One of the most powerful forces transforming the world economy today is demographic change. In a recent McKinsey & Company report, global population growth was indicated to slow and urbanize plateaus in many regions, the outlook for cities and their growth changes profoundly.
“Cities, which have powered the world economy for decades, are now facing a significant demographic challenge to their growth,” the report indicated. How they respond to the pressures will be critical for the health of the global economy in the years ahead. The MGI findings include:
Population growth has been the crucial driver of cities’ growth. In a sample of 943 global cities with more than 500,000 inhabitants in their metropolitan regions, 58 percent of GDP growth between 2000 and 2012 came from expanding population.
Rising per capita income, which also includes the scale benefits to local economies from growing population, contributed the other 42 percent. Now cities are exposed to a double demographic shift—markedly so in developed, and increasingly so in developing, regions.
First, global population growth is slowing due to declining fertility rates and an aging world. Second, the pace of rural-to-urban migration is waning in many regions. As a result, population declined in 6 percent of the world’s largest cities—most of them in developed economies—between 2000 and 2015.
From 2015 to 2025, we expect population to decline in 17 percent of large cities in developed regions and in 8 percent of all the world’s large cities. The impact of the double demographic shift on cities promises to be uneven. Cities’ growth prospects will reflect very different demographic footprints and dynamics shaped by their local birthrates and death rates, net domestic migration, and net international migration. MGI compared three developed regions to understand the implications.
The report suggests to sustain economic prosperity in the face of changing demographics, most cities need to sharpen their focus on citizens and raise productivity to boost incomes and be able to meet rising expectations with existing resources. “Many more cities are likely to design strategies to appeal to particular demographic groups as they compete with other urban areas to retain and attract citizens,” McKinsey Global Institute noted. “Cities will need to demonstrate flexibility in adapting to the demographic challenges that lie ahead, and focus on maintaining their dynamism and vibrancy to attract talented workers and successful businesses.”