The working-age population in Southeast Asia (SEA) is expected to slow to about 0.9% annually from 1.4% over the past decade, according to an S&P Global Ratings report. This might lead to a future where economies can’t grow fast enough for the public sector to pay for increased pensions and public health needs, with growth projected to be 0% at around 2040.
The region’s GDP is also expected to slow 0.25 to 0.3 percentage points every year over the next decade.
"Ageing trends will slow economic growth and raise fiscal demands of countries to support the needs of the elderly such as health care and pensions," said S&P Global Ratings Asia-Pacific economist Vishrut Rana.
Families and the private sector will have to henceforth fill gaps in elder care when the workforce shrinks, and higher elderly dependency will put a strain on government reserves via the healthcare sector and social safety nets.
However, Rana says that Asia is well-positioned to weather this storm, as SEA’s traditional reliance on community and family for health care and welfare for the elderly will somewhat mitigate fiscal pressures.
“The region will remain a global growth driver as demographics are still better than global high income economies and even other emerging markets, but demographic change is now underway,” he adds.
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The rising proportion of middle-aged households will translate into increased savings. Simultaneously, slower growth in the working-age population will mean lower future demand and slower growth in loans and spending.
Cumulatively, interest rates will fall as the population saves more and spends less. That said, part of the interest rate drop will be mitigated as infrastructure investment needs are still substantial.
Countries in SEA will also see a variety in the speed of demographic changes in the region. Among them, Thailand is expected to see the quickest transition, followed by Vietnam. The ageing transition window is expected to be longer for the rest of the region, says the S&P Global Ratings report.
