The world’s aging population is bringing headwinds for growth. When the first baby boomers reached the retirement age of 65 in 2011, few took notice of the problems, as most nations were still struggling to recover from the 2008-2009 global financial crisis.
However, according to a report by Macquarie Bank, the effects of the demographic shift are likely to become more apparent from this year, with slowing growth in both the labor force and productivity, as well as consequences for real interest rates and equity valuations.
In the report issued on Wednesday, Macquarie said that the effects of global aging would be particularly severe in the world’s major economies — the US, China, Europe and Japan — that together comprise up to 70 percent of global GDP.
While weak labor force growth would make major economies increasingly reliant on productivity growth and look to robotics and automation for help, Macquarie said that demographics still pose significant barriers to further improvement in productivity.
For instance, there is an increasing share of the workforce that would be comprised of older workers with low or modestly negative productivity growth.
Macquarie forecast the working-age population that is over 65 globally would rise to more than 15 percent in 2030, from 11 percent in 2015, and as experienced older workers are replaced by inexperienced younger workers with a low level of productivity, it creates a further drag, the report said.
The Macquarie economists did not include Taiwan in their analysis, but the nation has one of the fastest-aging populations in Asia, which is especially remarkable compared to the US’ and Europe’s historical experience.
Statistics released by the Ministry of the Interior in March showed that the number of Taiwanese aged 65 or older exceeded that of children aged 14 or younger for the first time in February. As the number of senior citizens is forecast to reach 14 percent of the nation’s total population by next year, up from 13.33 percent in February, and the figure might exceed 20 percent by 2026, Taiwan is set to become an “aging society” next year and a “super-aging society,” like Japan, within 10 years, the National Development Council has said.
Along with a continued decline in the nation’s birth rate, the demographic shift poses challenges for economic output, as there are not enough new workers in the workforce, and the productivity of those working has not grown fast enough.
Indeed, growth in the nation’s working-age population has fallen to an average of 0.4 percent on a yearly basis from 2011 to 2015, compared with an average of 0.9 percent in the 2000s, and the situation does not look good after the working-age population starting to shrink last year.
According to the council, the working-age population is likely to shrink by 0.6 percent per year in the 2016-to-2020 period and contract further by 1.1 percent per year during 2021-to-2030 period.
This pace of decline — faster than Hong Kong, Singapore and South Korea — is standing in the way of achieving rapid economic growth over the next decade or two, DBS Bank has said.
Much can be done to address the nation’s demographic problems and much more should be done to increase productivity.
However, those efforts require the implementation of reform policies in areas ranging from economy to finance, and from labor affairs to social welfare. The efforts also demand a change in people’s mentality regarding the development of an aging society, such as resource allocation, consumer demand and the development of related technologies and services.
These issues are a matter of national security and tackling them is no easy task. Even though addressing such issues would be costly and time-consuming, they should be high on the government’s agenda.
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