The latest population figures from Germany have landed with the force of a poorly timed interest rate hike. The Federal Statistical Office reports a net loss of 300,000 residents in 2023, the first decline since 2010. This is not just a statistical blip. It is a structural crisis that exposes the old fault lines of a reunified nation still grappling with economic convergence. While Germany frets over an ageing workforce and shrinking tax base, the UK’s more open immigration policy is, for once, earning grudging praise for its measured expansion.
Let us start with the numbers. Germany’s population fell to 83.2 million, driven by a sharp drop in net migration from Ukraine and a stubbornly low birth rate. The east continues to bleed young talent to the west, a haemorrhage that began in 1990 and has never truly stopped. The so-called 'inner migration' leaves behind a demographic wasteland: empty schools, shuttered shops, and a pension system that is already groaning under the weight of retirees. The German government’s response? More spending on childcare and incentives for families. But throwing cash at a demographic problem is like buying a hedge fund manager a new yacht: it may feel good, but it does not change the fundamentals.
Compare this to the British approach. Since the post-Brexit reforms, the UK has tightened control over low-skilled labour while expanding routes for skilled workers. Net migration remains high, around 600,000, but the composition is shifting toward sectors with genuine labour shortages: healthcare, engineering, and technology. The result is a labour market that, while tight, is not entirely sclerotic. The UK’s population is growing, but it is a growth financed by human capital rather than welfare cheques. It is the difference between a diversified portfolio and a junk bond.
Of course, the critics will howl about infrastructure strain. They will point to housing shortages and overcrowded schools. But these are problems of supply, not of people. The UK’s failure to build enough homes is a policy failure, not a demographic one. Germany, meanwhile, has built plenty of homes but cannot find the people to fill them. In the end, a population decline is a slow-moving fiscal train wreck. Fewer workers mean lower tax revenues, higher dependency ratios, and an ever-increasing burden on the state. The UK’s deficit is already eye-watering. Imagine what it would look like with a shrinking workforce.
There is also the matter of capital flight. Investors hate uncertainty. A nation whose population is shrinking is a nation whose long-term economic potential is in doubt. The gilt market may not price this in today, but it will. Germany’s 10-year bund yields may be low, but that reflects a preference for safety, not confidence in growth. The UK, despite its political theatrics, remains a more dynamic bet for capital. The City of London thrives on churn, on new ideas, on fresh faces. A static population is anathema to that ethos.
The irony is palpable. For years, British politicians have agonised over immigration, promising to reduce numbers. Yet the data now suggests that a controlled, skills-based immigration system is precisely what keeps the economy from imploding. Germany, with its more cautious approach and generous welfare state, is suffering the consequences of its own demographic conservatism. The old divides between east and west are a reminder that reunification was never truly complete. It was a merger, not a take-over, and the cultural integration has lagged behind the political.
What does this mean for the investor? It means that the UK, for all its short-term angst, remains a safer bet for long-term capital. Germany may be the engine of Europe, but its demographic engine is spluttering. The UK, by contrast, is refuelling. It is not a perfect solution. The debt-to-GDP ratio is alarming, and the Bank of England’s inflation fight is far from over. But a growing population at least provides a buffer. It buys time for fiscal consolidation. Without it, the arithmetic becomes brutal.
So let us not romanticise the German decline. It is a warning sign for every developed economy that thinks it can ignore demographics. The UK’s policy, flawed as it may be, is at least pragmatic. And in the world of central banking and sovereign debt, pragmatism is the only philosophy that pays dividends.
