Europe is ageing rapidly, demographers say, and the economic consequences may be catastrophic

Jan 14, 2020 | 2 comments

Old folks at home in Spain.

By Valendina Romei

With its low birth rate and fast-ageing population, Europe is facing a demographic crisis, one that economists fear could hit growth and public finances.

While the global population overall is getting older, Europe is an extreme example of this trend, particularly in the continent’s south and east, which have been hit by record-low fertility rates and out migration. An analysis of the main demographic trends highlights the challenge faced by policymakers.

Europe has had higher longevity and lower fertility rates than the rest of the world over the past few decades. It is now the region with the world’s oldest population. The median age in Europe is 43, 12 years older than the rest of the world.

The trend will become more pronounced from 2021 when Europe’s population is forecast by the UN to start shrinking.

The number of people of working age, those aged between 20 and 64 years old, peaked in Europe in 2010. By 2020, there were nearly 12 million fewer in this group than a decade earlier, a 2.6 per cent fall. By 2035, there will be about 50 million fewer people of working age in Europe than in 2010.

Emerging economies such as China and South Korea are also ageing rapidly — their median age has risen to more than 40 this year, doubling that in 1970 — and Japan has the largest proportion of people aged 65 and over in the world.

There is serious concern about the impact of an ageing population on public finances and economic growth.

Philipp Engler, an economist at the International Monetary fund (IMF), forecasts that gross domestic product per capita in advanced economies will shrink as a result. The reductions are expected to be “substantial in the EU economies”.

Martina Lizarazo López, demographics expert at Bertelsmann Stiftung, a Brussels-based think-tank, calculated that by 2050, demographic change would damp average per capita income in France, Spain, Italy and Germany by €4,759-€6,548 at 2010 prices. The European Commission forecasts that spending on healthcare for older people and pensions, which already accounts for 25 per cent of GDP in the EU, will rise 2.3 percentage points by 2040.

By 2035, about one in four people is set to be aged 65 or over in Europe, up from one in 13 in 1950.

In southern Europe, exceptionally low fertility rates make the demographic trends particularly challenging. Portugal, Greece, Italy and Spain are among the top-10 world economies with the lowest number of births per woman.

Southern Europe as a whole has a fertility rate of 1.37 per cent, well below the 2 per cent needed to replace the population. Poor job prospects and low wage expectations, coupled with a lack of family-friendly policies and an inflexible labour market have led to couples having fewer children and having them later in life, said Nikolai Botev, formerly with the United Nations Population Fund (UNFPA).

“Women in southern Europe enjoy equality in terms of education and employment, but within the family traditional gender roles persist, with women expected to shoulder much of the household responsibilities,” he said. “Southern European countries have a particular welfare regime, with policies directed towards the preservation of traditional family forms and the family as the provider of welfare.”

In eastern Europe, emigration — of people often in their prime — is also a factor. About 3.4 million more people left Romania than moved there in the past 20 years. The country is home to only 19 million. Over the same period, negative net migration was registered in Estonia, Latvia, Lithuania, Croatia, Serbia and Bulgaria.

In regions with the most dramatic demographic trends, “sustaining growth and social support requires some combination of more people working and people working more effectively, neither of which are easy to achieve,” said Alasdair Scott, economist at the IMF.

More and more older people are joining the workforce. In Europe, employment rates for those aged 50 to 64 rose nearly 20 percentage points to 57 per cent in the two decades to 2018, according to data from the OECD.

The European Commission has calculated that the silver economy — spending by people aged 50 years old and above — will reach €6.4 trillion by 2025, up from €3.7 trillion in 2015, and be responsible for nearly 40 per cent of the jobs created.

Most measures show that Europeans have not just longer but also healthier lives. People in the EU aged 65 and over can expect to live without disabilities for one and half more years in 2017 than they did in 2005, according to official data from Eurostat.

“In the end what we really care about is welfare, and a longer life is a big improvement in standard of living, it is very important for the welfare of people,” said Hervé Boulhol, an economist in the Pensions and Population Ageing team at the OECD.
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Credit: The Financial Times, www.ft.com

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