Aging Workforces Are Becoming A Major Drag On Economic Growth, New EBRD Report Finds

Countries must act now to keep slowing population growth from wreaking havoc on their long-term economic prospects, the European Bank for Reconstruction and Development said in an annual report on Tuesday. 

The report said ageing populations have already begun to hinder economic growth in some nations — and that in emerging Europe, the drop in the share of working-age people is projected to reduce annual per capita GDP growth by an average of almost 0.4 percentage points a year between 2024 and 2050. 

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“Already today, demography is eroding growth in living standards, and it is going to be a headwind for GDP growth in the future,” EBRD Chief Economist Beata Javorcik told Reuters. 

Post-communist nations, she said, “are getting old before getting rich,” with the median age hitting 37 at a time when the average GDP per capita stands at $10,000. That was a quarter of the amount recorded when the median age hit that level in advanced economies in the 1990s. 

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The report pointed to a range of factors driving the fall in the birth rate — from shifts in social norms to a reduction in women’s career earnings from having a baby. 

But while nearly all EBRD nations have at least some incentives in place to boost the birth rate, Javorcik said these measures have not produced a meaningful, sustained change in any country. 

Migration at the level needed to counteract falling births is not politically palatable in most places, the report said, and most citizens are “ambivalent” about boosting AI use to improve productivity. 

The biggest lever, Javorcik said, is people working longer — which would also require some retraining and, potentially, changes to pension schemes. 

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“What we need is to have an adult conversation with the voters about where things stand, because people actually tend to underappreciate the meaning of demographic trends,” she said.

“We need to inform — in particular — younger voters, because they are the ones who will carry the burden of pay as-you-go pension schemes.”

Leaders Getting Older Even More Quickly

None of the measures that can compensate for falling birth rates are politically popular. 

But the report found that ageing populations — and leaders — make it tougher as they favour ringfencing pensions and restricting migration. 

In the average economy at the global level, the leader is now 60 years old — 19 years older than the median adult. This gap widened in autocracies to 26 years in 2023, up from 19 years in 1960.     

The EBRD’s newest member nations, including young and growing nations such as Nigeria, should focus on enabling job growth and private sector expansion because the clock is ticking, Javorcik said

“This demographic dividend they can enjoy is fleeting,” she said, pointing to falling birth rates in other parts of Africa. “So there is only a window of opportunity, these countries have to capitalize on this.”

(Reporting by Libby George; Editing by Andrew Heavens)

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