The European Union's population is projected to peak as soon as 2029, after which a sustained long-term decline will begin, according to the European Commission. Credit rating agency Moody's warned on Friday that ageing populations will strain public finances across Western economies long before populations actually start shrinking, CNBC reported on Friday.
The United States Census Bureau does not expect the American population to peak until 2080 under its main projection, or until 2043 under its low-immigration scenario. Excluding immigration impact, the population decline has already started. Today, G7 economies have about three working-age people for every person over 65. That ratio is expected to fall to around two by 2050, putting further pressure on growth and public finances, including healthcare systems, according to Moody's.
Olivier Chemla, vice president of credit strategy and standards at Moody's, told CNBC that ageing populations affect economies through slower economic growth, greater pressure on public finances from pension and care costs, changing consumer demand, and shifts in real interest rates and sovereign yields. In a report published last week, Moody's stated that fewer workers will limit productive capacity, whilst fewer households and consumers will weaken demand. Countries will have to rely more on productivity to sustain growth.
Chemla said artificial intelligence and increased productivity can only partially offset the long-term challenge of an ageing workforce. He explained that whilst technology can enhance the supply side of the economy in factories and services, robots do not yet consume, so demand-side gaps will persist and slow growth. Emerging economies are ageing rapidly too. China's share of people aged 65 and over has doubled from 7% to 14% over the past two decades, with Brazil, Thailand and Turkiye on similar trajectories. These countries will face the costs of ageing at much lower income levels than the advanced economies that aged before them, the report says, noting that in Europe, the same shift took several decades.
Why it matters for wealth
Shrinking worker-to-retiree ratios will increase pressure on state pension systems and public healthcare, raising the risk of higher taxation or benefit cuts for those relying on government provision. Slower growth and weaker consumer demand may also affect equity returns and property values in ageing markets.
What to watch
Monitor fiscal policy announcements in the EU and G7 economies for pension reform, immigration policy shifts, or tax changes aimed at closing demographic funding gaps.
Source: CNBC
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