Declining Birth Rate

"The effects of a declining population can be adverse for an economy which has borrowed extensively for repayment by younger generations; however, a smaller human population has a smaller impact on the environment and on biodiversity. Economically declining populations are thought to lead to deflation, which has a number of effects. However, Russia, whose economy has been rapidly growing (8.1% in 2007) even as its population is shrinking, currently has high inflation (12% as of late 2007). For an agricultural or mining economy the average standard of living in a declining population, at least in terms of material possessions, will tend to rise as the amount of land and resources per person will be higher. But for many industrial economies, the opposite can be true as those economies often thrive on mortgaging the future by way of social welfare and retirement transfer payments. However, standard of living does not necessarily correlate with quality of life, which may very well increase as the population declines (especially if the area in question is somewhat overpopulated to begin with).

The period immediately after the Black Death, for instance, was one of great prosperity, as people had inheritances from many different family members. However that situation was not comparable, as it did not have a continually declining population, but rather a sudden shock, followed by population increase. Predictions of the economic effects from a slow and continuous population decline (e.g. due to low fertility rates) are mainly theoretical since such a phenomenon is a relatively new and unprecedented one.

A declining population due to demographics will also be accompanied by population ageing which can contribute problems for a society. The decade long economic malaise of Japan and Germany is often linked to these demographic problems. The worst case scenario is a situation where the population falls too low a level to support a current social welfare economic system, which is more likely to occur with a rapid decline than with a more gradual one.

The economies of both Japan and Germany both went into recovery around the time their populations just began to decline (2003–2006). In other words, both the total and per capita GDP in both countries grew more rapidly after 2005 than before. Russia's economy also began to grow rapidly from 1999 onward, even though its population has been shrinking since 1992-93 (the decline is now accelerating). In addition, many Eastern European countries have been experiencing similar effects to Russia. Such renewed growth calls into question the conventional wisdom that economic growth requires population growth, or that economic growth is impossible during a population decline. However, it may be argued that this renewed growth is in spite of population decline rather than because of it, and economic growth in these countries would potentially be greater if they were not undergoing such demographic decline. For example, Russia has become quite wealthy selling fossil fuels such as oil, which are now high-priced, and in addition, its economy has expanded from a very low nadir due to the economic crisis of the late 1990s. And although Japan and Germany have recovered somewhat from having been in a deflationary recession and stagnation, respectively, for the past decade, their recoveries seem to have been quite tepid. In a country with a declining population, the growth of GDP per capita is higher than the growth of GDP. For example, Japan has a higher growth per capita than the United States, even though the US GDP growth is higher than Japan's. Even when GDP growth is zero or negative, the GDP growth per capita can still be positive (by definition) if the population is shrinking faster than the GDP.

A declining population (regardless of the cause) can also create a labor shortage, which can have a number of positive as well as negative effects. While some labor-intensive sectors of the economy may be hurt if the shortage is severe enough, others may adequately compensate by increased outsourcing and/or automation. Initially, the labor participation rates (which are low in many countries) can also be increased to temporarily reduce or delay the shortage. On the positive side, such a shortage increases the demand for labor, which can potentially result in a reduced unemployment rate as well as higher wages.

As the birthrate in developed countries drops well below the “replacement rate” of 2.1 children born to every woman, to somewhere between 1.1 and 1.4 children — the declining population will have severe consequences in the near and distant future. Demographic decline causes anxiety because it is thought to go hand-in-hand with economic decline. With fewer, younger workers to pay the health and pension bills of an elderly population, states face an unprecedented fiscal burden. The dependency ratio of those aged 65 and over to those of working age looks set to double from one-to-four to one-to-two in 2050."

Sources:

http://www.nysun.com/business/eu-negotiations-underscore-inherent-weakness/57287/

http://news.bbc.co.uk/1/hi/world/europe/4768644.stm

http://www.impactlab.com/2008/06/29/the-severe-impact-of-europes-declining-birth-rate/

http://en.wikipedia.org/wiki/Population_decline … "Declining Birth Rate" has a significant impact, so an analyst should put more weight into it. "Declining Birth Rate" will have a long-term negative impact on this entity, which subtracts from the entity's value. This statements will have a short-term negative impact on this entity, which subtracts from its value. "Declining Birth Rate" is a difficult qualitative factor to overcome, so the investment will have to spend a lot of time trying to overcome this issue.