The cur­rent sta­tus of Asia’s young and old

Di­verg­ing de­mo­graph­ics out­look prom­ises het­eroge­nous re­gional per­for­mance in the decades ahead.

Singapore Business Review - - ANALYSIS: ASIA DEMOGRAPHICS - By Taimur Baig, Chief Econ­o­mist Asia, Deutsche Bank

Along with global out­put growth, Asia as a re­gion has slowed in the past decade. While the 2008/09 global fi­nan­cial cri­sis and the sub­se­quent rise in trade pro­tec­tion­ism have played ma­jor roles in sub­tract­ing from eco­nomic ac­tiv­ity, a broader, struc­tural fac­tor is at play. Many of Asia’s dy­namic, fast grow­ing economies of the past decades are slow­ing as they have be­gun to age, with the share of the eco­nom­i­cally in­ac­tive pop­u­la­tion ris­ing as a share of those in the la­bor force.

For economies like Sin­ga­pore, South Korea, or Ja­pan, this is tak­ing place at a time when they have al­ready reached the high-in­come co­hort, af­ford­ing them with the where­withal to deal with the as­so­ci­ated head­winds. But for the likes of China and Thai­land, the on­set of aging has co­in­cided with reach­ing only mid­dle-in­come sta­tus. For a va­ri­ety of rea­sons, aging be­fore get­ting rich can be par­tic­u­larly chal­leng­ing.

Although economies rep­re­sent­ing 1.8b Asians are past their de­mo­graphic peak, another group of coun­tries, rep­re­sent­ing an even larger pop­u­la­tion (around 2.1 bil­lion) re­main blessed by fa­vor­able de­mo­graphic dy­nam­ics. Led by

In­dia and In­done­sia, and fol­lowed by Bangladesh, Myan­mar, Pak­istan, and the Philip­pines, th­ese economies of­fer con­sid­er­able po­ten­tial in the form of a de­mo­graphic tail­wind. In­deed, the fact that some parts of Asia are aging and some parts will likely re­main largely youth­ful of­fer in­trigu­ing re­cal­i­bra­tions of growth and re­lo­ca­tion of pro­duc­tion in the com­ing decades, in our view.

Pop­u­la­tion dy­nam­ics is a crit­i­cal fac­tor in de­ter­min­ing po­ten­tial eco­nomic growth. A fa­vor­able pro­por­tion of work­ing peo­ple over non-work­ing ones means more in­come gen­er­a­tion, higher tax col­lec­tion, higher sav­ings, lower cost of la­bor (and hence com­pet­i­tive­ness), and more so­ci­etal and fis­cal af­ford­abil­ity with re­spect to pen­sion and health­care costs. All of th­ese trends can re­verse as the pop­u­la­tion ages. Of course, a youth­ful pop­u­la­tion is not a guar­an­tee for high growth, nor is aging des­tined to con­fine an econ­omy to low growth. A poorly ed­u­cated work­force and in­ad­e­quate in­fra­struc­ture can di­min­ish the de­mo­graphic div­i­dend, while pro­duc­tiv­ity en­hance­ment through in­no­va­tion and in­vest­ment can keep growth go­ing even in an aging so­ci­ety.

Asia’s work­ing age pop­u­la­tion will grow by 317m, roughly in line with Africa’s, to 3.3b by 2030.

Abun­dant la­bor sup­ply

Asia has im­pres­sive fi­nan­cial sav­ings, siz­able FX re­serves, and vi­brant mar­kets, but its big­gest as­set is in fact its peo­ple. Ac­cord­ing to the United Na­tions, the re­gion is home to 60% of the world’s pop­u­la­tion. Go­ing for­ward, Asia will there­fore con­tinue to ac­count for the bulk of global growth and de­mand. The re­gion’s large pop­u­la­tion also en­sures abun­dant la­bor sup­ply, pro­vid­ing firms rel­a­tive ease to ex­pand ca­pac­ity within the re­gion. While the African con­ti­nent is fast catch­ing up, Asia

re­mains home to 6 for ev­ery 10 of the world’s work­force. Medi­um­vari­ant pro­jec­tions of the United Na­tions, which as­sume that fer­til­ity be­hav­ior evolves in line with his­tor­i­cal trends, in­di­cate that Asia’s work­ing age pop­u­la­tion will grow by 317m, roughly in line with Africa’s, to 3.3b by 2030, whereas the rest of the world’s work­force is pro­jected to re­main sta­ble. With con­tin­ued la­bor force growth, in­creased la­bor com­pe­ti­tion could give way to tech­no­log­i­cal ad­vance­ments and in­no­va­tions, breath­ing vi­tal­ity to many of Asia’s economies.

In par­tic­u­lar, emerg­ing economies of In­dia, In­done­sia, and the Philip­pines, as well as the fron­tier mar­kets of Bangladesh, Cam­bo­dia, Laos, Myan­mar, and Pak­istan-al­to­gether com­pris­ing a pop­u­la­tion of around 2.1 bil­lion, nearly half of Asia’s head­count--have the po­ten­tial to achieve stronger eco­nomic growth go­ing for­ward. Most of th­ese economies can lever­age on their large and youth­ful pop­u­la­tions to stim­u­late do­mes­tic de­mand and lift out­put. In ad­di­tion to a de­mo­graphic tail­wind, many of th­ese economies have pop­u­la­tions over 100m, a large enough scale to help sup­port self-sus­tain­ing do­mes­tic de­mand. At a time when the global trade out­look has dark­ened, economies with large and young pop­u­la­tions ought to be able to dif­fer­en­ti­ate with higher po­ten­tial

GDP growth in the com­ing decades.

