21 March 2019
Japan has a severe case of aging population. Photo: Bloomberg
Japan has a severe case of aging population. Photo: Bloomberg

Demographic changes to shape global economy

Demographic structure has become a widely discussed topic as various governments have failed to stimulate economic growth with loose monetary policy or quantitative easing since the 2008 financial crisis.

Most developed nations are grappling with an aging population, which is weighing down on their economies.

Demographic structure is directly linked with labor force and productivity, and also related to innovation.

An aging population means less tax revenue but rising pension, welfare and healthcare expenses for the government.

It’s widely known that Japan has a severe case of aging population and sustained low birth rate.

Japan’s birth rate slumped to a record low in 2014, with barely one million babies born and nearly 1.3 million people passing away during the year.

The nation’s population issues could be traced to its conservative immigration policy.

A declining labor force has affected its economic growth and led to increasing pension and welfare spending.

Given this situation, Japan should ease its immigration policy and delay the retirement age in order to boost economic growth.

Meanwhile, Singapore intends to supplement the labor gap with foreign workers.

The government has adopted various policies to boost the birth rate since 1980s, but the impact has been very limited.

By June 2015, the island state had 3.9 million local residents out of a population of 5.5 million.

Foreign workers account for 30 percent of the city’s working population. They have also created many social issues. Tensions between local residents and foreign workers have been intensifying.

A strike staged by Chinese bus drivers in 2013 exposed a tricky issue for this tightly controlled city-state. It’s considered as the worst social unrest in Singapore since the 1969 Sino-Malay riots.

The government has realized the significance of social harmony, and stepped up efforts in national assimilation among different races through public housing allocation and by adopting English as the common language.

The government has to reconsider how to assimilate foreign labor into local society in order to defuse social tension.

Developed economies in Western Europe have also been struggling with low birth rate over the last couple of decades, and the trend toward an aging population has started to emerge.

Britain, France, Germany and other Western European nations intend to supplement the gap in their labor force with the influx of Eastern and Southern European migrants.

For example, Germany removed immigration restrictions for Eastern Europeans in 2011. That has resulted in rising net immigrants in recent years.

The nation’s immigrants have risen to over 1.4 million in 2014, the highest in nearly two decades. Germany has become the world’s second-largest recipient of immigrants after the United States.

Germany has been grappling with negative population growth since the 1970s. The nation’s aggregate population has posted a negative growth since 2005.

Its aggregate population dropped to 80.89 million in 2014 from 82.52 million in 2004, down by 1.63 million, according to World Bank data. The nation’s birth rate has hovered around 1.5 for a long period.

Germany has adopted an open stance towards immigrants in recent years and taken an active approach in dealing with the influx of refugees from the Middle East.

However, the influx of refugees could also raise cultural and religious issues, and even stretch the nation’s social resources.

The demographic shift in the world’s major economies would change global consumption and investment demand patterns.

The aging population is set to worsen in developed nations, which may struggle with lackluster investment demand.

This article appeared in the Hong Kong Economic Journal on Jan. 13.

Translation by Julie Zhu

[Chinese version 中文版]

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General Manager, Head of Investment, Investment Management, Bank of China (Hong Kong)

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