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World's aging population set to affect economies

Japan among 'super-aged' countries: Philippines among the most youthful
World's aging population set to affect economies

Picture: Shutterstock

Published: August 14, 2014 07:59 AM GMT
Updated: August 13, 2014 09:12 PM GMT

The Moody’s Global Credit Research Team, which regularly prepares reports for investors and finance firms, warned investors this month in a special report that ‘the unprecedented pace of aging’ will slow economic growth over the next 20 years worldwide. 

Aging reduces economic growth because it reduces labour supply, and causes saving rates to decline which reduces business investment.  It makes sense that over 65’s are spending their savings, rather than making further investments.

By next year 68 of the 112 countries assessed by Moody’s report will be classified as “aging”, 34 “aged” and five, the rather amusingly categorised, “super-aged” – a category you achieve when more than 20% of society is aged 65 and above. 

Germany, Italy, and Japan are already “super-aged”, and are soon to be joined by Finland and Greece.  Eleven more countries, including the United Kingdom, the Netherlands, France and Canada will get there by 2025, and there will be a total of 34 ‘super-aged’ economies by 2030.  All countries, except a few in Africa, will face either a slower-growing or declining working-age population from 2015 onwards.

The Philippines is one of only 23 economies whose over 65’s are expected to constitute below 7% of the population until 2030.  The report showed that the percentage of elderly people in the overall Filipino population is estimated to be at 4.1% in 2015, 4.9% by 2020, 5.6% by 2025, and 6.3% by 2030.

Guillermo M. Luz of the Philippines National Competitiveness Council considers that will sustain the Philippines' attractiveness as a “very good investment site well beyond 2030".  “Having a young and educated work force, brought about by reforms in education, will make Filipinos very competitive compared to its peers in Southeast Asia,” Mr. Luz said yesterday.  Something also to do perhaps with the value put on having children and family by the largely Catholic Filipino population.

Other countries which may be set to enjoy an economic so-called ‘demographic dividend’ are the Gulf countries.  In 2015 the elderly constituted only 0.5% of the total population in the United Arab Emirates, and is expected to reach 1.8% in 2030. In Saudi Arabia the elderly constituted 3% in 2015 and is expected to reach 7% in 2030.

Sharp declines in fertility rates are a big part of the problem.  These figures are already upon us, so it is a little late to turn them around.  However, Moody’s suggests that policy reforms that improve labour participation, spur immigration in a country, and encourage financial inflows can all partially mitigate the impact of aging on economic growth. Innovation and technological progress that improve labour productivity can also dampen the effects of the rapid demographic changes on economic growth over the long term.

Full Story: Moody’s warns investors: Aging to reduce economic growth worldwide

Source: MercatorNet

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