Sunday, 6 December 2015

Asia feeling effects of ageing workforce

Greying population hurting Japan's economy; China and S. Korea not far behind: Report
By Marissa Lee, The Straits Times, 5 Dec 2015

Japan's greying population is one reason its economy is struggling with recession, and demographics across Asia are not looking too bright either.

China's working-age population peaked this year and South Korea's will start contracting in two years' time, warned HSBC in a note yesterday.

"Much of Japan's economic malaise over the last two decades is a result of its adverse demographics," wrote HSBC economist Frederic Neumann, noting that Japan's working-age population of people, aged between 15 and 65, started to shrink in 1997, weighing on the nation's output growth year after year. "China and Korea are swiftly following Japan, with their working-age populations shrinking from here on out."

Alarmingly, Mr Neumann estimates that when South Korea's working-age population starts to shrink, the contraction will be even sharper than that in China and Japan.

"In South Korea's case, slowing productivity growth amid climbing wages could ultimately dent the economy's competitiveness, although the country remains, for the time being, a powerful export force in many key sectors," he added.

In China, a doubling in working-age population growth from the late 1990s until the mid-2000s stoked the economy's remarkable growth spurt, but that boom is over.

Mr Neumann sees wage costs climbing unless the country can maintain its current pace of expansion.

"China's (expansion) is still associated with big strides in productivity, so the mainland isn't losing competitiveness at the moment," he noted.

Across most of Asia, working-age population growth has also decelerated sharply over the past 15 years, and is expected to slow further, said Mr Neumann. But even as the workforce ages, dependency ratios in all countries, except Japan, are still lower than they were in 2000, he noted, which blunted the adverse impact on national output growth.

Even so, the good news will not last long as dependency ratios are on track to rise again for all countries except the Philippines, India and Indonesia, said Mr Neumann.

For the rest of Asia, demographics need not be their destiny.

"Governments can adopt policies that mitigate adverse effects, such as raising the level of education of the existing, yet shrinking, workforce," he said.

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