Markets
Over the Next Year, Germany Will Hit a Scary Demographic Milestone
In Europe, the economy is humming along at its fastest pace in 10 years.
According to the European Central Bank, the most recent forecast for the eurozone pegs growth at 2.3% for the year ahead, a significant upgrade from the central bank’s previous estimate of 1.8%.
But as Europe regains its economic mojo, a key part of the machine is seeing demographic reality take shape.
A Scary Milestone
It’s been no secret that Germany, which has a reputation as the economic engine of Europe, is in a troubling demographic predicament. With one of the oldest populations in Europe, and a low fertility rate of just 1.5 births per woman, it is only a matter of time before the rubber hits the road to affect growth in the country.
That time may be finally creeping in, and the country is poised to hit a dubious milestone in the next year that really crystallizes concerns around the demographic composition of Germany’s population.
By 2019, there will be fewer Germans under 30 years old than there are Germans that are 60+ years:
This ratio is certainly extreme on a global level – after all, 24.4% of the world population is under the age of 14, and only 12.3% is older than 60 years.
However, it’s also pretty extreme in comparison to other developed countries. The U.N., for example, recently estimated that the 60 and older population made up an average of 22.1% of the total for all high-income countries.
Conversely, the last time the 60+ group made up the same proportion in the German economy was in 1997.
A Closer Look at Germany
For a closer look at this trend, here’s an animated and interactive chart of Germany’s population pyramid. Notice that by 2020, the shape starts to represent the negative population growth pattern that we showcased in a previous post.
Use the “lock” button to save an imprint of particular year, and then use the play button to animate future years.
Visualizing Negative Growth
With more people in the 60+ age bracket than in the younger generation, it’s inevitably a prelude to population decline in the native population.
Here is this negative growth projection shown, using a more conventional graph:
Based on these United Nations projections, the German population is likely to decline by over 10 million people as we move towards the end of the 21st century.
This is a stark contrast to other parts of the world, such as the booming megacities in Asia and Africa, that will soon dominate the world’s future demographic landscape.
Markets
Visualized: Interest Rate Forecasts for Advanced Economies
In this graphic, we show the IMF’s interest rate forecast for the U.S., Europe, the UK, and Japan for the next five years ahead.
Interest Rate Projections for Advanced Economies
While U.S. inflation cooled in the second half of last year, price pressures returned in 2024, leading investors to rethink how soon central bankers will cut rates.
Despite the recent increase, the interest rate forecast for many economies looks optimistic, thanks to subdued energy price shocks and abating supply chain disruptions. Still, short-term risks remain, including persistently high services inflation clouding the outlook.
This graphic shows the interest rate forecast for advanced economies, based on the International Monetary Fund’s (IMF) 2024 World Economic Outlook.
Get the Key Insights of the IMF’s World Economic Outlook
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A Closer Look at the IMF Interest Rate Forecast
Below, we show the projected path of interest rates based on the IMF’s latest data:
| Federal Reserve | Bank of England | ECB | Bank of Japan | |
|---|---|---|---|---|
| Q1 2024 | 5.4% | 4.0% | -0.1% | 5.3% |
| Q2 2024 | 5.3% | 3.9% | 0.0% | 5.3% |
| Q3 2024 | 5.0% | 3.7% | 0.0% | 5.0% |
| Q4 2024 | 4.7% | 3.4% | 0.1% | 4.8% |
| Q1 2025 | 4.5% | 3.2% | 0.1% | 4.5% |
| Q2 2025 | 4.3% | 3.0% | 0.1% | 4.3% |
| Q3 2025 | 4.1% | 2.7% | 0.1% | 4.0% |
| Q4 2025 | 3.9% | 2.7% | 0.2% | 3.8% |
| Q1 2026 | 3.7% | 2.6% | 0.3% | 3.5% |
| Q2 2026 | 3.5% | 2.6% | 0.4% | 3.5% |
| Q3 2026 | 3.3% | 2.6% | 0.4% | 3.5% |
| Q4 2026 | 3.1% | 2.6% | 0.6% | 3.5% |
| Q1 2027 | 2.9% | 2.6% | 0.6% | 3.5% |
| Q2 2027 | 2.9% | 2.6% | 0.6% | 3.5% |
| Q3 2027 | 2.9% | 2.6% | 0.6% | 3.5% |
| Q4 2027 | 2.9% | 2.6% | 0.6% | 3.5% |
| Q1 2028 | 2.9% | 2.6% | 0.6% | 3.5% |
| Q2 2028 | 2.9% | 2.6% | 0.6% | 3.5% |
| Q3 2028 | 2.9% | 2.6% | 0.6% | 3.5% |
| Q4 2028 | 2.9% | 2.6% | 0.6% | 3.5% |
As we can see, the U.S. is forecast to see its first rate cut in the second quarter of 2024.
Broadly speaking, rates will be cut very gradually, with two additional rate cuts anticipated for this year. By 2027, interest rates are projected to fall to 2.9% after a series of moderate rate cuts as inflation dissipates.
Like the U.S., the European Central Bank is forecast to cut rates in the second quarter of 2024, with rates set to fall to 2.6% by 2026. While inflation has cooled at a faster rate across Europe compared to the U.S., GDP growth is also projected to be more muted. This year, the IMF projects that GDP across the euro area will increase just 0.8% versus 2.7% for the U.S. economy.
In the UK, monetary easing is projected to move more gradually, with the first cut projected for the third quarter of this year. Growth across the UK economy is projected to be tepid for 2024, weighed down by the impact of higher rates, lower productivity, and sluggish investment growth.
Rates Rising Slowly in Japan
After years of enduring negative interest rates, Japan raised its short-term policy rate to 0.0-0.1% in March 2024.
This was due in part to a promising inflation outlook over the coming years. The IMF projects that the next rate hike will take place in the fourth quarter of 2024, as it moves away from a multi-decade battle with deflation.
Get the Full Analysis of the IMF’s Outlook on VC+
This visual is part of an exclusive special dispatch for VC+ members which breaks down the key takeaways from the IMF’s 2024 World Economic Outlook.
For the full set of charts and analysis, sign up for VC+.
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