Aging Population And Productivity Are Asia’s Top Problems As Singled Out By The IMF

The International Monetary Fund (IMF) warned in a new report on Tuesday that the medium-term picture in the  Asia Pacific region is weighed down by an aging population and sluggish productivity even though the global financial agency says that the long-term growth outlook for the regions remains the strongest in the world.

Placed well above the organisation’s global estimate of 3.5 percent in 2017 and and 3.6 percent in 2018, the regional economic output of the Asia Pacific region is projected to hit 5.5 percent this year and 5.4 percent in 2018. But the IMF said that “to sustain long-term growth, structural reforms are needed to deal with challenges from the demographic transition and to boost productivity.”

To better illustrate its point, the report explained that some of the highest old-age dependency ratios globally by 2050 would be seen being reached in China, Hong Kong, Japan, South Korea and Thailand — which are known as post-dividend economies and where the share in the total population and in absolute numbers, the working-age population is shrinking very rapidly.

And including the countries such as India, Indonesia, and the Philippines, which boast some of the youngest populations in the region, lie on the other side of the spectrum are identified as early dividend nations.

“Overall, demographics are likely to be slightly negative for Asian growth and could subtract 0.1 of a percentage point from annual global growth over the next three decades, or 0.2 of a percentage point if early-dividend countries are unable to reap the demographic dividend,” the report said.

The report added that downward pressure on real interest rates and asset returns could also be exerted by the aging population and shrinking workforce.

But to solve this problem, labor, pension and retirement reforms can come to the aid. The IMF outlined measures such as minimum pension guarantees and the promotion of the labor force participation of women and the elderly to be included in the remedies. The report further added that the situation could be helped by increase in the availability of safe assets and creation of new financial products to reduce precautionary savings.

The IMF also noted that since the global financial crisis, particularly in more advanced economies such as China, Asia has experienced a productivity growth slowdown.

“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.”

According to the IMF, key drivers of productivity growth will be foreign direct investment (FDI), exports, imports, research and development (R&D) expenditure, new technologies, new ways of organizing production processes.

“The main policy issue is how to raise productivity growth when external factors might not be as supportive as they were before the global financial crisis. In particular, further trade liberalization might be more difficult to achieve,” the IMF stated.

The organisation explained that while developing countries should ramp up domestic investments in education and infrastructure, advanced economies must focus on strengthening the effectiveness of R&D spending.

(Adapted from CNBC)

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Categories: Economy & Finance, Geopolitics, Strategy, Sustainability, Uncategorized

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