The demographic revolution Central America is not talking about

We constantly talk about artificial intelligence, climate change, geopolitics, nearshoring and cybersecurity.

However, there is another force that may be just as important in determining the economic future of our countries and to which we devote surprisingly little attention in Central America: demographics.

This reflection stems from the recent work of Jesús Fernández-Villaverde and Patrick Norrick, Terra Incognita: The Economics of a Shrinking World. The authors analyse the rapid decline in fertility and put forward a provocative thesis: humanity may already be below replacement level, and the global population could begin to decline sooner than expected.

Costa Rica is a particularly clear case. In 2024, it recorded a total fertility rate of just 1.12 children per woman. Official projections estimate that the population could begin to decline around 2045 and that, by 2050, one in four people will be aged 65 or older.

We are not simply facing fewer births. We are facing a transformation of the labour market, consumption, public finances, investment and the structure of businesses.

Fewer workers, less consumption, greater productivity

For decades, our economies operated under an implicit assumption: each generation would bring a significant number of new workers and consumers. That assumption is disappearing.

Costa Rica will have proportionally fewer people of working age and a larger older population requiring more pensions, medical services and care. At the same time, ageing changes spending patterns. Upon reaching retirement, total consumption tends to moderate and its composition changes: spending on certain goods, transport and work-related consumption decreases, while spending on healthcare and care services increases.

The macroeconomic effect may be significant. Fewer workers, fewer new households and slower consumption growth may reduce the dynamism of domestic demand. Ageing may slow growth in consumption, investment and production unless it is offset by increases in productivity.

That is probably the central economic challenge for Costa Rica: how to continue growing when the working-age population grows very little and eventually begins to decline.

The answer cannot depend solely on increasing birth rates. Countries that have invested substantial amounts in pro-natalist policies have discovered how difficult it is to reverse these trends. The answer will have to be, above all, to produce more value with fewer people.

Robots and artificial intelligence

Here we find a connection that is rarely discussed: demographics, robots and artificial intelligence are part of the same conversation.

When workers are abundant, automation primarily allows companies to reduce costs. When workers begin to become scarce, automation can become a necessity. Industrial robots, automated systems and artificial intelligence can replace certain human tasks and enable each worker to produce more.

The debate over AI should not be limited to fears that it will destroy jobs. In an ageing society, it may become an indispensable tool for sustaining productivity and growth.

For Costa Rica, this reinforces a strategic conclusion. Our future competitiveness can hardly continue to rely on relatively inexpensive labour. It will increasingly have to be based on specialised talent, technology, automation, infrastructure, education and industries capable of producing much more value per worker.

Pensions, healthcare and fewer contributors

The fiscal dimension will be equally difficult. A longer-lived population means more years of pension payments and higher healthcare expenditure. At the same time, there will be proportionally fewer workers financing those systems.

The questions will be unavoidable: at what age will we retire? How much will we have to save? How will healthcare and pensions be financed? How much will the State be able to assume?

These decisions will affect savings, consumption and investment for decades.

Family businesses: fewer children, more wealth and fewer successors

There is also a consequence of particular importance for Central America: succession in family businesses.

A large part of the region’s business fabric remains in the hands of families. Now combine longer lives, smaller families and new generations with greater professional and geographic options.

Many business owners will have one or two children instead of four or five and, in many cases, none will be interested in running the company.

This will increase the importance of wealth planning, family governance, family offices and the professionalisation of businesses. It may also lead to more company sales and greater participation by institutional investors and private equity.

Part of the future growth of the M&A market in Central America could therefore have a demographic origin. A very good and current example is search funds.

For those of us who work with private clients and business families, the question will no longer be only how to transfer wealth to the next generation. It will increasingly become important to determine which assets to retain, which to sell, how to govern them and how to structure wealth that may last for several generations.

A different economy

An older population also changes which sectors grow. Healthcare, pharmaceuticals, medical devices, insurance, wellness, wealth management, home care and specialised real estate projects will become increasingly important.

Costa Rica may find opportunities in this transformation because of its life expectancy, medical device industry, healthcare system, professional talent and proximity to the United States. The so-called longevity economy could become a new driver of investment.

But we should not lose sight of the other side: a population that is ageing and eventually declining may also mean fewer consumers, fewer new households and slower growth in aggregate demand.

Perhaps the most surprising thing is how little we talk about all of this.

We debate AI, competitiveness, infrastructure, taxes and growth every day. Yet many of those discussions will be shaped by a much more basic variable: how many people we will have, how old they will be, how much they will consume and how many of them will be working.

Costa Rica will probably experience this change before much of Central America. That may be a disadvantage, but it may also be an opportunity to adapt first.

For decades, we asked how to generate enough jobs for our population. The question of the future will be different: How do we generate enough productivity, consumption, investment and growth with an ageing population and proportionally fewer workers?

Demographics may be one of the most important — and least discussed — economic transformations of our time. In Central America, we should start talking about it. And in Costa Rica, where that revolution has already begun, we should also start preparing for it.

Key facts

Costa Rica recorded a total fertility rate of 1.12 children per woman in 2024 and its population could begin to decline around 2045. Population ageing has direct implications for productivity, consumption, pensions, healthcare and investment. Automation and artificial intelligence may become increasingly important as the workforce shrinks proportionally. Demographic change could also accelerate family-business succession, the development of family offices, M&A activity and growth in the so-called longevity economy.