Asians Aging Faster Than Europeans

The ageing phenomenon has been a dominant feature of western economies over the past few decades, but Asian economies will age the most rapidly in the next phase, with China, Thailand, Korea, Singapore and Hong Kong set to age fastest.

In a new special report, the Standard Chartered Global Research team assesses the policy responses of countries in the region that most urgently need to tackle challenges related to ageing. It also analyses the timing and impact of ageing on GDP growth and its implication for household savings, TradeArabia reported.

 Key Findings

— While many advanced economies have a high share of the 65+ age group in their population, emerging markets currently represent two-thirds of the world’s elderly. The UN forecasts that the share of those aged 65+ in emerging markets will rise to almost 80% by 2050. China already has 131 million seniors, more than double the combined older generations of the three most aged economies in the world—Japan, Italy and Germany.

— South Korea and Singapore are set to become “hyper-aged” societies (defined by the UN as those in which seniors make up more than 21% of the population) by 2030; they are already “ageing” (7-14% of the population is 65+). Thailand and China will become hyper-aged by 2035.

— Asia and other emerging market regions are getting older faster than seen previously. It will take China and Singapore 25 years to progress from an ageing society to an aged society, according to UN projections. By comparison, it took the UK 45 years, the US 69 years and France 115 years.

— The acceleration of ageing means some societies will get old before they reach high-income status. This could create challenges, including limiting their ability to move up from middle-income status. Thailand and China are likely to face this challenge in the next few decades.

 Macroeconomic Impact

The macroeconomic impacts of ageing on an economy are varied, the most direct and significant of which is through labor supply. Standard Chartered estimates that after decades of positive contributions to GDP growth, demographics will become a drag by 2020 for China, South Korea, Hong Kong and Thailand and by 2025 for Singapore.

Standard Chartered estimates that growth in China’s labor force contributed more than 1.5 percentage point to GDP growth on average between 1996 and 2000, and over 3ppt in the early 1980s. By 2030, based on current demographic trends, the shrinking of the labor force will reduce GDP by 0.25ppt. However, the report shows that modest improvements in the quality of labor can delay the impact of ageing on GDP growth. For example, the negative effect for China could be postponed by 10 years.

China is getting old. In fact, they are getting older faster than anywhere else in the world. And the Chinese government has a very weak safety net to cover for them all.

According to the United Nations, China is ageing more rapidly than almost any country in recent history. China’s dependency ratio for retirees could rise as high as 44% by 2050.

Equally, on the positive side, the senior consumer market in emerging economies has considerable growth potential, leading to estimates that spending by the 65+ age group in some major emerging markets (including the BRICS along with Indonesia, Malaysia, the Philippines, Mexico, South Africa and Turkey) could increase by more than 400% to $4.4 trillion in 2030 from $0.8 trillion in 2015.

 Asia’s Response

— Demographic trends are challenging Asia’s traditional family values system. China is facing a ‘4-2-1’ phenomenon, whereby an only child is responsible for two parents and four grandparents.

— Institutional support is not yet in place to respond to the rapid rise in ageing. Pension systems remain unsustainable despite recent policy reforms. In China, the nationwide pension system may run a deficit as early as 2030; Thailand will likely run a deficit from 2041. By then, the pension systems in Korea and Vietnam should also run small deficits.

— Policies to raise fertility rates have been widely adopted in Asia to tackle the effects of ageing. They have so far proven unsuccessful. Fertility rates for the major economies–including China, Thailand, Japan, Singapore and Korea–remain well below the population replacement rate of 2.1.

— Initiatives to raise female labor participation are likely to have the largest immediate impact in offsetting the drag on labor-force and GDP growth from ageing. Child-care provision in places like Japan and Korea has had a positive effect, but their impact has generally been modest, hampered by entrenched social norms.

— Measures to upgrade seniors’ skills are prevalent only in advanced Asian economies such as Korea, Japan and Singapore.

Samantha Amerasinghe, economist, Thematic Research, said: “According to UN projections, by the end of the current decade, and for the first time in at least 60 years, the number of adults aged 65 and over globally will outnumber children under the age of four. While this transition has been led by advanced economies, the next phase of global ageing will be driven by rapid ageing in key Asian economies.”

“The speed of Asia’s demographic transition is a major concern as it means that many countries in the region risk growing old before they get rich. While governments in Asia have undertaken many reforms to tackle the challenges of a rapidly ageing demographic, their continued attention to balancing its negative effects alongside the positive aspects of rising personal consumption amongst the ‘silver economy’ over the longer term will prove crucial,” she added.