Off the Charts: Slower Economic Growth Is Seen as Population Ages

That forecast was issued Friday by the Organization for Economic Cooperation and Development, a group of 34 countries that includes all of the major industrialized nations.

“Aging will be a drag on growth in many countries,” said the report, titled “Looking to 2060: Long-Term Global Growth Prospects.” It also projected that while the aging of the population would be offset to some extent by better education in many countries, global growth in gross domestic product, which averaged 3.5 percent a year from 1995 through 2011, would rise to 3.7 percent through 2030, but then fall to just 2.3 percent over the next three decades.

“The active share of the population has to finance the old population,” said Asa Johansson, a senior economist in the organization and the principal author of the report, explaining why the rising proportion of older people is expected to reduce growth.

The accompanying charts show the growth forecasts for the world and for nine major countries, as well as what is known as the old-age dependency ratio, defined as the number of people over the age of 65 for each 100 people ages 15 to 64, which defines the working-age population.

The process is expected to be particularly rapid in China. In 2010, that country had just 11.3 people over 65 for each 100 people in the working-age population, less than half of Britain’s 25.1 figure and well below the United States’s 19.9. But the United Nations estimates that by 2045, the dependency ratio in China will be 39, almost exactly the same as in Britain and well above the 34.6 figure forecast for the United States.

The O.E.C.D. report said that more rapid aging in China “partly explains why India and Indonesia will overtake China’s growth rate in less than a decade.” It forecast that China’s G.D.P. would grow at a rate of 2.3 percent a year from 2030 to 2060, little more than the 2 percent it forecast for the United States. But it projected growth of 3.3 percent in Indonesia and 4 percent in India.

The United Nations estimates reflect uncertainty about changes in fertility rates over the coming decades, and the charts show three forecasts based on assumptions of high, medium and low rates. The O.E.C.D. growth forecasts assume the medium fertility rates.

If the medium rates are correct, by 2060 Germany and Italy will each have old-age ratios above 55, while Britain and France will have ratios below 45.

Ms. Johansson said she expected that more countries would move to delay retirement age, and noted that some countries were considering indexing that number to life expectancy.

One thing that could render these forecasts wrong would be an increase in immigration. For South Korea, which now seems to be on course to rival Japan as one of the oldest — and slowest-growing — countries in the world by late in this century, an obvious source of new workers would be the much younger North Korea, if politics ever made that possible. For many other countries, a source would be less developed nations, something that is politically unpopular in both the United States and Western Europe, and all but anathema in Japan.

Perhaps the politics of that will change someday, as young immigrants are viewed not as competitors for limited employment opportunities but as sources of tax revenue to help support aging populations.

Floyd Norris comments on finance and the economy at nytimes.com/economix.

Article source: http://www.nytimes.com/2012/11/10/business/economy/slower-economic-growth-is-seen-as-population-ages.html?partner=rss&emc=rss