Germany’s Demographic Cliff [Chart]
Why Europe’s largest economy could be destined to be the next Japan
The Chart of the Week is a weekly Visual Capitalist feature on Fridays.
Last week’s chart showed that the world is turning Japanese with tales of economic malaise, extreme monetary policy, and negative rates. Germany, with its 5-yr government bond currently trading at a -0.33% yield, is no exception to this story.
However, negative yields are not the only concern that the country has in common with Japan. It’s the overall demographic picture that is worrying, and it could have a big effect on Germany’s economic future as well as the tough choices that must be made today.
Germany is the most populous and productive economy in Europe, with 80 million people and a GDP of almost $4 trillion. It’s also the world’s third largest exporter, and that’s why it had the largest trade surplus globally in 2014 with $285 billion.
For all of its economic power, Germany has a key weakness that could potentially be its Achilles heel: it’s projected that Germany’s population will decline significantly over the coming decades, and the ratio of workers to dependents will become one of the worst in the world.
Every year, there are 8.4 births and 11.3 deaths per 1,000 people in Germany. The way this plays out over time is that the percentage of Germans under 15 will fall to 13% of the population by 2050, while the amount of people over 60 years old is to rise to 39%.
In the future, it is likely that there will not be enough youth or workers in the country. As Baby Boomers retire, there will be a larger burden placed on those paying into the government’s social safety net and other programs. Further, this widening gap will also mean a significant loss of experience, skill, and know-how in the workforce that will create coinciding economic challenges for the population.
In many Western nations, immigration plays a key role in keeping a population with low birth rates to be sustainable. However, in Germany’s case, both the high and low immigration scenarios look dire for future numbers. Germany’s state statistical authority currently projects a “high immigration” trend resulting in a drop to 73.1 million people by 2060, while a low-end estimate sees the population falling all the way to 67.6 million.
The U.N. projects that one in every six Germans will be over 80 years old by 2050. Are Germans comfortable with their nation remaining on this path?
If yes, then they must also be comfortable with a significant decrease in Germany’s economic role in the future. The country will almost certainly be on a more level stage with the U.K. and France, and it will have a diminished place on the world stage as Asia and Africa continue their rise. Tax rates will surge as a decreasing amount of workers pay into the system, and economic growth could stall in such a way that Germany has its own “Lost Decade”.
If no, then Germans must accept that there is only one realistic way to combat this trend: to open the immigration floodgates even more. While this is not what many Germans want to hear, especially as the current migrant and refugee crisis progresses, it is an option that must be weighed with careful consideration.
Either way, there are difficult choices to be made. How Germany proceeds with this question has implications both today and tomorrow on cultural, economic, and political levels.
War and Peace: How Violence is Disrupting the Global Economy
This graphic estimates the direct and indirect costs associated with violence, and explores how they are negatively impacting the global economy.
War and Peace: How Violence is Disrupting the Global Economy
Although you may not see it, millions of lives are disrupted by violence everyday.
War, homicide, terrorism, suicide, and sexual assault can be found across the world in various degrees. While certain types of violence can incur costs that result in personal traumas, violence can also create significant economic disruptions.
In today’s Chart of the Week, we visualize data estimates from the Global Peace Index 2019 on the global cost of violence, and its geographical spread.
How is Violence Linked to the Economy?
The Global Peace Index calculates the total cost of violence using purchasing power parity (PPP) by considering three factors:
- Direct costs: Immediate consequences to the victims, perpetrators and the government
- Indirect costs: Delayed economic losses following the violent event, including the after-effects of trauma experienced by the victim
- Multiplier effect: Calculates the additional economic activity that would have accrued if the direct costs of violence had been avoided.
Between 2012-2017, the cost of violence increased by 11% to $14.6 trillion—mainly due to rising violence in Syria, Libya, Yemen, and other parts of the Middle East and North Africa.
In 2018, the total cost of violence decreased for the first time in six years to $14.1 trillion. That’s the equivalent of 11.2% of global GDP (PPP), or $1,853 for every person.
In this one year, the $475 billion saved from decreased violence costs was largely due to lower levels of armed conflict in Syria, Ukraine, and Colombia.
The Top 10 Worst Affected Countries
It comes as no surprise that countries affected by conflict incur the greatest costs due to a higher than average death toll, and sizable military expenditures.
Here are the countries with the highest cost of violence according to the report:
|Rank||Country||Cost of violence (% of GDP)|
|#3||🇨🇫 Central African Republic||42%|
|#4||🇰🇵 North Korea||34%|
|#10||🇸🇻 El Salvador||22%|
Since 2017, Venezuela has climbed the ranking and now sits in the top 10, due to continuing political repression and a spiraling economy as a result of hyperinflation.
