The International Monetary Fund is calling on Asian economies to learn from Japan’s experience and act early to cope with rapidly aging populations, warning that parts of the region risk “getting old before becoming rich.”
Asia has enjoyed substantial demographic dividends in the past decades, but the growing number of elderly is set to create a demographic “tax” on growth, the IMF said in its economic outlook report for the Asia-Pacific region released Tuesday.
“The speed of aging is especially remarkable compared to the historical experience in Europe and the United States,” the IMF said. Per capita income in Asia relative to the U.S. remains at much lower levels than those achieved by mature advanced economies in the past.
“Adapting to aging could be especially challenging for Asia, as populations living at relatively low per capita income levels in many parts of the region are rapidly becoming old,” the report says. “Some countries in Asia are getting old before becoming rich.”
The population growth rate is projected to fall to zero for Asia by 2050 and the share of working-age people — now at its peak — will decline over the coming decades, the report says.
The share of the population aged 65 and older will increase rapidly and reach close to 2½ times the current level by 2050, it says.
That means demographics could subtract 0.1 percentage point from annual global growth over the next three decades, it says.
The challenges are particularly huge for Japan, which faces both an aging and shrinking population. Its labor force shrank by more than 7 percent in the past two decades, the IMF said.
The high percentage of people living on pensions may be behind Japan’s excess savings and low investment, which are weighing on growth and blamed in part for keeping inflation below the Bank of Japan’s 2 percent target, the report says.
“Japan’s experience highlights how demographic headwinds can adversely impact growth, inflation dynamics and the effectiveness of monetary policy,” it says.
The IMF called on Asian nations to learn from Japan’s experience and deal with demographic headwinds early, such as by introducing credible fiscal consolidation plans, boosting female and elderly labor force participation, and revamping social safety nets.
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