The Strategist

Population ageing becomes a problem in Asia

05/10/2017 - 13:51

In the coming decades, aging of the population will become an urgent problem not only in Europe but also in Asia, according to a recent regional economic review of the International Monetary Fund (IMF). Relatively low per capita income, typical for many countries in the region, as well as the speed of demographic processes increase the risk that Asians may "grow old before they get rich".

Economic growth of Asia, especially its Eastern part, has been primarily based on "demographic dividends" as number of working people in these countries grew faster than number of dependents. However, a combination of falling fertility with the gradual increase in life expectancy will lead to the fact that the population growth (already negative in Japan) will fall to zero throughout the region by 2050. The proportion of the elderly population (65 years and older) may increase more than twice by the middle of the century. This figure may grow three times higher in East Asia. The region risks becoming the fastest aging in the world since demographic processes here are much faster than in Europe and the USA. In addition, the beginning of the aging process of the Asian population outstripped the start of growth in its incomes, the IMF said.

Experts divided the region’s countries into three groups: "post-dividend" includes economies where the economically active population (15-64 years) is shrinking both in percentage and in absolute value (China, Hong Kong, Japan, South Korea), "late dividend", where the proportion of the working population is declining, but the number of people keeps growing (Malaysia, Vietnam, New Zealand and Australia), and "early dividend" - India, Indonesia and the Philippines, where both indicators will be growing over the next 15 years. The population’s aging will cost 0.5-1 percentage points of GDP annually to the "post-dividend" countries, although in some countries the negative effect can be partially corrected by migration. Meanwhile, "demographic processes" will bring an additional 1 pp. of GDP to the "early dividend" countries. The IMF recommends that the region’s countries adapt their macroeconomic policies to the coming changes, as well as stabilize the national debt and reform labor and pension legislation. Above that, the states are offered to launch programs aimed at increasing labor productivity, which the IMF experts consider another problem of the Asian economies.

As the elderly population is beginning to exceed number of working-age people, the pressure on investment pools, medical systems and funds to build the economy for future generations is growing.

"Demographic processes cannot be ignored, but solutions can always be found", said Suzanne Kunkel, director of Scripps Gerontology Center, to Bloomberg. "These decisions must be cultural, political, economic. There is no magic solution".