(MENAFN - The Peninsula) Ageing population has a direct impact on economic performance, fiscal policy and asset allocation. It is also a critical indicator for long-term financial sector developments, said QNB weekly report yesterday
When comparing the growth rates of advanced economies, many commentators often forget that Europe and Japan have a larger percentage of their population above the age of 60
According to a recent UN study, between 2010 and 2050 about 1.25 billion people will be added to the global population aged 60 plus, while the number of people under 25 is projected to hold steady at three billion. This implies that an increasingly smaller share of the population will be working, the so-called support ratio, while older people will depend on public transfers, their children or their own assets to sustain their old-age consumption, the report said.
Declining support ratios are already an acute problem in countries like Germany, Japan and Spain. These countries all experienced a baby boom after World War II.
As that generation is now retiring, the support ratio is falling rapidly. According to a 2011 International Monetary Fund (IMF) study, declining support ratios in these countries are expected to depress economic growth by an average 0.7 percentage points a year over the next four decades
Declining support ratios will also be a problem in China, albeit somewhat later in time. As part of the one-child policy, China experienced a significant decline in the average fertility rate between 1979 and 2009. As a result, its support ratio has started to decline recently and will become more acute as the population born prior to 1979 starts to retire.
The IMF estimates that the overall impact on the Chinese economy will be lower average growth rate by 0.4 percentage points a year between 2012 and 2050.
The biggest policy challenge of declining support ratios is how to pay for old-age consumption. In countries with well-developed pension and social safety nets, governments are increasingly seeing a larger proportion of their expenditures devoted to pension benefits for older people.