How an aging population is changing the global economy.

July 2026, by Mário Pires

The world is undergoing profound demographic changes. These changes have repercussions on the population, inequality, pressure on labor markets, migration, and public finances. Furthermore, the growing aging of the population presents both challenges and opportunities, impacting the workforce and healthcare systems. These changes mark the trajectory of societies and economies around the world.

Thus, as the baby boom generation reaches retirement age, countries run out of young people to replace them in the workforce. This labor shortage could significantly affect inflation and economic growth due to rising wages.

In this sense, we distinguish three key consequences that this process is having for the economy and the markets:

• the smaller number of available workers implies a talent shortage in the teams.

In a constantly transforming job market, driven by automation that redefines professional roles, highly skilled talent emerges as the main strategic aspiration of numerous companies. Aware of the pressing need to differentiate themselves in a competitive environment, companies actively compete to attract specialists who not only possess exceptional skills but also bring differentiating value. The scarcity of this talent has thus solidified as a long-term structural challenge..

Furthermore, if the projected decline in the world’s population and slowdown in the growth of the labor force are confirmed, the number of available workers will decrease, putting even more pressure on companies to compete for talent.

• Increased inflationary pressures

Labor shortages have solidified as a key structural factor in increasing inflationary pressures globally, driving up both wage expectations and production costs.

On the one hand, with fewer workers available, companies will have to raise wages to attract the right talent, and this will fuel inflation. Workers will demand wage increases to cope with an ever-increasing cost of living. And companies will not be able to easily offset these costs through offshoring and migration, which are now two options that have lost their attractiveness or political viability.

On the other hand, to protect their profit margins, companies may pass on rising labor and material costs to end consumers, which contributes to higher inflation.

• Increased investment in technologies to boost productivity

Companies will have to think about technologies that increase productivity and invest in them to maintain their profit margins, giving robotics and AI a prominent role. Automation eliminates the need for humans to perform routine tasks such as data entry or responding to standard email inquiries, while robotics has transformed the manufacturing industry. Generative AI is already providing the next wave of innovation by performing the cognitive processes of traditional "white-collar" jobs, such as data analysis, problem-solving, and decision-making. The productivity gains that these technologies can provide are helping to offset some of the obstacles to growth and inflationary pressures created by the global labor shortage.

In conclusion, population aging represents a multifaceted structural challenge for the global economy, with a workforce reduction which hinders growth and puts pressure on inflation at the same time which creates imbalances between savings and consumption. All of this adds to the growing geopolitical risks, increasing the likelihood of entering a dangerous period of stagflation (stagnation or decline in growth and high inflation).