Populations in advanced economies have been ageing for a while. The competitiveness of Germany, among other European countries, is compromised by an ageing population. Japan is a well-known example of a developed country dealing with the problem. In the Risk Radar of April, we wrote about the Eastern European Slow Implosion. Most developed economies have made a demographic transition as industrialization went hand in hand with lower population growth. However, declining birth rates and an ageing population are now affecting less developed economies, challenging whole regions to deal with a declining workforce, a higher old-age dependency ratio (ratio of people above 65 years of age per 100 people between 15 and 64 years of age) and the phase after the demographic dividend. According to the 2017 UN report on World Population Ageing, the dependency ratio has been on a rampant rise over the years. In the year 2010, this ratio was 11.7, and it is expected to reach 14.4 by 2020, and 18 by 2030.

 

In China, the ageing problem is becoming more acute. It still has a high proportion of citizens of working age. However, the country is slowly moving out of this favorable phase. The latest official statistics reveal that both China’s birth and marriage rates have dropped significantly over a long period of time. A quarter of the population is expected to be aged over 60 by 2030. To compare, the share of the U.S. population aged 65 or above is expected to rise from 13% in 2010 to 21% in 2050, while in China, it is expected to rise from 8% to 24%. After it officially ended its decades-long one-child policy in 2015, the Chinese started encouraging larger families. However, research suggests that three quarters of the fertility rate decline since 1970 was not formally related to the one-child policy. In turn, policies to ramp up birth rates are unlikely to be effective. Chen Youhua, a demographer from Nanjing University, doubts whether proposals to allow couples to have as many children as they want or tax incentives would help to stop or reverse China’s declining births. As a result, China’s population will continue to age rapidly for decades, and, in turn, its economic growth will be lower too.

 

Latin America is facing similar challenges. The region has a relatively young population, but populations in Latin American countries are aging rapidly. IMF research shows that today, Latin American women only have a third of the number of children they used to have in 1950, while the population is getting older. Thus, the demographic dividend that Latin America has been enjoying since the 1970s is coming to an end. Uruguay, Brazil, and Colombia only have a couple of years of dividend left, while the dividend is already over in Chile and Costa Rica. This new reality is challenging the fiscal sustainability of public pension and health care systems in the region.

 

This rapidly ageing world population seriously affects many domains, from putting a serious burden on healthcare systems and pension funds, to the lack of adequate nursing homes. The idea of a “global demographic time bomb” expresses the fear of future generations struggling to meet an ever-increasing number of retired workers and pension commitments. Ageing is a global problem and the pressure on the different domains and on the overall economic performance of countries will only increase as the world gets older by the day.

 

RISKS MARKED ON THE RISK RADAR AS NUMBER 3: Chinese / other EM’s economic slowdown, Eastern European Slow implosion

The Risk Radar is a monthly research report in which we monitor and qualify the world’s biggest risks to watch. Our updates are based on the estimated likelihood and impact of these risks. This report provides an additional ‘risk flection’ from a political, social, economic and technological perspective.
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