Ageing demographics and tech drive global investment trends

A quiet revolution is transforming the global economy, driven by ageing societies and rapid advances in automation. As populations grow older and workforces contract, traditional engines of growth are losing momentum. For investors, the most compelling opportunities are likely to emerge in sectors benefiting from demographic shifts, technological disruption, and supportive policy and infrastructure.

Over the next 25 years, every major advanced economy is expected to see a drop in working-age population, with steepest declines forecast in the likes of Germany, Italy, Japan and China.

Sustaining growth as workforces shrink will require a shift in how capital is allocated and how economies respond to innovation, according to Pictet’s Demographics and Technology study.

“The choice is stark,” says the report’s author Maria Vassalou, head of the Pictet Research Institute. “Adapt through technological transformation and continue to grow or do nothing and accept decline.”

Drawing on the basic components of economic output — capital, labour and technology — Ms Vassalou argues societies must find ways to replace lost labour capacity or risk stagnation. Labour availability, she notes, is shrinking due to “demographic deterioration that’s been under way for several decades”.

Technology, she says, has historically served to boost labour productivity and improve efficiency. That relationship is especially relevant now, as we undergo another “significant technological revolution”.

Automate or stagnate

Turning technological change into growth depends on productivity gains. As labour availability contracts, the only path to sustainable growth is increased efficiency.

Societies that remain stuck in basic worker-substitution automation risk losing competitiveness. In contrast, those that develop productivity-enhancing automation, supported by AI and infrastructure, stand to secure lasting productivity and growth gains, she explains.

Europe, in particular, has struggled to generate meaningful productivity gains. Without a shift in direction, she warns, the outlook for the old continent “could be very dire”.

“European countries are leaving significant value on the table by failing to invest in their potential,” says Ms Vassalou. Germany, for example, has invested in automation aimed at replacing the labour force, but not enough in productivity-enhancing technologies.

While Europe lags, the US continues to lead technologically. Japan’s early encounter with ageing made it a pioneer in automation. China’s one-child policy drove rapid adoption of industrial robotics, according to Pictet.

Opening the academic year at the Politecnico di Milano earlier in December, former ECB president Mario Draghi warned that “the gap between countries that embrace innovation and those that hesitate will widen significantly”.

Europe, he said, has moved from welcoming new technologies to “placing barriers” to their adoption, a shift already visible in lagging productivity growth during the early digital era. The same dynamic is now repeating with AI.

Last year, the US produced 40 large foundation models, China 15 and the European Union just three. Similar gaps are emerging in other frontier technologies, from biotech to nuclear fusion.

With ageing population and infrastructure, unless Europe closes the gap with global peers and embraces innovation at scale, warned Mr Draghi, it risks entrenching stagnation at what he described as a “moment of truth” for the continent.

Shrinking workforce

The question is also whether technology can move fast enough. New technologies typically follow a J-curve adoption cycle, initially lowering productivity due to high costs, skill gaps and implementation frictions, before delivering exponential gains over time.

“AI is still at early stages,” says Pictet’s Ms Vassalou, “but because it builds on previous technologies, we expect the negative part of the J-curve will be less deep and less prolonged.”

Even so, AI’s peak productivity gains will materialise in the 2030s, just as demographic pressures intensify. That creates a “dual timing challenge” for ageing economies: navigating the disruption of early AI deployment while contending with a shrinking workforce.

In its Pushing Limits global outlook for 2026, BlackRock warns that the scale of AI infrastructure spending — estimated at $5tn to $8tn globally by 2030 — rests on extraordinary macroeconomic assumptions. “To make the upper end of that spending viable, the US economy would have to break out of its historical two per cent growth trend,” says Wei Li, BlackRock’s global chief investment strategist.

Such a shift would represent a growth acceleration not seen in 150 years of modern economic history. But in a world where “the micro is so big, it becomes macro”, Ms Li argues that this kind of breakout is “now conceivable for the first time”.

The reason is not AI alone, but its ability to speed up innovation across sectors — from biotech to materials science and pharmaceuticals — in ways that could surpass even the internet era. This transformation hinges on whether AI creates new, external revenue streams, as AI is adopted and applied to non-tech sectors.

“It’s one thing for the big players to spend on each other and for the earnings picture to look strong, but the real litmus test is whether this build-out creates external demand, whether non-tech companies and end users are willing to pay for AI services, beyond chips and data centre infrastructure” says Ms Li. Without that, she adds, the full scale of the AI investment story cannot materialise.

