Mature Economy: What it Means, How it Works (2024)

What Is Mature Economy?

"Mature economy" is a term used to describe a nation with a stable population and slowing economic growth. A population has stabilized or is in decline when the birth rate is equal to or less than the mortality rate.

Understanding Mature Economy

A mature economy is one that has reached an advanced stage of development, categorized by slowinggross domestic product(GDP) growth, decreased spending on infrastructure, and a relative increase in consumer spending.

Low population growth and generally lowinflation alleviate the pressure to create new jobs as the workforce and cost of living do not increase much. At the same time, in a mature economy, there should be enough growth for the economy to financially support retirees as they age and require more care.

Countries with mature economies, also known as the developed world, include the United States, Canada, Australia, Japan, and several nations in Western Europe.

Mature economy status is not set in stone. In 2013, Greece became the first developed nation to be downgraded to an emerging market economy after index providers determined that few of the country's stocks met the criteria of a mature, developed market. Likewise,frontier markets, which are less developed than emerging markets, can also upgrade to emerging markets, as was the case for Qatar and Argentina.

Mature Economy vs. Emerging Market Economy

In a mature economy, both population and economic growth have stabilized. Investment is weighted more toward consumption and quality of life, rather than infrastructure and other fixed asset growth projects.

In contrast, an emerging market economy refers to a nation that is progressing toward becoming more advanced, usually by means of rapid growth andindustrialization. These countries experience an expanding global role both economically and politically.

They often export lots of goods to mature economies and are important bases for global manufacturing operations—it is cheaper for companies in mature economies to set up shop there. On occasion, emerging market economies are more loosely regulated and have lower tax rates. That and inexpensive rents and labor costs, among other things, make them popular business destinations.

Emerging market economies have lower per-capitaincomes, higherunemploymentrates, more political instability, and lower levels of business or industrial activity than mature economies. They have a lot of ground to make up and, as a result, typically display much higher economic growth rates.

Not everyone agrees entirely on which countries are emerging markets. Generally, these less-developed nations can be found throughout Asia, Africa, Eastern Europe, and Latin America.

Companies in mature economies often seek to take advantage of the growth potential and relatively low costs of operating in emerging market economies. They regularly set up manufacturing facilities there to boost profits and draw up strategies to sell more goods in these nations, home to a large chunk of the world’s population, to generate higher revenues.

The faster economic growth experienced by emerging economies has attracted the attention of retail investors too. However, prospects of higher returns come at a cost. Stocks in emerging economies carry more risk as they tend to be much more volatile than their mature economy counterparts.

Anything from inflationary pressures to risinginterest ratesto signs of a global economic downturn could send emerging markets tumbling. Other unique risks for emerging market investments include political instability, corruption, currency fluctuations, and changes in regulatory policy.