Population decline has many potential effects on individual and national economy. The single best gauge of economic success is growth in GDP per capita, not GDP. GDP per capita is an approximate indicator of average living standards, for individual prosperity. Therefore, whether population decline has a positive or negative economic impact on a country's citizens depends on the rate of growth of GDP per capita, or alternatively, GDP growth relative to the rate of decline in the population.
Introduction
The simplest expression for the size of a country's economy is
GDP/person is also known as GDP per capita or per capita GDP. This term is a simple definition of economic productivity as well as individual standard of living.
The real change in total GDP is defined as the change in population plus the real change in GDP/capita. The table below shows that historically, for every major region of the world, both of these have been positive. This explains the enormous economic growth around the world brought on by the industrial revolution. However, the two columns on the right also show that, for every region, population growth in the future will decline and, in some regions, go negative. The table also shows that two major economies, Japan and Germany, may face the same conditions.
* Western offshoots are USA, Canada, Australia, and New Zealand
Because
as populations grow more slowly, assuming no changes in growth of GDP/person, GDP will also grow more slowly.
If per capita GDP increase is less than the decrease in total population
The equation above shows that if the decline in total population is not matched by an equal or greater increase in productivity (GDP/capita), and if that condition continues from one calendar quarter to the next, it follows that a country would experience a decline in GDP, known as an economic recession. If these conditions become permanent, the country could find itself in a permanent recession
The possible impacts of a declining population that leads to permanent recession are: