Moody's has issued a warning that aging populations in Western countries will place significant strain on public finances well before actual population declines begin to occur, with Europe facing the most immediate challenges. According to forecasts cited by Moody's, the European Union's population is projected to peak in 2029, after which a sustained long-term decline will commence, as reported by the European Commission. In contrast, the U.S. Census Bureau projects that the American population will not peak until 2080 under its main scenario, or as early as 2043 if immigration is low. Notably, excluding the impact of immigration, the U.S. population decline has already started. Moody's emphasizes that fiscal pressures from aging, such as increased pension and healthcare costs, emerge long before populations actually shrink [1].
Currently, G7 economies have about three working-age individuals for every person over 65, but this ratio is expected to fall to around two by 2050. This demographic shift is anticipated to exert further pressure on economic growth and public finances, particularly in healthcare systems. Olivier Chemla, vice president of credit strategy and standards at Moody's, explained that aging populations slow economic growth, increase public spending on pensions and care, alter consumer demand, and impact real interest rates and sovereign yields. Moody's report highlights that while population growth has historically supported economic expansion and creditworthiness, declining fertility rates and rapid changes in age structures are now reversing this trend [1].
The report also discusses the potential mitigating effects of artificial intelligence (AI) and productivity gains. Chemla noted that while AI and increased productivity can partially offset the challenges of an aging workforce by enhancing supply-side capacity, they cannot fully compensate for reduced demand, as robots do not consume goods and services. This means that even with technological advancements, slower growth is expected due to fewer workers and consumers. The demographic challenge is not limited to Western economies; emerging markets such as China, Brazil, Thailand, and Turkiye are also experiencing rapid increases in their elderly populations. For example, China's share of people aged 65 and over has doubled from 7% to 14% in the past two decades [1].
Moody's concludes that the world's aging populations will have fundamental impacts on the global economy, necessitating difficult policy decisions. Countries will need to rely more heavily on productivity improvements to sustain growth as the number of workers and consumers declines [1].
CONCLUSION
Moody's analysis underscores that aging populations will create significant fiscal and economic challenges for Western and emerging economies alike, with Europe facing a population peak as soon as 2029. While AI and productivity gains may offer some relief, they are unlikely to fully offset the negative impacts on growth and public finances. Policymakers will need to address these demographic shifts with strategic reforms to maintain economic stability.