The demographic revolution Central America is not yet talking about

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

Yet another force may be just as important in determining our countries’ economic future, and receives surprisingly little attention in Central America: demographics.

The discussion stems from recent work by Jesús Fernández-Villaverde and Patrick Norrick, Terra Incognita: The Economics of a Shrinking World. The authors examine the rapid decline in fertility and put forward a provocative thesis: humanity may already be below the replacement rate, and the world’s population could begin to shrink 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 over.

This is not simply a matter of fewer births. It is a transformation of the labour market, consumption, public finances, investment and corporate structure.

Fewer workers, less consumption, greater productivity

For decades, our economies operated on an implicit premise: each generation would bring a substantial number of new workers and consumers into the economy. That premise is disappearing.

Costa Rica will have proportionally fewer people of working age and an older population requiring more pensions, medical services and care. At the same time, ageing changes spending patterns. On retirement, total consumption tends to moderate and its composition shifts: spending on some goods, transport and work-related consumption declines, while spending on health and care rises.

The macroeconomic impact could be significant. Fewer workers, fewer new households and slower consumption growth could dampen domestic demand. Ageing can slow the growth of consumption, investment and output unless offset by productivity gains.

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

The answer cannot depend solely on raising the birth rate. Countries that have invested heavily in pronatalist policies have found how difficult it is to reverse these trends. Above all, the response will have to be to produce more value with fewer people.

Robots and artificial intelligence

This brings us to a connection that is rarely discussed: demographics, robots and artificial intelligence are part of the same conversation.

When workers are plentiful, automation mainly helps reduce costs. When they 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 discussion about AI should not be limited to fears that it will destroy jobs. In an ageing society, it can become an indispensable tool for sustaining productivity and growth.

For Costa Rica, this reinforces a strategic conclusion. Future competitiveness is unlikely to rest on relatively low-cost labour. It will increasingly depend on specialised talent, technology, automation, infrastructure, education and industries capable of generating far more value per worker.

Pensions, health and fewer contributors

The fiscal challenge will be just as difficult. A longer-lived population means more years drawing a pension and higher healthcare spending. At the same time, proportionally fewer workers will be financing these systems.

The questions will be unavoidable: at what age will we retire? How much will we need to save? How will healthcare and pensions be funded? How much can the state afford?

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

Family businesses: fewer children, more wealth and fewer successors

There is also a consequence of particular importance to Central America: succession at family businesses.

A large part of the region’s business landscape remains in family hands. Now consider longer lives, smaller families and younger generations with more career 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 estate planning, family governance, family offices and the professionalisation of businesses. It may also lead to more company sales and greater involvement by institutional investors and private equity.

Some of the future growth in the M&A market in Central America may therefore have demographic roots. 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 pass wealth on to the next generation. It will become increasingly important to decide 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 more important.

Costa Rica may find opportunities in this transformation thanks to 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: an ageing and eventually shrinking population 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 this.

We debate AI, competitiveness, infrastructure, taxes and growth every day. Yet many of these 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 will be working.

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

For decades, we asked how to create enough jobs for our population. The question in 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. Central America should start talking about it. And in Costa Rica, where this revolution has already begun, we should also start preparing.

Key facts

• Costa Rica recorded a total fertility rate of 1.12 children per woman in 2024.
• The country’s population could begin to decline around 2045.
• Ageing will have direct effects on productivity, consumption, pensions, healthcare and investment.
• Automation and artificial intelligence may become more important as the labour force shrinks proportionally.
• Demographic change could also accelerate succession at family businesses, the development of family offices, M&A activity and the growth of the so-called longevity economy.