LONDON: Aging populations in Western countries will mean fewer workers and higher costs, straining public finances, credit rating agency Moody's has warned.
Europe is at the leading edge of the demographic shift. The European Union's population is projected to peak as soon as 2029, after which a sustained long-term decline will begin, according to the European Commission.
The U.S. Census Bureau does not expect the American population to peak until 2080 under its main projection, or until 2043 if immigration is low. Without immigration, the U.S. population is already declining.
But Moody's said the fiscal pressures of aging emerge long before populations begin to shrink.
Group of Seven economies currently have about three working-age people for every person over 65, according to Moody's. That ratio is expected to fall to about two by 2050, adding pressure to economic growth and public finances, including health care systems.
Olivier Chemla, vice president of credit strategy and standards at Moody's, said aging affects economies through slower growth, greater pension and care costs, changing consumer demand, and shifts in real interest rates and government bond yields. He spoke Friday on CNBC's "Squawk Box Europe."
In a report published last week, Moody's forecast that aging populations will have fundamental effects on the global economy and force difficult policy decisions.
Population growth has long supported economic growth and creditworthiness, the report said, but falling fertility rates and an unprecedented pace of change in age structures are altering that picture.
"Fewer workers will limit productive capacity, while fewer households and consumers will weaken demand," the report said. "As a result, countries will have to rely more on productivity to sustain growth."
Chemla said artificial intelligence and productivity gains can offset the challenge of an aging workforce only in part.
"This is a partial mitigant because you can certainly replace and enhance the supply side of the economy in factories and in services, but at the same time, robots do not consume – at least not yet – and so on the demand side, you will still be having that gap, which will slow growth," he said.
The problem extends beyond Europe and the U.S. Emerging economies are also aging rapidly. In China, the share of people 65 and older has doubled from 7% to 14% over the past two decades, and Brazil, Thailand and Turkey are on similar paths, according to the report.
Those countries will face the costs of aging at much lower income levels than the advanced economies that aged before them, the report said. In Europe, the same shift unfolded over several decades.
