Don’t let demographics scare you. You’ve seen the alarming headlines. Sure, the ominous trends are ominous, worthy of headlines. But not determinate. There is more to the story. There is always room for growth.

There are two scary trends. Declining fertility rates and an aging population. In other words, a population that is growing more slowly and skewing much older. Which adds up to alarming prospects for growth, for labor, for interest rates and for brands.

For growth, it’s a story of inputs—population growth times productivity growth. A straightforward algebra. More people able to produce more things means GDP growth. If growth in either component slows or declines, macroeconomic growth will decelerate unless the other component picks up the slack. The conundrum is that both components are weakening. Productivity growth has been weak for decades. Now, add in slowing population growth.

For labor, it’s a story of ratios—numbers in the labor force relative to the numbers of retired people. As the ratio of working to retired declines, it means fewer working people are paying the taxes needed to fund retirement benefits like Social Security. These days, it’s not just a smaller labor force that is worsening this ratio. It’s also more retirees.

For interest rates, it’s a story of savings—as people age, they generally have less income, so they spend their savings, which draws down the money banks have available to lend, putting upward pressure on interest rates. Many things affect interest rates, but the run-up precipitated by the post-pandemic inflationary spike—which has led to higher costs for houses and credit cards—is likely to be buoyed along by these sorts of demographic trends.

For brands, it’s a story of buyers—when the number of new buyers drops, brand growth is directly affected. The primary driver of brand growth is greater penetration, or more buyers. (Price increases can also grow dollar volume, but only for so long.) If brands and their categories don’t grow their customer base at least as fast as population growth, they will steadily lose share and value. Slower population growth intensifies this challenge with fiercer, costlier competition for a shrinking pool of new customers.

Like I said, the trends are ominous. But there is a broader context. Most especially AI, which will transform the macroeconomy. The productivity impact of AI is predicted to be bigger than anything seen since the explosion of technological breakthroughs at the beginning of the last century. Even after taking the hype into account, AI advances alone could be enough to sustain macro growth and offset upside-down labor ratios, as well as change the dynamics of value creation for brands by boosting margins and supporting premiumization.

The experience of aging will be different as well, with a more vibrant segment of older consumers. They don’t have the same lifestyle needs as younger consumers, but their potential for growth is under-appreciated. Advances in medicine and improvements in lifestyles will boost lifespans and healthspans. And closing the health gap for aging minority consumers would open up even more opportunities.

The experience of youth will change, too. Later marriages, families and households mean more years as singles. The transformations in traditional lifestages will be fertile ground for innovation.

Of course, worrisome population imbalances could be leveled out if a national consensus could be reached on immigration policies. This would benefit both the domestic economy, and income transfers would help the economies of other countries, too.

Not every observer is panicked about stagnating population growth. Many point to Japan where GDP per capita and employment have held up well even with a top-heavy population. Other pundits believe that labor force pressures will force employers to improve wages and working conditions for women and minorities. Under-performing investment capital could be shifted from commercial enterprises to infrastructure, health and education. And, of course, declines in population and/or economic growth would take pressure off the planet, yielding savings and an improved quality of life.

Doomsday scenarios about declining fertility rates and an aging population assume that nothing is done and nothing else changes. Such is never the case. It won’t be business as usual, but businesses that adapt and innovate will turn the new demographics into growth.

Contributed to Branding Strategy Insider By: Walker Smith, Chief Knowledge Officer, Brand & Marketing at Kantar

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