An ageing global population could be putting the brakes on economic growth, resulting in an almost permanent squeeze on living standards, a leading investment bank has warned.
Older workers are typically less dynamic than younger participants in the labour market, economists believe, while pensioners spend their investments rather than making new ones. Slower growth in the populations of rich countries also reduces the market for goods and services. This removes an incentive for companies to invest.
“Ageing populations remain a powerful dampening force on labour supply growth and productivity,” warned Bruce Kasman at JP Morgan.
He expects investment to pick up soon as businesses respond to the economic recovery, but does not think that productivity growth will return to levels seen before the credit crunch.
Kasman said: “We can make a case for a more substantial strengthening as global demand rotates towards [capital expenditure] and as tighter labour markets encourage workers to enter the labour market. However, the past decade’s global supply slide will likely persist even as global financial crisis drags fade.”
His data indicates global productivity rose by around 2pc a year on average from 2002 to 2007, but has failed to rise by even 1pc since 2011. Analysts at French investment bank Natixis delivered a similar warning, adding that it will be hard for the rich world’s economies to pick up any further in part because of their ageing populations.
“The participation rate of senior citizens in employment is rising in most developed economies, which are converging towards Japan,” said chief economist Patrick Artus in his forecasts for 2018.
“However, the proportion of senior citizens in employment is negatively correlated with wage increases because senior citizens either already have a high wage level, they have a greater preference for free time, are less productive as they have returned to employment after a pause, or they work in sheltered sectors.”
Productivity growth has been constantly revised down
The stark warnings come after the Office for Budget Responsibility slashed its growth forecasts for the UK economy, blaming poor productivity growth. Officials had long hoped growth would pick up after the financial crisis, but productivity has failed to recover in the UK and across much of the rich world. As a result the OBR cut its productivity forecasts, which affects the outlook for economic growth, wages, taxes and government spending.
“We now assume that trend productivity growth picks up to 1.2pc by 2022. This is roughly half way between the paths based on the pre and post-crisis average rates,” said the OBR’s head Robert Chote.
“This judgment on its own reduces the potential size of the economy by 3pc in 2021-22, compared to the forecast we published in March.”
However, Martin Beck at Oxford Economics warns this pessimistic outlook may be overdone. He believes a shortage of workers overall – from an ageing population, low unemployment and, in the UK’s case, a fall in net migration – could end up prompting companies to invest.
“If companies are struggling to recruit, then it could speed up investment,” he said. “The same applies to lower net migration – it could give more impetus to investments in labour-saving technologies.”