Advancing robotics 

Pictet suggests investors should focus on industries best positioned to apply emerging technologies to meet demographic needs.

While much of the attention has centred on the tech sector itself, the more lasting opportunities may lie in traditional industries — those that have historically been labour-intensive or capital-constrained — that can harness these technologies to boost productivity, lower costs and become more competitive, says Ms Vassalou.

Healthcare is already demonstrating AI’s transformative role. “We see AI being used to read MRIs or CT scans in seconds,” she says, improving speed and accuracy without replacing clinicians. Robotics is advancing in surgery, diagnostics and elderly care.

Housing is a major beneficiary of both demographic change and technological innovation. Construction and materials can now be automated more extensively, and smart-home technologies are making it easier for older populations to live independently.

Food production is being reshaped by automation in harvesting, packaging and logistics. “We are still in the early stages, but we already see a lot of potential applications.”

Pictet also sees promise in biotechnology, longevity science, diagnostics and preventive medicine, with nutrition playing a growing role.

The key, suggests Ms Vassalou, is to focus on sectors serving ageing populations and suited to automation and AI, particularly in economies with the infrastructure to support the technological transition.

While demographic trends are relatively easy to anticipate, technology is less predictable, but “skilled investors can think through the potential applications” of AI and robotics to spot where long-term opportunities may emerge.

“In this transformational environment, we need to adjust our investment framework away from broad country or sector bets and towards opportunities where demographics, innovation and infrastructure forces align,” she explains.

High-energy economics

Too often, public debate treats demographics and innovation as separate forces, a mistake that leads to pessimistic conclusions and obscures how the two interact, she says. “Technology never develops in a vacuum,” she believes. “It always responds to societal needs.”

Whether economies can adapt will depend on political leadership. Europe’s repeated failure to commercialise innovations, despite its technical expertise and institutional support, risks undermining competitiveness. Structural reforms, such as deregulation, deeper financial integration and a functioning capital markets union, are essential, argues Ms Vassalou. “We see great ideas conceived in Europe, but then being developed and flourishing in the US.”

Energy is another constraint. With many emerging technologies highly energy-intensive, Europe will struggle to capture the economic benefits of automation and AI without a secure, affordable and diversified energy mix.

Immigration may ease short-term labour shortages but offers no long-term fix. “Immigration doesn’t affect the total number of people available in the global workforce,” she adds, and can strain welfare systems.

Globalisation and free trade have widened inequality, especially in the US. As technology advances, outcomes will depend on political choices. “Who will own the robots? Who gets the returns?” asks Ms Vassalou. Fiscal systems, she says, must incentivise investment while supporting redistribution.

BlackRock’s Ms Li also points to political risk. If fears over AI’s impact on jobs prompt a policy backlash, it could stall investment. “That could have a feedback loop through the political response that ultimately could curtail the ambition of the build-out,” she says.

Labour-market fears could become a third constraint, Ms Li adds, with energy already acting as a brake. Capital markets, while presenting a potential pressure point, remain supportive for now, buoyed by strong free cash flow and low leverage.

 “Given the lag between spending and revenue, leverage will be needed to bridge the financing hump,” says Ms Li. “Large tech companies are issuing from net-cash positions, so the starting point is strong, but the scale of investment means debt markets will play a growing role.”

Strategic thinking

Pictet’s Ms Vassalou challenges the idea that rapid advances in AI will eliminate the need for work. “We’ll be called to use our brains much more creatively, to do things that cannot be easily automated. In that sense, we may even be held to higher standards,” she says.

Timing is crucial, both for investors and policymakers. Autonomous vehicles, for example, should not immediately displace mid-career workers. “It is far better to discourage young people from getting into this profession,” she says, while allowing current workers to retire before introducing full automation.

Social policy is likely to play a “big role” in guiding how these technologies evolve, where labour will be most needed, and how to manage the transition. The main concern for Ms Vassalou is short-termism: “What’s missing is strategic thinking. Too much policy lacks the long-term perspective needed to navigate these powerful shifts.”

Despite the risks, she remains optimistic. “AI is an opportunity to be embraced rather than feared. If handled wisely, it can deliver broad benefits, not just for investors, but for society as a whole.”