Har­vest­ing de­mo­graphic div­i­dend

A de­mo­graphic div­i­dend is not a guar­an­tee; it needs to be har­vested.

The gains would only oc­cur if the rapidly ex­pand­ing work­force is chan­neled into gain­ful em­ploy­ment, thereby, con­vert­ing the am­ple la­bor sup­ply into pro­duc­tive eco­nomic agents. In fact, re­al­iz­ing the de­mo­graphic div­i­dend re­quires pru­dent pol­i­cy­mak­ing and col­lab­o­ra­tion be­tween the public and pri­vate sec­tor. For one, it re­quires good gov­er­nance, sound macroe­co­nomic man­age­ment, suf­fi­cient public sec­tor in­vest­ments in eco­nomic and so­cial ser­vices, and ef­fi­cient la­bor and fi­nan­cial mar­kets to at­tract jobcre­at­ing pri­vate sec­tor in­vest­ments. The so­cio-eco­nomic progress they have at­tained in the past decade or so--in terms of re­viv­ing growth, con­tain­ing in­fla­tion, lib­er­al­iz­ing trade and finance, fis­cal con­sol­i­da­tion, and ul­ti­mately poverty al­le­vi­a­tion -- also puts th­ese coun­tries in a po­si­tion to reap the de­mo­graphic div­i­dends to some ex­tent.

On the other end of the spec­trum are Asian coun­tries marked with a gray­ing pop­u­la­tion. Lead­ing the pack is Ja­pan with a me­dian age of

46, the world’s high­est, and which is pro­jected by the United Na­tions to rise to 51 by 2030. Ja­pan’s rapidly de­clin­ing birth rates have al­ready driven down the pop­u­la­tion to 126.5m in 2015 since peak­ing at 127.3m in 2009. The United Na­tions is pro­ject­ing the pop­u­la­tion to fur­ther drop to 120m by 2030, with the el­derly ac­count­ing for 53% of the work­ing age pop­u­la­tion. The pro­tracted strug­gle of Ja­panese pol­i­cy­mak­ers to re­vive the coun­try’s slug­gish eco­nomic growth and re­verse chronic de­fla­tion il­lus­trates the chal­lenges as­so­ci­ated with rapid pop­u­la­tion aging.

Hong Kong, South Korea, and Sin­ga­pore are also at the ad­vanced stages of their de­mo­graphic tran­si­tion. With a me­dian age of at least 40 years old, th­ese three coun­tries cur­rently have three de­pen­dents for ev­ery 10 peo­ple in the work­force, and which are pro­jected by the UN to dou­ble in the next 15 years.

Un­fa­vor­able de­mo­graph­ics

But in as much as the div­i­dends are not au­to­matic, there re­mains hope for coun­tries fac­ing an un­fa­vor­able turn in their de­mo­graph­ics. Faced with an aging so­ci­ety, pol­i­cy­mak­ers would now have to turn their at­ten­tions to­wards struc­tural re­forms par­tic­u­larly aimed at boost­ing pro­duc­tiv­ity and pro­mot­ing in­no­va­tion. The la­bor force pool can also be ex­panded by rais­ing the re­tire­ment age and en­cour­ag­ing more women to work, while cre­at­ing a work­ing en­vi­ron­ment con­ducive to the se­niors and women such by al­low­ing flex­i­ble work­ing sched­ules and pro­vid­ing more child­care cen­ters. Sin­ga­pore, for in­stance, apart from rais­ing the re­tire­ment age to 62 years old, is re­quir­ing em­ploy­ers to re-em­ploy el­i­gi­ble em­ploy­ees up to the age of 65, and which from July on­wards, will rise to 67. In ad­di­tion, poli­cies and incentives to en­cour­age child-bear­ing would help to boost la­bor force par­tic­i­pa­tion in the long run.

Equally im­por­tant as well, Asia’s di­verse de­mo­graphic dy­nam­ics poses an op­por­tu­nity to deepen in­trare­gional in­te­gra­tion. More ad­vanced yet aging economies of China, Hong Kong, Ja­pan, Sin­ga­pore, South

Korea, and Tai­wan, would find it vi­able to ex­port cap­i­tal and ex­per­tise to less ad­vanced economies in the re­gion with large do­mes­tic mar­kets and abun­dant la­bor sup­ply. This would in­creas­ingly be the case go­ing for­ward, in our view, as pro­tec­tion­ist mea­sures are ad­vanced by the US and to some ex­tent, Europe, trig­gered by Brexit. Deep­en­ing re­gional eco­nomic in­te­gra­tion would also have to in­volve greater la­bor mo­bil­ity so that coun­tries with la­bor short­ages can lever­age on the slack in other parts in Asia, and vice versa. That is partly the goal of the ASEAN Eco­nomic Com­mu­nity, although progress in es­tab­lish­ing free move­ment of skilled la­bor has un­for­tu­nately lagged be­hind. With re­cent de­vel­op­ments in the West be­com­ing un­fa­vor­able to Asia, now will have to be the time for pol­i­cy­mak­ers to step up ef­forts to fa­cil­i­tate eas­ier flow of goods, la­bor, in­vest­ment, and cap­i­tal within the re­gion. That is, as the West looks in­ward, Asia would have to awaken its growth po­ten­tial from within.

Hong Kong, South Korea, and Sin­ga­pore are also at the ad­vanced stages of their de­mo­graphic tran­si­tion.

Pop­u­la­tion dy­nam­ics is a crit­i­cal fac­tor for growth

Newspapers in English

Newspapers from Singapore

© PressReader. All rights reserved.