The Strategist

Central Asian banks cannot solve the demography riddle

02/13/2018 - 15:46

Demography has become the most serious problem for the central banks of Asian countries, and they have few opportunities to change the situation, writes Bloomberg.

The elderly population, as a rule, means less labor force. At that, the number of taxpayers and consumers of non-pension age is less. The potential rate of economic growth is declining, and impulses of inflation are weakening as the population ages.

Central banks can react to this by interest rates lower than usual. Sometimes, there are more ambitious incentives, such as the Bank of Japan's monetary experiment, but this only weakens the symptoms. Treatment, which is reforms of labor market and enhanced immigration, is not within the authority of central banks. This means that governments, being dependent on the votes of voters, have to do the dirty work.

"In the aging world, monetary policy is not as effective," says Amlan Roy, a strategist at State Street Global Advisors in London, "We need much more fiscal and structural policies."

Asia as a whole is still younger than Europe and North America - largely due to the youth of the Philippines, Bangladesh and India. Despite this, according to the UN, by 2030 people over 60 years will account for about 17% of the population of Asia.

Demographic change is the most serious problem of the Japanese economy, the head of the Bank of Japan Haruhiko Kuroda said last month in Davos, Switzerland. Labor market reform is the key to solving this problem, the central bank believes.

The decline in the population also poses a threat to the long-term health of regional banks and the financial system, the deputy head of the Bank of Japan, Hiroshi Nakaso, said in November. A smaller number of workers would mean increased competition between banks. This may exacerbate the stress of lower net interest income, the Bank of Japan report published in October says.

Head of the Bank of Korea noted that the aging rate of the population in the country - the fastest in the world - will be a more difficult problem than the record level of household debt or future interest rate increases by the US Federal Reserve.

A study by the central bank, published last year, showed that economic growth in South Korea could slow to 1.9% by 2025 and to 0.4% in 2026-2035 unless steps are taken to increase productivity and participation in the labor force.

The study focuses on tools to counteract the aging of the population, which the Central Bank does not control. The Bank of Korea stated that the priority of the policy should be an increase in the birth rate.

Managing Director of Monetary Authority of Singapore (MAS) said in his speech last month that aging and low birth rate will force the country to make a difficult economic choice, including with regard to immigration.



< >

Friday, July 12th 2024 - 03:18 BP: demand for oil will peak in 2025