22 September 2026
Australia has provided a timely reminder of the demographic challenge facing much of the developed world. Its 2026 Intergenerational Report projects that, for the first time, deaths will outnumber births by the 2060s, while the number of Australians aged over 85 is expected to triple by 2066.
Australia is far from unique. Falling fertility and rising life expectancy are increasing the proportion of older people compared to those of working age across much of the developed world. The OECD estimates that its old-age dependency ratio has risen from 19% in 1980 to 31% in 2023 and could reach 52% by 2060. It also projects an 8% decline in the OECD working-age population over the same period. Fewer workers supporting a growing retired population creates a structural headwind to potential growth, while increasing pressure on pensions, healthcare, and public finances.
The picture is more nuanced elsewhere. Africa has the potential to benefit from a growing working-age population and a significant demographic dividend, provided this is matched by education, infrastructure, productivity, and productive employment. The Gulf offers a different model: the UAE, Qatar and Saudi Arabia have relatively young workforces, but this reflects substantial migration as well as domestic demographics.
Latin America sits between these two extremes. Around two-thirds of its population is currently of working age, but its demographic dividend is beginning to fade. The IMF expects the working-age share to peak, while ECLAC projects the proportion aged 65 and over to almost double, from around 10% in 2024 to almost 19% by 2050. Countries such as Mexico and Chile therefore retain relatively favourable age structures, but growth will increasingly depend on productivity and investment rather than demographics alone.
AI and automation could provide a partial counterbalance by allowing economies to produce more with fewer workers. However, the scale and timing of these gains remain uncertain. AI is better viewed as a potential productivity cushion than a replacement for a growing workforce.
Demographics matter not only through growth and interest rates, but also through saving, investment, and external wealth. Ageing can increase retirement saving while reducing domestic investment needs, potentially influencing capital flows and interest rates. Younger, capital-scarce economies may attract these savings to finance infrastructure and productive investment.
This makes net foreign assets (NFA) an important measure of sovereign resilience. Countries that consistently save more than they invest domestically can accumulate external wealth, providing a buffer against future demographic and fiscal pressures. Conversely, countries reliant on foreign capital may be more vulnerable as demographics and public spending pressures change.
Headline debt-to-GDP therefore tells only part of the story. Demographics should be assessed alongside NFA, fiscal strength, productivity, domestic saving and investment requirements. An ageing economy with substantial external assets may have considerably more capacity to absorb rising age-related costs than one with similar demographics but significant external liabilities.
For investors, demographic divergence is becoming an increasingly important source of differentiation across sovereign markets. AI may soften the impact, but demographics are likely to remain a persistent structural influence on growth, capital flows and sovereign credit quality.