World Economic Outlook: No single "magic bullet" for demographic shifts

• Pages: 269-270

Page 269

The world is currently witnessing a significant demographic change, with potentially profound economic implications. In most advanced economies, populations are aging rapidly, (see chart, this page), and the size of the workforce relative to total population is starting to decline. In many developing countries, in contrast, declining fertility and rising longevity will translate over the next 20-30 years into sharp reductions in the share of the young in total population and a corresponding increase in the relative size of the working-age population.

There is no dispute about the direction of these trends, but it still is not clear what these shifts will mean for economic growth and for country authorities hoping to either contain the damage done to fiscal positions or seize the opportunity to boost growth. The WEO team researched the likely effect of these demographic developments on different countries and regions, focusing on the nature and scale of the required policy response, and on how wide-ranging reforms should be.

Dramatic shifts in workforces

Demographic projections are inherently uncertain. Most plausible scenarios, however, imply a number of broad trends. Over the next half century, the world's population growth will slow, from the current 1!/4 percent a year to perhaps !/4 of 1 percent. The world's population will continue to age, with the share of working-age adults in the total population falling in advanced economies but increasing in many developing countries.

The share of the elderly in the total population is projected to rise especially dramatically in Japan and Europe. Smaller increases are anticipated in the United States, where high immigration and higher fertility will stabilize the share of the working-age population after 2025. Among the developing regions, aging is already under way in Central and Eastern Europe; the process will also begin to accelerate in Asia and Latin America starting around 2015. In contrast, the share of the elderly in Africa and the Middle East will remain relatively small, and their working- age population will continue to rise through 2050.

Elderly dependency ratios are rising

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Using both econometric analysis and multicountry macroeconomic models, the WEO team found that rapid population aging in advanced economies is likely to strain government...