Aging World & Economy

A] Prelude

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B] The Issue

Economists and policymakers have focused on a fairly fixed set of determinants of economic growth, such as investment, consumption, unemployment and trade. More recently, however, the powerful, long-term theme of population ageing has steadily moved to the forefront of macroeconomic thought.

C] The Details

From Japan to the United States, and from Europe to China, birth rates have fallen below replacement levels while life expectancy has continued to rise, leading countries to experience an expanding share of older citizens relative to those of working age.

In turn, this trend is having serious implications not only for growth but also for overall productivity, public finances, labour markets and global competitiveness.

According to the Organisation for Economic Co-operation and Development (OECD), the old-age dependency ratio—or the number of people aged 65-plus relative to those aged 15–64—has risen sharply across advanced economies in recent decades and is projected to continue to jump for the foreseeable future.

Long the world’s prime example of this trend, Japan’s ratio increased by a hefty fivefold from 1960 to reach 55.5 percent by 2022, with the country’s decades of economic stagnation since the 1990s being attributed in part to this demographic challenge. The country’s dependency ratio is expected to rise further, moreover, to a staggering 82 percent by 2060.

Indeed, the “OECD Employment Outlook 2025” projected that the share of employed persons in the OECD population will fall in most countries during this period, slowing gross domestic product (GDP) per capita growth from around 1.0 percent in the 2010s to 0.6 percent.

“Population ageing is set to continue in all OECD countries, even at different speeds, with Korea taking the lead in the coming decades,” research published by the intergovernmental forum of 38 member countries also noted. “The old-age dependency ratio in the country is projected to rise from around 26 percent in 2022 to 96 percent in 2060.”

D] New Era

As longevity increases, the share of older individuals grows while the proportion of working-age people shrinks or stagnates. “The impact of ageing populations threatens the very engine of economic growth, which depends on human resources to produce output,” said Stefano Scarpetta, director for employment at the OECD. “The economy has entered a new era, where the challenge shifts from a shortage of jobs to a shortage of workers.”

As the labour force shrinks relative to the number of retirees, fewer workers are available to support more dependents, further straining fiscal balances. As the labour force shrinks relative to the number of retirees, fewer workers are available to support more dependents, further straining fiscal balances.

Governments must spend more on healthcare, pensions and social services to serve the growing share of the elderly while the tax base shrinks relative to the number of recipients. Countries with generous pension and healthcare systems thus face particularly steep challenges, with governments likely to implement higher taxes and/or reduced benefits elsewhere to prevent soaring deficits—or issue more debt to fund the shortfalls.

E] China

China’s ageing trend also represents a potential ticking time bomb for its GDP growth over the coming decades. The Asian economic superpower recently recorded its lowest number of births since records began in 1949, with only 7.92 million births in 2025, or 5.63 for every 1,000 members of the population—down a hefty 17 percent from 9.54 million the year before. This number is far below the replacement rate needed to sustain its population, with the total population dropping by about 3.39 million.

What’s more, the United Nations “World Population Prospects 2024” report suggested that China’s approximately 1.4 billion people could shrink substantially by the end of the century. “It is anticipated that China, the country currently with the world’s second largest population, will likely experience the largest absolute population loss between 2024 and 2054 (204 million), followed by Japan and the Russian Federation (21 and 10 million, respectively),” the report warned.

And due to its large size and sustained low level of fertility, China “is also likely to record the largest population decline of any country through the end of the century (786 million people)”. By 2100, moreover, it will have lost “more than half of its current population and [will] have returned to a population size comparable to that recorded in the late 1950s”. With fewer young workers entering the labour force and a rapidly growing proportion of retirees, the macroeconomic implications for China are likely to be substantial should Beijing fail to address this threat.

F] USA

Although not as extreme, the working-age share of the population in the United States has nonetheless been declining for years, with analysts warning that this trend could weigh considerably on long-term growth. While its population is indisputably ageing, the country’s liberal immigration policies (!) have helped to bolster its workforce relative to many of its Asian peers. Nonetheless, labour-force participation among prime-age workers has declined, and the share of older households continues to rise.

US policy discussions are thus increasingly focused on how to maintain economic dynamism amid such demographic headwinds. Some proposals from economists and policymakers emphasise raising the retirement age, expanding labour-force participation among older workers and encouraging further immigration to offset declining fertility.

G] Europe

As for Europe, the European Bank for Reconstruction and Development (EBRD) warned that demographic pressures will weigh heavily on growth and living standards unless they are addressed through smart policies.

“Emerging Europe is ageing. Low fertility and a shrinking workforce will increasingly weigh on its growth prospects,” noted the bank’s “Transition Report 2025-26”, which focused on the implications of demographic changes for rapidly ageing economies, as well as economies with young, fast-growing populations.

The report also projected that declines in the share of the working-age population will reduce annual GDP per capitagrowth in Emerging Europe “by an average of almost 0.4 percentage point[s] between 2024 and 2050.” The EBRD’s chief economist, Beata Javorcik, cautioned that many countries in the region are “getting old before getting rich”, making their fiscal challenges even tougher.

H] India is an exception

In contrast to the sustained ageing of East Asia and advanced economies, however, India stands at the younger end of the demographic spectrum. With a significantly lower median age of 29.8 years (compared with 50.8 in Japan, 40.2 in China and 39.2 in the US), India’s working-age population share is expected to remain robust for decades.

This should yield a “demographic dividend” for the rising South Asian economy for at least the next 10 years, if not longer, as the younger population supports higher consumption, investment, innovation and overall productivity.

I] Finally

It’s also not all gloom and despair for the economic prospects of ageing countries. While people are living longer, they are also ageing in better health, which can make them more productive for longer.

According to analysis by the International Monetary Fund (IMF), data from a sample of 41 advanced and emerging market (EM) economies revealed that, on average, a person who was 70 in 2022 had the same cognitive ability as a 53-year-old in 2000.