Ageing population may hit GDP growth

Burden of supporting seniors may trim 2.5 points in a decade's time: Report
Elgin Toh Straits Times 30 Sep 11;

THE burden of supporting a greying population could shave as much as 2.5 percentage points off Singapore's per capita gross domestic product (GDP) growth rates in a decade's time.

That is the sobering projection made in a new report released by the Asian Development Bank (ADB) this month.

In a list of 12 Asian economies it analysed, Singapore looks set to be the worst-hit by shifting demographics, followed by Hong Kong (-2.2 per cent), Taiwan (-1.5 per cent), South Korea (-1.4 per cent) and Thailand (-0.9 per cent).

Japan was not included in the study.

In contrast, some economies will receive a growth fillip from their population trends, including Pakistan (0.8 per cent), India (0.5 per cent), the Philippines (0.4 per cent) and Indonesia (0.2 per cent).

Titled Asian Development Outlook 2011: Preparing For Demographic Transition, the report said an economy with a high share of two dependent groups - youth and the elderly - tends to save less, and hence grow more slowly.

'A child looks to his or her parents for material needs; a retired person relies on income from savings, transfers from his or her adult children, and pension benefits,' it said. With this in mind, the report sought to predict what the combined effect of old and young people on GDP growth per capita would be over the next 10 years and between 2021 and 2030.

For Singapore, the impact for the period lasting from 2011 to 2020 remains in the positive realm, but takes a sharp turn into the red for the decade that follows.

According to the ADB, elderly dependants account for much more of the negative impact (-2.4 per cent), compared to the young dependants (-0.1 per cent).

The report concluded that the challenge for countries is to 'act now' and find new ways to sustain long-term growth as well as strengthen the support systems for the elderly.

The bank's report comes hot on the heels of another forward-looking demographic study - by Singapore's Institute of Policy Studies - predicting that Singapore's population will start to shrink in 24 years if it shuts out immigrants.

Said CIMB economist Song Seng Wun: 'We have no need to panic, but neither should we ignore the problem, as some countries like Japan are doing.'

He said a 'straightforward solution' was to attract more immigrants, adding that productivity gains through skills upgrading and the better use of machines and tools would also help.

And while measures to improve fertility rates have met with limited success, UOB economist Alvin Liew said it is important to continue the fight on this front: 'We have seen examples of very advanced economies - especially the Scandinavian ones - that have been able to turn around their declining fertility.'