The world is going gray. As the population ages, the shift will have a profound impact on government tax revenue and policymaking as well as investment opportunities, according to Goldman Sachs Research.
The global population is forecast to rise by about 20% by 2050, and seniors will make up a disproportionate share of overall growth. The number of people over age 65 is expected to double from 800 million to 1.6 billion in that time.
These global demographic trends are likely at an inflection point. The number of people under age 19 has already crested, evidence that total global population is headed toward a peak. Half of all countries in the world have a fertility rate below the replacement level of 2.1 births per woman.
The shifts will be a major challenge for policymakers, as a declining working-age population exacerbates the risk of labor shortages and creates potential fiscal pressures for governments. Investors should also be mindful, as the fastest growing sectors of the economy are poised to change. Demand is likely to rise for healthcare, senior living and care, and certain types of entertainment and experiences, Goldman Sachs Research analyst Evan Tylenda writes in the team’s report.
“Healthcare providers are set to benefit from shifts in spending associated with an aging population,” Tylenda writes. “We expect continued rising expenditures on nursing care facilities, residential long-term care facilities, home care, and rehabilitation services, particularly as life expectancy continues to rise.” Another area where spending could increase is for the types of entertainment and experiences that seniors favor.
The researchers identified specific industries and companies that might be helped by the demographic trends and related changes in spending:
Healthcare: As the population of older people surges in the coming decades, “increases in both personal and public spending on healthcare will be required to treat common health issues for an aging population,” Tylenda writes. This may boost medical technology companies, pharmaceutical makers with age-related treatments, and healthcare providers focused on age-related issues.
In the US, people over the age of 65 account for 36% of health spending, according to the Medical Expenditure Panel Survey, despite making up only 18% of the population. Among seniors, per capita personal healthcare spending soars for cardiovascular disease, neurological disorders, diabetes, and a range of other conditions, compared with younger people.
Senior living: Demographic tailwinds may also increase demand for operators of nursing care and residential long-term care facilities and providers of rehabilitation services. Spending on nursing care in the US has been rising since 1960, but today there are still not enough facilities to accommodate the aging population. The UK is estimated to have a senior housing shortfall of more than 30,000 units within three years. Italy, Germany, and France lack sufficient nursing facility beds for their aging populations.
At the same time, most seniors age at home, whether alone, with a spouse, or in a living arrangement with family members. In the US, just 2% of those over age 65 are in a group or care facility. Given this, the market is likely to grow for home care services. There should also be rising demand for technologies that facilitate home care with such things as medication management, telehealth services, and hygiene.
Entertainment and experiences: Older populations spend their time and their wealth differently than younger people. Individuals over age 60 make up a third of all cruise ship bookings, for example, and 47% of all recreational vehicle (RV) users are over 55 years old, creating a potential opportunity for providers of these services and products. The potential benefit for makers of motorcycles might be another area for investor attention. In the UK for example, nearly two thirds of motorcycle driving licenses are held by those over age 55.
To be sure, how these trends play out will depend partly on how society responds to the challenges. Goldman Sachs Research points out that governments and companies may react by, among other things, seeking to increase labor force participation by women, promoting education and skills development for those of working age, and increasing immigration. Automation, humanoid robots, and artificial intelligence could also be an opportunity, as companies look for ways to cope with labor shortages.
This article is being provided for educational purposes only. The information contained in this article does not constitute a recommendation from any Goldman Sachs entity to the recipient, and Goldman Sachs is not providing any financial, economic, legal, investment, accounting, or tax advice through this article or to its recipient. Neither Goldman Sachs nor any of its affiliates makes any representation or warranty, express or implied, as to the accuracy or completeness of the statements or any information contained in this article and any liability therefore (including in respect of direct, indirect, or consequential loss or damage) is expressly disclaimed.
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