January 31, 2015

40% drag on global GDP growth will increase chances for Stagnant Lost Decades

McKinsey has projected the effect of regular aging based on current demographic trends for the countries of the world out to 2065.

The potential for diminished growth varies considerably among countries. In the developed world, Canada and Germany (-52%) are poised for the biggest drops in GDP growth rates. Saudi Arabia, Mexico, Russia, and Brazil (-60to -75%)are most at risk in developing countries.

India -27%
China -30%
United States -34%
Japan -36%

Since 2007, Europe underperformed Japan's "lost" 1990s decade. The aging drag increases the chance of lost low performance decades





Among the countries we studied, fully 75 percent of the needed productivity increases through 2025 could occur if lagging companies and public-sector institutions caught up to the productivity of their best-performing peers. Emerging markets have the biggest opportunities to do so. These opportunities are known and currently available, and they represent a critical link in the virtuous cycle of emerging-market development: rising labor productivity goes hand in hand with growth in disposable income, consumption, and GDP.

To close the gap, companies must seize the opportunity to accelerate productivity growth and the value-creation potential it holds, while governments will need to support them by assessing regulatory barriers to competition in product and labor markets. While these actions tend to grab less attention than, say, the pursuit of boundary-pushing possibilities (such as artificial intelligence and the Internet of Things), boosting productivity by rethinking regulatory barriers holds enormous potential for the global economy.

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