The Global Composition of Violence
Government spending on military comprises 40% of the global total, or $5.7 trillion in constant purchasing power parity (PPP).
|Type of economic impact||Share of total|
|Internal security expenditure||31.7%|
|Private security expenditure||5.8%|
Naturally, the types of violence costs vary by region, and the most noticeable difference is in military expenditure. It represents 59% of Middle East and North Africa’s violence costs—but only 8% for Central America and the Caribbean.
Interestingly, the Middle East and North Africa boast the lowest levels of violent crime, homicide, and suicide, representing only 4% of the total, compared to South America’s 45%.
Keeping the Peace
Despite today’s chart painting a picture of the world as a dangerous place, it is worth noting that there are two sides to this story.
Of the 163 countries ranked in the index, 86 countries improved their peace score in the last year, with Iceland retaining its number one position for over a decade. In fact, the country has not had any gun murders since the Global Peace Index began in 2007.
Is the recent drop in costs of violence a sign that we are moving towards a more peaceful planet, or just a blip on the radar?
Ranked: The 20 Easiest Countries for Doing Business
Entrepreneurship is challenging at the best of times. Here are the countries where at least starting a new business is easy to do.
Ranked: The 20 Easiest Countries for Doing Business
Contrary to popular belief, the hardest part about running a business may not be finding customers, it’s getting one started.
Depending on the public policies and application processes of your country, you might struggle or succeed in opening and operating a business.
If you live in New Zealand, for example, you can get a new enterprise up and running in half a day. If you live in Luxembourg or Argentina, however, it’s a different story─with the process sometimes taking over a year.
Today’s chart uses data from the World Bank’s annual Doing Business 2020 report, which delves into the ease of doing business in countries around the world.
Measuring the Ease of Doing Business
Now in its 17th year, the Doing Business (DB) report measures how easy it is for someone to start and run a company in an economy, using 12 key factors throughout a business lifecycle:
- Starting a business
- Employing workers
- Dealing with construction permits
- Getting electricity
- Registering property
- Getting credit
- Protecting minority investors
- Paying taxes
- Trading across borders
- Contracting with the government
- Enforcing contracts
- Resolving insolvency
Of the 190 countries reviewed last year, only 115 made it easier for entrepreneurs to do business.
Note to readers: this year’s DB score did not factor in Employing Workers or Contracting with the Government when ranking economies.
Top 20 Easiest Countries to Run a Business
|#1||🇳🇿 New Zealand||86.8|
|#3||🇭🇰 Hong Kong||85.3|
|#5||🇰🇷 South Korea||84|
|#6||🇺🇸 United States||84|
|#8||🇬🇧 United Kingdom||83.5|
|#16||🇦🇪 United Arab Emirates||80.9|
|#17||🇲🇰 North Macedonia||80.7|
In the top spot for the fourth year in a row, New Zealand only requires half a day to start a business. Singapore also stands out for having the shortest timeframe when it comes to paying business taxes and enforcing business contracts.
Only two African nations─Rwanda and Mauritius─are listed in the top 50 countries, with Mauritius being the only one to crack the top 20 list.
Latin American economies are noticeably missing from the rankings, as many countries in this region are fraught with bureaucracy and prolonged processes.
Most Improved Scores
Several developed and developing economies made significant strides in 2019 to implement reforms that opened doors for new business owners.
The Doing Business 2020 report shows that the cost of starting a business has fallen over time, particularly in developing economies.
Top 10 Most Improved Economies, 2018-2019
Saudi Arabia made the greatest improvement overall, adding 7.7 points to its score.
Bahrain also made improvements over the most number of factors (9). While Jordan showed improvement in the fewest factors (3), it showed the second highest jump in DB Score.
Gains Among Low-Income Countries
The DB 2020 study also shows that developing economies are making progress: it’s now cheaper than ever before to run a business in developing economies.
However, a significant disparity still remains when we consider the difference in business costs between high-income and low-income economies.
An entrepreneur starting a company in a low-income economy will spend about 50% of per capita income (PCI) to launch a venture, whereas an entrepreneur in a high-income economy spends only 4% PCI to accomplish the same task.
Put another way, entrepreneurs located in the bottom 50 economies spend an average six times more to open a new company as those in a high-income economy.
Entrepreneurship and Economic Growth
Generally, more entrepreneurs will enter a market where they can easily conduct business─adding more value to local economies.
While the rankings clearly illustrate the link between ease of doing business and economic growth, there are still significant barriers in place that not only deter entrepreneurship but also inhibit a relatively simple strategy for growth.
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