Demographic headwinds building

China’s working age population is currently falling by around 0.2% per year and in 2018 employment contracted for the first time in the reform era. These developments aren’t a surprise but the demographic outlook does appear to be deteriorating faster than officials had expected. Only 15 million children were born in China last year – fewer than in the final years of the one-child policy and nearly a third below official forecasts made just three years ago. Given China’s numerous structural problems, demographics won’t be the biggest headwind facing the economy in the years ahead. But it will be a significant drag. Our projections assume that a shrinking labour force will shave about 0.5% off GDP growth by 2030. The latest data suggest that the drag may end up even bigger.