increased strain on social support systems worldwide. “As demographic shifts pick up steam, however, we can no longer simply react in isolation to each of the tectonic changes they will compel. Workforces, productivity, global trade, family structures, and the social contract all will change as a result of the impact,” the authors of the report emphasize.


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