China recently joined a long and dubious list ­— that of countries with more deaths than births. Despite intensive countermeasures, China’s population shrank for the second straight year, placing it in a diverse group that includes Japan, Puerto Rico and Greece. This unwelcome milestone made China the most prominent example of an unnerving global pattern.

Though the world’s population continues to grow, the clear trend has been for fewer births. In fact, many people today live in countries with fertility rates below replacement level. The United Nations predicts that the global population could peak in about 60 years — though I think it could occur in less than half that time.

Humanity’s population growth may peak earlier than projected

Sources: Capital Group, United Nations (UN) Population Division. Figures reflect UN population estimates for 2023, as of July 2022. Low population forecast reflects a fertility rate that is 0.5 births per woman lower than the median projections.

It’s easy to overlook the long-term importance of demographics amid the daily onslaught of short-lived market contortions. But population growth has long been an essential component of economic growth. Among other things, demographics can influence monetary policy, wages, consumer spending and, ultimately, the well-being of successive generations.

The challenges are compounded by the fact that declining birthrates can also be difficult to reverse. Policymakers’ collective toolbox for addressing population decline is frustratingly limited: A number of countries have tried to boost fertility rates, with mostly disappointing results. And because the modern world has never experienced a global population decline, there’s a good chance that what policymakers think they know might not even apply.

However, there is a potential bright side, and it comes from another rapidly evolving force: artificial intelligence. AI has the potential to boost productivity — the efficiency of the workforce — which is another key component of economic growth. AI-induced productivity gains could help to power growth and living standards even if the global workforce continues to shrink.

Japan stands as a cautionary tale.

Japan offers a sobering case study of demographic ill effects. Its birth rate has fallen for several decades and its population has been shrinking since 2008. Until recently, deflation — in which prices fall steadily over time — was a recurring, decades-long problem.

Most people live in countries with fertility rates below replacement level

Sources: Capital Group, United Nations (U.N.) Population Division. Fertility rates reflect latest estimates for 2023, published July 2022.

Fewer people and less demand for goods and services exert downward pressure on prices, which makes economic slumps more likely. But typical central bank correctives — such as lowering interest rates — can be ineffective in this scenario. The Bank of Japan implemented negative interest rates in 2016, but GDP remained weak.

Another obvious implication of population decline — and one Japan has wrestled with — is that more people retire than join the workforce. This can lead to an imbalance in government revenue because spending on retirees increases as tax receipts fall. That can prompt an exodus of young people from the country, further exacerbating the problem. Ironically, that could eventually lead to powerful inflation.

Some influential economists think a dwindling labor force will eventually push wages and production costs higher as the workers who remain can push for higher wages — indeed, that might be one factor in the modest price increases Japan has experienced in the last several months.

There are also far-reaching consequences for many industries. Shifting demographics typically affect consumer habits because spending patterns change with age. Housing scarcity could worsen as labor shortages bottleneck new-home construction and as older people stay in their homes rather than sell. Investors have also focused on health care as an area ripe for innovation to address declining birth rates, longer life expectancy and rising labor costs.

Addressing a shrinking population might require innovative approaches.

There don’t appear to be many good solutions to a declining population, at least not yet. Many Nordic countries have tried to stem an ebbing demographic tide through financial incentives, childcare programs and other initiatives, but they’ve barely moved the needle. The U.S.’s liberal immigration policies have helped keep its population growth positive despite below-replacement birth rates, though that kind of zero-sum tool won’t affect global figures.

The problem may be more pressing than it appears. While the United Nations predicts the world will reach peak population around 2086, I think that inflection point could hit around 2050. The pandemic-era baby bust in some countries appears to be long-lasting.

Innovation can lead to productivity gains

Sources: Capital Group, Bureau of Labor and Statistics. Data last updated as of 11/21/2023.

A promising solution could come in the form of better productivity — one of the potential benefits of artificial intelligence. If new tools such as large language models can replace menial but necessary tasks, that could free up workers to move into other roles that reduce economic reliance on population growth.

There might even be other benefits from a productivity-forward economy. For example, there’s a strong relationship between population growth and carbon dioxide emissions: When economic activity increases, so do CO2 emissions. It’s still very early, but I hope AI can fill the gaps left by demographic trends so that some of the worst-case scenarios won’t happen. Instead, we’d be looking at a society that’s not just resilient, but very adaptable to potential shocks.