The world’s population is about to get a whole lot older.
Just look at the chart below from HSBC showing the split in ages that is likely to be seen over the next few decades:
According to UN estimates, there’ll be 250 million more people aged 65 and older within the next decade, with the vast majority of that increase expected to occur in developed nations.
The projection for developing nations stands at 200 million, with 70 million of that total coming from China alone.
To James Pomeroy, global economist at HSBC, this will create a challenge for policymakers, potentially weighing on economic growth and further straining already stretched public finances.
“Fewer workers should mean slower growth, but the equally challenging issue for the world is the sharp rise in the number of pensioners over the next decade and beyond,” he says.
“Although many developed markets already struggle with providing healthcare and pensions while balancing the public finances in this environment, many emerging markets have not had to tackle this challenge before.”
It’s more than a headache for policymakers.
There’ll be fewer workers in many nations which, coupled with an ageing population, will place pressure on public finances.
There’s no easy fix, says Pomeroy, acknowledging that potential solutions will be hard to implement.
“Governments, by and large, are unwilling to raise retirement ages by the amount needed or as quickly as needed,” he says, adding that “raising fertility rates is difficult and extremely slow and those countries who have tried to do so have largely failed.”
Pomeroy also admits that encouraging greater migration is, as seen recently, “politically unpopular”.
He says that this means the demographic challenge facing policymakers won’t go away any time soon.
However, in his opinion, if there is to be a policy response to these challenges, it will require an “international solution”.
“Given the global population mix, it appears that a more international solution is needed,” he says. “Where globalisation is embraced and we see either more trade and/or more international migration so that the capital and labour across the world are able to mix.”
Pomeroy admits that there does not appear to be the political appetite for either of these things right now, particularly in developed markets, but he says that views may change as younger generations take on a more prominent role in determining public policy.
“In the UK’s EU referendum for example, older generations voted disproportionately to leave and so the question is whether this younger generation has a cohort effect or if views change as it ages,” says Pomeroy.
“Which one of these patterns wins out will be key for the future of public attitudes towards globalisation, openness and migration — and what could be the best solutions to the world’s demographic challenge.”
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