Filippo Gaddo, Managing Director at Alvarez & Marsal, SPE Councillor and host of the Econ Thoughts SPE Podcast, speaks with Jesús Fernández-Villaverde, Professor of Economics at the University of Pennsylvania, Research Associate at the NBER and one of the leading voices on macroeconomics, demographics and geoeconomics.

The conversation begins with one of the most profound but often overlooked trends shaping the global economy: demographic decline. Jesús argues that the world has already crossed a historic threshold. Since around 2023, global fertility has fallen below replacement levels, meaning humanity is no longer reproducing itself at a rate sufficient to sustain population growth indefinitely. While population momentum means global numbers may continue to rise for several decades, he suggests that world population could begin declining around the middle of the century.

The discussion explores why fertility has fallen so rapidly across such a wide range of countries. What makes the current trend particularly striking is that it is no longer confined to advanced economies. Countries such as Chile, Colombia, Turkey and Thailand now exhibit fertility rates that would once have been associated only with the richest nations. Jesús outlines several possible explanations. Social media may be accelerating the global transmission of cultural norms, creating common expectations and aspirations across very different societies. The rising cost of raising children, particularly through what he describes as an “education arms race”, may also be playing a significant role. At the same time, housing affordability has deteriorated across much of the world, making family formation increasingly difficult for younger generations. The consequences extend far beyond economics. Demographic decline will reshape labour markets, public finances, housing demand, education systems and social structures. While well-governed countries may be able to adapt, Jesús argues that the challenge could prove particularly severe for countries with weaker institutions and lower state capacity. The conversation then turns to policy. While pronatalist policies may not restore fertility to replacement levels, Jesús suggests they can still make a meaningful difference over the long term. Adaptation, however, may prove even more important. Pension systems, healthcare provision, education infrastructure and immigration policies will all need to adjust to a world characterised by slower population growth and older societies.

The second half of the discussion explores geoeconomics and the future of globalisation. Drawing on his work on global fragmentation, Jesús explains how a broad range of economic and political indicators suggest that the era of ever-deeper global integration began to reverse around the time of the Global Financial Crisis. Rather than a sudden break, he describes fragmentation as a gradual process that has unfolded over nearly two decades. Importantly, he argues that globalisation is not disappearing but evolving into a more fragmented system organised around competing economic blocs. Countries may remain highly integrated within regions while becoming less connected across geopolitical fault lines. This perspective leads to a broader discussion of Brexit, Trump, European politics and the relationship between long-term structural forces and political outcomes. Jesús argues that major political events are often better understood as manifestations of deeper economic and social trends rather than their primary causes. Political leaders matter, but they operate within constraints created by demographic, economic and institutional forces that may have been building for years.

Throughout the conversation, Jesús emphasises the importance of distinguishing between facts, forecasts and political preferences. Whether discussing population decline, migration, globalisation or public finances, he argues that societies are better equipped to make difficult choices when debates are grounded in evidence rather than wishful thinking.

Jesús Fernández-Villaverde is the Howard Marks Presidential Professor of Economics at the University of Pennsylvania, where he serves as the Director of the Penn Initiative for the Study of Markets and co-director of the Business, Economic, and Financial History Project. He is also a Visiting Professor at the University of Oxford, the John H. Makin Visiting Scholar at the American Enterprise Institute, a visiting scholar at the European Central Bank and Bank of Spain, a fellow at Collegium Institute, a non-resident fellow at the Civitas Institute at the University of Texas at Austin, and a member of the National Bureau of Economic Research and the Center for Economic Policy Research. Additionally, he is a fellow of the Econometric Society. His research agenda is in macroeconomics and econometrics, with a focus on the computation and estimation of dynamic stochastic general equilibrium (DSGE) models.