Europe’s population is projected to peak as soon as 2029, after which a sustained long-term decline will begin, according to the European Commission.
Credit rating agency Moody’s has warned that fewer workers and rising costs will place severe strain on public finances across Western economies in the years ahead.
The U.S. Census Bureau does not expect the American population to peak until 2080 under its main projection, or until 2043 under its low-immigration scenario.
Excluding the impact of immigration entirely, population decline in the United States has already begun, underlining the scale of the demographic challenge facing advanced economies.
Moody’s stresses that fiscal pressures from ageing emerge long before populations actually start shrinking, meaning governments cannot afford to wait before acting.
Today, G7 economies have about three working-age people for every person over 65, a ratio expected to fall to around two by 2050, heaping further pressure on growth and public finances.
Olivier Chemla, vice president of credit strategy and standards at Moody’s, told CNBC’s Squawk Box Europe that ageing populations affect economies through slower growth, greater pension and care costs, changing consumer demand, and shifts in sovereign yields.
In a report published last week, Moody’s forecast that the world’s ageing populations will have fundamental impacts on the global economy and lead to difficult policy decisions for governments worldwide.
“Fewer workers will limit productive capacity, while fewer households and consumers will weaken demand. As a result, countries will have to rely more on productivity to sustain growth,” the report states.
While population growth has long been a tailwind for growth and creditworthiness, falling fertility rates and an unprecedented speed of changing age structures are now fundamentally altering that picture.
Artificial intelligence and increased productivity can only partially offset the long-term challenge of an ageing workforce, Chemla cautioned, tempering optimism around technological solutions.
“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 challenge is not confined to Europe and the United States, as emerging economies are also ageing rapidly and face a potentially more difficult adjustment.
China’s share of people aged 65 and over has doubled from 7% to 14% over the past two decades, with Brazil, Thailand, and Turkiye following similar demographic trajectories.
These countries will face the costs of ageing at much lower income levels than the advanced economies that aged before them, adding a further layer of complexity to an already acute global challenge.