The IMF has released a new report looking at the predicted economic growth of the Asia-Pacific region. According to CNBC, it predicts that this area will have the highest long-term growth in the world, but that in the medium-term the picture is darkened by an ageing population and low productivity growth.

While the world’s economy overall is expected to grow by 3.5 per cent in 2017 and 3.6 per cent in 2018, this region’s economic output will grow by much more: 5.5 per cent this year and 5.4 per cent next year. However, to sustain this, the IMF warns that “structural reforms are needed” to deal with the problem of demographic transition in the years ahead.

The Asia-Pacific region is one of demographic extremes. At one end of the spectrum are China, Hong Kong, Japan, South Korea and Thailand are all predicted to have some of the highest old-age dependency ratios in the world by 2050. They are known as “post-dividend economies” with a working-age population shrinking both relative to the rest of the population and absotlutely. At the other end are “early dividend” economies, those with extremely young populations: India, the Philippines and Indonesia.

Overall, demographic changes are likely to drag down Asian growth by about 0.1 per cent points a year for the next 30 years and double that if early-dividend countries cannot reap the “demographic dividend” according to the report. Ageing societies could also see real interest rates and asset returns falling.

The report advocates for labour, pension and retirement reforms. Including promoting labour force participation of women and the elderly as well as minimum pension guarantees. Ways to encourage investment by people away from “precautionary savings” would also help growth. The report states that:

“Sustained improvements in welfare and living standards ultimately require productivity growth. Extensive growth, driven by capital accumulation, is possible for a while. But over long periods of time, only productivity growth, or intensive growth, can overcome decreasing returns to capital and lower investment.”

Thus, economic growth is the way that ageing popuations can pay for themselves: for their pension, their healthcare etc. But an ageing population is likely to reduce that economic growth. This is the conundrum facing many Asian nations. On the other hand, countries like Indonesia are trying to harness their growing young population: if done successfully, it will help these countries reap a demographic dividend, just like China managed to do in the 1980s. 

Marcus Roberts is a Senior Researcher at the Maxim Institute in Auckland, New Zealand, and was co-editor of the former MercatorNet blog, Demography is Destiny. Marcus has a background in the law, both...