“Demographics is the single most important factor that nobody pays attention to.” - Peter DruckerEstimating a country's Gross Domestic Product (GDP) in the short term can be difficult and is subject to many shifting and interrelated forces. Numerous factors can determine a country's success: interest rate policy, government spending, inflation and consumer sentiment, for example, all matter in the short run. In contrast, getting a longer term idea of a countries potential growth rate essentially relies on two factors: population and productivity. A growing population is the source of an increasing workforce and the more productive these workers are, the wealthier they become. In the long run, a country becomes rich or stagnates depending on its mix of people, innovation and investment. If a country gets this critical mix right, short term fluctuations in economic growth seldom matter.This brings us to a very simple economic equation:Population + Productivity = GDP“” is the Greek letter delta which is the symbol for change. What this equation and financial axiom reveals is that there are only two ways to grow an economy: you can increase the size of the working-age population OR increase the productivity of the current work force. In this article we will analyse these two components for Bermuda and conclude with a likely long-term potential growth rate for Bermuda. This week, we look at population and next week, productivity.Bermuda's PopulationThe demographic shift in Bermuda may be one of the least appreciated reasons for the change in longer term potential growth. Population growth or decline ultimately determines how many workers a country will have.Population growth depends on numerous factors such as the fertility rate, life expectancy and migration. The recent census in Bermuda gives us the most up to date statistics on Bermuda's population and its workforce.Bermuda's current population is 64,186 according to the 2010 Census. This is up only three percent over a period of 10 years or an annual rate of just 0.3 percent per year and represents a slowdown in growth from 0.7 percent experienced in the prior decade. By comparison the United States has grown its population by 10 percent over the same period, an annual rate of approximately one percent.This low rate of growth for the Island's population is partially the result of a fertility rate below replacement level, roughly 1.76 by recent estimates, while the replacement rate is 2.1.As fertility rates fall below the 2.1 replacement rate, population inevitably shrinks unless the drop is offset by migration.Current immigration trends also do not seem to offer any help in maintaining a stable population level or labour force. The number of guest workers, who tend to be younger, has begun to fall just as Bermuda begins its inevitable demographic shift.In gauging Bermuda's potential GDP growth, we need to determine its future trajectory given the potential demographic shift and current composition. This is where the analysis gets a bit worrisome.The current low birth rate and aging population in Bermuda will act as headwinds for future growth. There has been a shift in Bermuda for what is called the dependency ratio. That is, the share of the economically dependent population, both children depending on their parents, and elderly parents depending on their working age children, is rising in comparison to Bermuda's economically productive population.Although the dependency ratio remained constant at 42, the composition has begun to shift. The population component for the 20 to 44 cohort has dropped from 41 percent in 2000 to 35 percent in 2010.In contrast, the 45 to 65 age group has expanded over the last ten years and now composes 30 percent of the population, up from only 24 percent. This is similar to most developed world economies which are seeing the “Baby Boom” generation age. This is likely to result in Bermuda's dependency ratio climbing mercilessly higher over time. In fact the median age has already jumped from 37 years in 2000 to 41 years in 2010.According to population projections from the Census report, the portion of seniors (those aged 65 and over) is expected to be 22 percent of the population by 2030 while the proportion of children and the other productive age groups will continue to fall.The demographic pyramid, a visual representation of the age stratification of a country, projects a slow aging of the population's composition. Bermuda's age-sex pyramid is not unlike most developed countries where one sees a smaller base in the younger ages with a bulging middle. A perfect age-sex pyramid is just that, a pyramid structure, in which the future productive age of the population is expected to rise and swell, contributing to economic growth. Inverted pyramids predict economic stagnation as the productive workforce is a very small component of the dependent one.Population growth is the source for all future workers. All things being equal, a shrinking or smaller workforce limits how much any given economy can produce. The confluence of an aging demographic, a lower fertility rate and a stagnant immigration policy is likely to put pressure on the growth of Bermuda's labour force in the future. Given the inevitable aging of the population and assuming no net benefit from immigration, we estimate Bermuda's labour force could shrink about 1.4 percent per year. This presents a very large obstacle to overcome and would negatively affect the potential output of the Island.