2043: a demographic end to German hegemony

Throughout the recent Eurozone crisis, it has been taken for granted that Germany calls the shots in Europe. The reason for this is that it has by some distance the largest economy – some 40% larger than the economies of the UK and France, the next biggest countries by GDP.

The German economy is big for two reasons. First, there are a lot of people working in Germany: there are around 49 million people aged 20-64, compared to around 38 million in the UK and 37 million in France. Second, as you may have heard, Germany is pretty efficient. Economic output per person aged 20-64 is around $71,000 per year, compared to just $65,000 in the UK and $66,000 in France. That doesn’t make the Germans the most productive people in Europe – Sweden and the Netherlands both produce over $75,000 per year per working age person, but they are much smaller countries.

GDP per worker in large EU economies

But something is happening in Germany that might fundamentally alter the dynamics of the European Union: the population is shrinking. While all developed countries are seeing a rise in the proportion of older people in their populations as life expectancies rise, Germany also has falling birth rates. As the chart below shows, birth rates in France and the UK are expected to remain fairly flat over the next 35 years. But in Germany, the birth rate is projected to tail off dramatically, meaning that as young people age they are not replaced. The result of this is that the working age population will shrink significantly in absolute terms (while it stays roughly the same size in France and grows in the UK).

Demographics in large EU economies

This means that even if Germany retains its productivity advantage over Britain and France, the size of their economies will converge. In fact, if relative productivity remains constant, the UK economy will be larger than the German economy sometime in the early 2040s and France (probably) sometime in the 2050s.

GDP projections for large EU economies

It’s difficult to project what will happen in Europe over the next year, let alone the next 30 years. But, assuming the European Union survives in something like its present form – and assuming the UK remains intact and a part of it – the balance of power in the EU may well shift towards our side of the channel. Something to bear in mind for the upcoming referendum: stay in the EU, wait for 30 years, then we (or our children) will be running the show. What could possibly go wrong?

Advertisements

4 thoughts on “2043: a demographic end to German hegemony

  1. Michael

    Hmmm… Unchecked immigration? Poor education? Emigration of the best people in the country?

    More seriously, such predictions are not really accurate. They seems to serve current political goals exclusively.

    Like

    Reply
    1. thepolicysketchbook Post author

      I agree. These aren’t supposed to be accurate projections of what will happen in the future. They just serve to demonstrate that – all other things being equal, and taking the OECD’s population projections at face value – the low birth rates in Germany will mean the size of its economy will shrink relative to other large European countries. This could have consequences for the dynamics of the EU.

      Of course, all other things are unlikely to be equal for the next 30 years, and who knows if the EU will even exist in its current form. So the actual numbers shouldn’t be taken too seriously – but the general point of the post holds. The changes in the structure and size of the German population are real and already underway.

      Like

      Reply
      1. Michael

        This could indeed have consequences. On the other hand, with so many unknowns and over so much time, it could not. I think that over 30 years talking about the “German” or the “UK” economy is going to have even less sense than today. Even now, economies in the EU are already connected on so many levels that further EU integration is a necessity rather than a choice.

        Like

      2. thepolicysketchbook Post author

        You are right. We don’t know what’s going to happen in 30 years. But this demographic trends looks real and it will tend to shrink the German economy relative to other countries, so I think it’s worth pointing out.

        As for closer EU integration, I’d put that in the category of things that are difficult to predict 30 years ahead as well. It might be the best path, given certain desired outcomes, but it doesn’t mean that we will take it.

        Like

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s