Aging Populations Hurt The Economic Growth Rate In More Ways Than Anticipated

Aging Populations Hurt The Economic Growth Rate In More Ways Than Anticipated

The aging of the population around the globe leaves the economy in a tough position. While the negative impact of the aging population has been discussed at length by many analysts, the economists at HSBC further expanded the research on how it affects economic growth.   

Economic growth is measured in hours worked as well as how much output is produced during those hours worked - meaning productivity. And, with baby boomers retiring left and right, hours worked and productivity are decreasing. Moreover, HSBC Economist James Pomeroy notes that it does not look like this trend will change in the near future.

In fact, since the recent financial crisis hit, the world’s advanced economies have not generated much, if any, productivity growth.

And from small economies to big, the change in age of the world’s population will stump productivity growth over the next ten years.

Pomeroy states that, “The population structure in many economies does not lend itself to an increase in productivity, with a higher share of older (or younger), less productive workers. The change is huge, suggesting that the makeup of these populations will be less conducive to productivity growth in the future than it has been in the past.”

Pomeroy adds that in addition to peak productivity of the 45- to 54-year-old age bracket, that group also represents the most consumer spending in the United States. And, as people age out of this demographic, it is predicted that their consumer spending dollars will go with them.

Pomeroy concludes that, “Unless something changes and we see more investment from either public or private sources, the rest of the developed world may succumb to a similar fate to Europe today, where the dearth of investment is hampering output growth.”

He points out that there is a bright spot with respect to office work. Pomeroy notes that, “Empirical studies suggest that productivity is less influenced by age in office-type work than in manufacturing plants, and so developed markets, with a much higher share of the economy in services, should be better prepared to maintain productivity as the population ages.”

Despite this optimistic note, the reality is that the aging population threatens to slow down the global economy both in the near and distant future.

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