The intergenerational report is out today and it makes some sobering reading, with the next 40 years defined by mediocre growth, mediocre productivity, and collapsing fertility.
The key points:
👴🏻 Population is forecast to grow to 39.3 million by 2066.
👴🏻 The fertility rate is expected to fall to 1.34 by 2066, maintaining the persistent gap between people's stated preference when polled (2 children) and what they are actually able to have.
👴🏻 Taken together, that means net overseas migration rate of 235,000 per year.
👴🏻 Productivity is forecast at 1.2% per year, a number that manages to be both disappointing and unrealistic at the same time.
👴🏻 Growth will slow to 2% per annum, down from the 3% average over the past 40 years.
👴🏻 In one small bright spot, real income per capita is forecast to grow by 55% by 2066, or by about 1.1% a year. A marked improvement on the real income declines we've seen over the last couple of years.
The report flags AI as one of the five accelerating shifts driving the economy and bakes that into the mediocre 1.2% productivity number. Productivity at 1.2% is a far cry from what the AI industry is selling and, if that’s all AI manages its going to make the current wild investment binge look pretty silly.
The report does at least acknowledge the potential upside of AI and I understand the difficulty in forecasting both the impact and rate of diffusion of a new disruptive technology. However, it would have been nice to see a bit more ambition here.
AI clearly has the ability to supercharge productivity in a range of industries but it really needs government backing with funding, tax incentives, and light-touch regulations. At the moment all we have is a tiny $50 million accelerator fund from the May budget and lots of talk about managing risk. AI is the lever to both improve productivity and grow the economy faster.
On fertility, it's disappointing to see further declines forecast and the continuing lack of any serious policy response. Young people find it harder to start a family, continue to delay family formation, and aren’t able to have the number of children they want.