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Demographics: An aging population will serve as a major headwind for economic growth going forward

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July 02, 2009 – Comments (8)

I came across a fascinating couple of articles on the aging population of a number of countries across the globe and how this demographic trend will likely serve as a significant headwind for growth going forward this morning.  They came to my attention when Bill Gross mentioned the Economist article in passing during an interview on CNBC this morning.

I'm swamped at work again today so I don't have time to summarize both of them, but trust me...they're definitely worth a read.  Here are a couple of interesting quotes.

When the IMF earlier this month calculated the impact of the recent financial crisis, it found that the costs will indeed be huge: the fiscal balances of the G20 advanced countries are likely to deteriorate by eight percentage points of GDP in 2008-09. But the IMF also noted that in the longer term these costs will be dwarfed by age-related spending. Looking ahead to the period between now and 2050, it predicted that “for advanced countries, the fiscal burden of the crisis [will be] about 10% of the ageing-related costs” (see chart 1). The other 90% will be extra spending on pensions, health and long-term care.

The rich world’s population is ageing fast, and the poor world is only a few decades behind. According to the UN’s latest biennial population forecast, the median age for all countries is due to rise from 29 now to 38 by 2050. At present just under 11% of the world’s 6.9 billion people are over 60. Taking the UN’s central forecast, by 2050 that share will have risen to 22% (of a population of over 9 billion), and in the developed countries to 33% (see chart 2). To put it another way, in the rich world one person in three will be a pensioner; nearly one in ten will be over 80.

This is a slow-moving but relentless development that in time will have vast economic, social and political consequences. As yet, only a few countries with already-old populations are starting to notice the effects. But labour forces are now beginning to shrink and numbers of pensioners are starting to rise. By about 2020 ageing will be plain for all to see. And there is no escape: barring huge natural or man-made disasters, demographic changes are much more certain than other long-term predictions (for example, of climate change). Every one of the 2 billion people who will be over 60 in 2050 has already been born.

Also:

Average spending on public pensions across the OECD is now the equivalent of more than 7% of GDP (they cost America just 0.2% back in 1935). In some countries the current figure could double by 2050, to say nothing of the cost of private pensions and extra spending on health and long-term care.

I have become increasingly fascinated with demographics and their impact upon economies over the past several years.  The fact that the largest generation ever, Baby Boomers, have passed their peak spending years is one of the reasons why I believe that the growth of the U.S. economy will be much slower than we have become accustomed to over the past two decades.

A slow-burning fuse

The end of retirement

Deej

8 Comments – Post Your Own

#1) On July 02, 2009 at 10:39 AM, outoffocus (22.81) wrote:

I hate to say it but I believe within the next decade or so you will see a study come out that says that baby boomers in the US arent living as long as their parents.  With the higher rates of obesity and cancer, combined with unhealthy sedentary lifestyles, alot of boomers will pass on sooner than expected.  I'm pretty positive that has not been taken into account in the stats listed above. I certainly dont wish that on the boomers, I'm merely stating this based on current facts.

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#2) On July 02, 2009 at 11:48 AM, Varchild2008 (83.67) wrote:

I'm not seeing Sedentary lifestyles.. Not around the 20-30 age level. 

For example, my local weight lifting and fitness community center is absolutely jam packed with Gymnasts, martial artists, weight lifters, track & field, whetever...  All sorts of activities go on there and the place just gets busier and busier..

I actually see a trend here in MICHIGAN showing a decrease in sedentary activity and an increase in fitness and healthy living.

Our foods have removed Trans Fats.... Our Beverages will soon replace Sugar with Stevia (an all natural herb).

My work place has around 10,000 employees.. most of which hook up for Baseball, Basketball, Flag Football, Golfing, you name it.  

Look at the following stock (MED) Medifast.. Look at it...
Why is the share price as high as it is if the trend in America is as you describe?

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#3) On July 02, 2009 at 11:57 AM, outoffocus (22.81) wrote:

Varchild2008

I said baby boomers. That would be people age 45-63.

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#4) On July 02, 2009 at 11:58 AM, outoffocus (22.81) wrote:

I'm not so sure about the younger generations.  I think that remains to be seen. It does seem like we are a little more health conscious but I think its too early to tell.

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#5) On July 02, 2009 at 12:05 PM, Varchild2008 (83.67) wrote:

I thought this article was about the younger crowd growing older? Or that as people age the economy improves?

I mean.. It's one thing to focus on a Retired or just about Retired population... But what about the fact that the Sons and Daughters of Baby Boomers outnumber the Baby Boomers by far.. What happens as they grow older?

Baby Boomers are not in the 45-63 age range anymore.  More like 55-73 right now.  It's kinda time to focus on the previous generation.

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#6) On July 02, 2009 at 12:08 PM, davejh23 (< 20) wrote:

outoffocus - I've thought about the same thing, but I believe advances in healthcare will prolong the lives of many unhealthy Americans.  Blood-pressure medications alone are already prolonging the lives of millions of individuals that would probably die before age 60 without them.  As medical advances prolong life without preserving quality of life, I believe the aging population will put an unimaginable strain on the government.  Medicare is already ridiculous...there is no way it will be supported by tax revenues in the future, even if benefits are cut.  As for Social Security, it wasn't designed as a permanent plan, and I believe it should be phased out.  If not, the retirement age should be adjusted to some level above the average life expectancy, as it was originally designed.

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#7) On July 02, 2009 at 12:13 PM, davejh23 (< 20) wrote:

Varchild - the boomers aren't 55-73.  The first "boomer" just started collecting Social Security last year or the year before.  If the children of the boomer outnumber their parents by far, why is the working population shrinking?

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#8) On July 02, 2009 at 1:39 PM, dsp444 (79.32) wrote:

Couple of comments:

"The fact that the largest generation ever, Baby Boomers, have passed their peak spending years..."

I don't know if this is true as long as health care is projected to be as high as it seems to be.  Granted they won't be spending across all sectors of the economy, but that money will be spent.  Now of course, it doesn't help if the spending is just govt / tax supplied...

One other thing that is not mentioned is the sustainabilty of a population in general.  In Japan and several European countries, it is bad - they have been having fewer kids - like just over one per couple.  That is going to prove to be disasterous (more than just economically)  There is going to be nobody to take care of the old.  And when people start having more kids to help with the population growth, the working generation will be even more strained taking care of large older and younger non-working generations.

 

 

 

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