Global economic growth will moderate as the labor force shrinks

Global economic growth is expected to moderate over the next 15 years in relation to prior decades, according to economists at The Conference Board.

The organization gave its insights on the 2026 global economic outlook during a recent webinar.

Eric Lundh, The Conference Board senior global economist, provided some takeaways on that global prediction, including:

• Underlying demographic trends will become more challenging and limit economic growth contributions from labor – especially in mature economies such as the U.S. and Europe.
• Capital deepening, which occurs when capital per worker increases in an economy, will moderate as several large emerging markets mature.
• Total factor productivity growth should improve and help support economic expansion. This is due to past investments in infrastructure, digital transformation, perpetual talent upskilling and deployment of artificial intelligence.
• Economic growth in both emerging and mature economies is set to slow, but emerging economies will continue to be the most significant drivers of global growth.

Global economic growth hasn’t changed since last year, Lundh said. One major reason centers on demographics and labor concerns as mature economies are dealing with an aging population.

“The difference this year is we’re starting to see more productivity growth than we had forecasted previously,” he said.

The Conference Board predicted emerging economies – most notably China and India – will continue to drive growth.

“We expect to see some cool down in mature and emerging economies,” Lundh said. “But we continue to project that emerging economies will contribute more to that global growth than mature economies.”

Emerging economies’ share of global GDP will rise, with China showing the greatest increase.

The U.S. economy is undergoing transformation in the midst of a growth slowdown, said Yelena Shulyatyeva, The Conference Board senior U.S. economist. The aging population, as well as changes in immigration policy, are two major factors impacting economic growth.

“The main factor is the aging of the population,” she said. “With baby boomers retiring, we will have a much lower labor participation rate in the global economy over the next few decades as the quantity of labor is shrinking.”

In addition, changes to U.S. immigration policy have had a negative impact on the labor force, as well as on gross domestic product and payroll, she said. U.S. fertility rates have declined to below replacement levels, further impacting a future labor shortage.

Another factor that Shulyatyeva cited as impacting potential GDP growth is innovation in pharmaceuticals that will help Americans live longer and healthier lives, potentially allowing people to retire later in life.

“That’s a big unknown – how much the pharmaceutical industry can contribute to potential GDP growth,” she said.

AI is the greatest upside risk to the economy, Shulyatyeva said. “For now, the adoption of AI is fragmented, so it’s kind of concentrated in the technology industries. But what about AI adoption in manual industries? It’s coming but it will take time – maybe over a five-year horizon.”

China's productivity growing despite challenges

China’s economic growth will steadily moderate over the next 15 years as its working-age population continues to shrink, said David Hoffman, The Conference Board’s China center leader.

Despite China’s demographic challenges, the country has seen productivity growth around under a new generation of leadership that rose to power in 2012, he said.

Investment is China’s primary growth driver but there is concern about the efficiency of much of that investment in real estate and traditional infrastructure such as bridges and roads.

Over the long term, China’s potential GDP growth will remain notably higher than that of most advanced economies, Hoffman said, but long-term challenges are unresolved and will likely continue to affect China’s economic outlook. China’s property downturn and geopolitical tensions with the West pose challenges to long-term growth and will potentially impact consumer confidence and productivity.

Europe's economic growth is stable but faces risks

Europe’s annual gross domestic product is expected to continue at around 1% growth over the next 15 years, said Konstantinos Panitsas, Conference Board economist.

He predicted European countries will see increased capital contribution as companies scale up green and digital investments and nations ramp up spending on defense.

But as in other areas of the world, Europe’s economic growth is dragged by a shrinking labor pool due to demographics and less favorable migration agendas.

Europe’s future economic growth faces several external risks, Panitsas said, including:

• Russia’s war with Ukraine spilling over into other European Union or NATO-member countries.
• Ongoing trade frictions.
• Renewed supply disruptions, given Europe’s high reliance on critical supply chains for products such as rare earth minerals.

 

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