International | May 03 2006
By Chris Shaw (Tokyo)
Asia has certainly contributed to global growth in recent years, but the cycles of global growth suggest this contribution will wax and wane in the future. With this in mind economists at Westpac have looked into the prospects for a number of countries in Asia through to 2020 based on their demographic outlooks, which includes the issue of ageing populations, an issue receiving some publicity recently in Japan in particular.
The bank’s economics team suggests Japan’s ageing population issue presents it with the greatest demographic challenge in the world, as the working age population is set to fall between now and 2020. To offset this will require both greater participation in the workforce and improvements in productivity, but at the same time there will be a greater individual tax burden as the size of the workforce shrinks.
When combined with its high level of public sector debt the outlook for Japan is one of ongoing difficulties, which supports the forecasts of most analysts that growth, while picking up, will remain below current global growth rates.
Korea is in a similar position, its population ageing almost as fast as Japan and not offering the supportive offset of internal migration to urban areas. The current shortage of quality, affordable housing is a factor here, but in the bank’s view is not enough to change its outlook of a gradual slowdown from about 2015. The bank offers one unlikely source of hope though in the possibility of unification with North Korea, which while costly would give the labour force a boost.
China too is getting older, the pace of its ageing increasing thanks to the "one child per family" policy. While the bank expects the workforce to continue to expand for the next decade, the rate of this expansion will come down until it eventually contracts after 2015. Unlike Japan though, China is still enjoying a migration of its population from rural to urban regions, so for a while at least the ageing of the population isn’t expected to have a significant impact on growth.
Possibly best placed of the larger Asian nations in the bank’s view is India, as it has both a large total population and a small urban population with low participation rates. As a result, it expects India’s urbanisation process to be rapid as internal migration is likely to increase consistently through to 2020. Additionally, India is expected to benefit from having a high quality labour force, which will encourage investment in human capital.
Indonesia stacks up well against India, again given a large, essentially young population. Where it falls short is in the upside from increased participation, as it already has a far higher participation rate than India.
Thailand is not so fortunate, its population being older than Indonesia’s and offering less potential than does the Philippines, with the bank suggesting the latter should generate stronger growth in its workforce by the time it catches up on Thailand in GDP growth, which should be in the next decade.
Similarly, the bank notes Malaysia is younger and richer than Thailand and it appears to be approaching an upturn in its demographics compared to the likely downturn for the Thai population. The bank also suggests Malaysia should enjoy a balanced expansion as both labour input growth and investment appear healthy, which is a positive for productivity going forward.
Vietnam has a positive outlook in the bank’s view, but it may take some time to flow through as the population is currently small in key age groups, but by 2020 it should be enjoying significant gains as its dominant age group will be the most productive one, the 25-34 years group.
Singapore on the other hand is getting older, but not in a way the bank expects will threaten its economic performance as it continues to diversify its outputs. Additionally, the bank notes its higher income levels will allow it to attract migrants from overseas, which will offset the impact of its population getting older.
