One of the most powerful forces transforming the world economy today is demographic change. A recent McKinsey & Company report shows that as global population growth slows and many urban regions plateau, the outlook for cities will change profoundly.
“Cities, which have powered the world economy for decades, are now facing a significant demographic challenge to their growth,” the report reads. How urban areas respond to these pressures will be critical for the health of the global economy in the years ahead.
Other McKinsey Global Institute findings include:
Population increases have been the crucial driver of cities’ growth. In a global sample of 943 metropolitan regions with more than 500,000 inhabitants, 58 percent of GDP growth between 2000 and 2012 came from expanding population. Rising per capita income, which includes the scale benefits to local economies from a growing population, contributed the other 42 percent.
Cities are now experiencing a double demographic shift—markedly so in developed regions and increasingly so in developing ones. Global population growth is slowing due to declining fertility rates and an aging world population. In addition, 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 in developed economies—between 2000 and 2015.
From 2015 to 2025, experts expect populations 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 this double demographic shift on cities will likely be uneven as cities’ growth prospects reflect very different demographic footprints and dynamics shaped by local birth and death rates, net domestic migration, and net international migration. The McKinsey Global Institute compared three developed regions to analyze the implications.
To sustain economic prosperity in the face of changing demographics, the MGI report suggests, cities need to sharpen their focus on citizens and raise productivity to boost incomes and 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,” MGI notes. “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.”
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