Falling fertility rates and ageing populations are turning demographics from a longstanding support for economic growth into a headwind, according to new research from CommBank’s Global Economic & Markets Research team.
The shift was likely to be gradual but persistent, CommBank International Economist and Currency Strategist Samara Hammoud said.
“In our view, ageing is more likely to act as a persistent economic constraint than a sudden shock,” Hammoud said.
“However, the effect will vary significantly across countries.”
Australia relatively well placed
Australia starts from a stronger position than many other developed economies, with its working-age population still expected to grow through to 2050.
“Australia is one of only five high-income G20 countries with a working-age population that is projected to expand,” Hammoud said.
“Australia’s relatively strong labour-force participation provides an important buffer.”
Australia also enters the demographic transition with relatively low government debt and favourable projected debt-carrying conditions, although productivity remains a challenge.
What do smartphones have to do with birth rates?
The research also explores some of the reasons behind falling fertility, including a possible link between the spread of smartphones and lower birth rates.
Birth rates fell sharply following widespread smartphone adoption across a range of countries, including Australia, the US and UK.
“Technology may be another factor,” Hammoud said. “One possible channel is that the modern technological environment has reduced romantic coupling by changing how people interact and form relationships.”
The research cites US evidence showing people aged 18–25 who were exposed to cable-network upgrades during adolescence were around five percentage points less likely to be married by ages 25–34.
But Hammoud said there was no simple explanation for the broader trend.
“There is no single established explanation for falling fertility,” she said.
The research points to a mix of factors, including people having children later, changing social norms, economic insecurity, housing costs and technology.
Which economies are most vulnerable?
CBA has developed a Demographic Growth Vulnerability Index that compares the ageing pressures facing G20 economies with their capacity to adapt through productivity, workforce participation and fiscal strength.
“Italy remains one of the clearest cases of high demographic vulnerability,” Hammoud said.
Japan faces even greater ageing exposure but benefits from strong labour mobilisation, while India and Indonesia have younger populations and more favourable demographic profiles.
Across the G20, CBA estimates ageing could subtract around 0.16 percentage points a year from GDP per capita growth between 2025 and 2050.
Productivity is the key
Countries can partly offset the effects of ageing through higher workforce participation and migration, but neither can rise indefinitely, leaving productivity as “the main long-run offset”, Hammoud said.
“A smaller workforce does not necessarily mean a smaller economy. Economies can produce more output from a given amount of labour.”
AI, automation and robotics could play an important role. CBA estimates AI adoption could lift labour efficiency in Australia by around 2 percentage points over five years. As robotics becomes more capable and integrated with AI, a wider range of tasks - including physical care and manual work - could also become increasingly automated over time.
But Hammoud cautioned that the gains are not automatic.
“The economic benefit will depend on how much AI exposure translates into actual adoption and productivity gains, and how firms and workers respond,” she said.
Pressure on government budgets
Ageing will also put pressure on government finances as spending on pensions, healthcare and aged care increases while workforce growth – and therefore growth in the tax base – slows.
The implications for inflation and interest rates are less clear, with labour shortages and higher government spending potentially adding to price pressures even as population growth slows.
“In our view, fiscal policy materially changes the ageing and interest rate story,” Hammoud said. If rising age-related spending is financed through persistent deficits, increased government borrowing can absorb more private saving and put upward pressure on the neutral interest rate, she said.
But demographic destiny is not necessarily economic destiny. Policy choices around productivity, migration, workforce participation and retirement can materially shape the economic consequences of ageing.
The challenge is a long-term one, but its predictability gives governments time to respond, Hammoud said.
“But it also means that delaying reforms to productivity, participation, retirement systems and fiscal policy will make the eventual adjustment more difficult.”
