AGEING CRISIS PERPLEXES BANK CHIEFS
Those directing monetary policy in Asia see demographics as their top challenge, but there’s little they can do about it
Bank of Japan Governor Haruhiko Kuroda says it’s the most significant challenge facing his economy.
Bank of Korea Governor Lee Ju-yeol says it will be tougher to manage than record levels of household debt or future Federal Reserve interest-rate increases.
The issue perplexing Asia’s central bankers: demographics. And making matters worse is the realisation there’s very little they can do about it.
“In an ageing world, monetary policy is not that effective,” says Amlan Roy, global chief retirement strategist at State Street Global Advisors in London. “Central bankers are over-stretching their boundaries. We need a lot more fiscal policy with structural policies.”
An older population typically means a smaller workforce with fewer taxpayers and prime-age consumers, according to Bloomberg. Potential economic growth rates slide, and inflationary impulses fade as the population greys.
While central bankers can respond with lower benchmark interest rates or even more drastic stimulus such as Mr Kuroda’s unprecedented monetary experiment, that’s merely easing the symptoms. The cure – dramatic labour-market reforms and increased immigration – are not in the purview of central bankers, meaning governments subject to the whims of voters are forced to do the heavy lifting.
To be sure, Asia as a whole is still younger than Europe and North America, which will retain bigger cohorts of elderly through 2030, United Nations data show. That is due largely to youthful populations in the Philippines, Bangladesh and India. Even so, the 60-and-older contingent will make up about 17 per cent of the population across Asia by 2030, approaching the size of the younger-than-15 crowd, according to UN data.
In what’s been dubbed the “Asian century”, the risk is that the continent goes the way of Latin America in the 1990s, failing to make needed changes in employment, taxes, education and health care – ultimately threatening growth and job creation and aggravating inequality, Mr Roy says.
In South Korea, Mr Lee has said the nation’s rate of ageing – the fastest in the world – will be tougher to manage than its record level of household debt or future Federal Reserve interest-rate increases.
South Korea’s annual economic growth could slow to 1.9 per cent by 2025 and 0.4 per cent over 2026-2035 if steps are not taken to increase productivity and labour-force participation, according to Bank of Korea research published in 2017.
Central bank research on countering ageing emphasises tools that it doesn’t control; it says the policy priority should be raising the birth rate.
Thailand, meanwhile, will be the first developing country to become an “aged society”, in which at least 14 per cent of the population will be at least 65 years old, a Bank of Thailand (BoT) report noted last year, citing World Bank estimates.
Most of the BoT’s policy proposals fall outside its mandate.
They include raising the retirement age, supporting reverse mortgages for the elderly and providing employers incentives to hire workers older than 60.
Almost a third of Thais are still in debt aged 60 and many elderly workers are in lowskilled roles, meaning they will be forced to rely on family members and the government for support, the BoT report says.
Neighbouring Taiwan’s government projected in 2016 that the Taiwanese population would begin shrinking by 2023, and the birth rate has since fallen faster than expected.
Perng Fai-nan, the outgoing governor of Taiwan’s central bank, has publicly urged younger people to marry and have more children.
Perng expressed concern that a low birth rate would threaten growth by constricting the labour supply and putting greater pressure on government retirement funds.
Japan has been wrestling with how to address the age issue for some time.
Demographic change is the most significant challenge facing the Japanese economy, Mr Kuroda said last month in Davos, Switzerland.
Labour-market reform is a key to meeting that challenge, the Bank of Japan (BoJ) says.
Population decline is also a threat to the long-term health of regional banks and the financial system, Deputy Governor Hiroshi Nakaso said in November.
Fewer workers would mean greater competition among banks, aggravating the stress from reduced net interest income, on which Japanese banks rely disproportionately, the BoJ said in a report released in October.
But the country does provide a compelling example of just how some older folk could fill their time.
A madcap Japanese great-grandmother armed with a camera and an appetite for mischief has shot to fame for taking side-splitting selfies – many of which appear to put her in harm’s way.
Closing in on her 90th birthday, Kimiko Nishimoto tweaks the nose of fear: she has amassed more than 41,000 followers in the two months since she started regularly posting her hilarious snaps on Instagram. The goofy photos show the fun-loving pensioner riding a broomstick like Harry Potter, dressed in a dog costume, or, even more alarmingly, knocked over in an apparent traffic accident.
“I’ve actually never injured myself taking a photo,” Nishimoto tells AFP at her home in Kumamoto, western Japan. “I’m always focusing hard on taking a fun photo so I really don’t think about the danger too much.”
Such is her celebrity now that many fans were shut out of her exhibition at a Tokyo gallery in December as it struggled to cope with the crowds.
Ravi Menon, managing director of the Monetary Authority of Singapore, was altogether more sober in a speech last month when he said that ageing and a low birth rate will force Singapore to make tough economic choices, including on immigration.
Mr Menon warned of a “demographic trilemma” that means Singapore can achieve only two of three things at any one time: zero net immigration; a stable foreign-worker share; and positive labour force growth.
Prime Minister Lee Hsien Loong and other ministers have repeatedly cited rapid ageing as a catalyst for labour-market reform.
The government has undertaken efforts to retrain workers, especially older ones, to help them adapt to different sectors.
In China, restrictive family planning legislation has played a key role in shaping demography. The one-child policy introduced in the late 1970s implemented strict birth control measures to address the nation’s population boom and increased demand for resources, including food.
Although the policy controlled the birth rate, it has led to a gradual decline in the working age cohort, worsened by an overall increase in life expectancy, according to the UK’s eyeforpharma trade news portal. This legislation also adversely impacted the gender ratio, resulting in a population of 1.2 males to every female.
Decades of strict family planning policy has left China with more senior citizens than all European Union countries combined – it is anticipated that around 44 per cent of China’s population will be older than 60 by 2050.
Increasing socio-economic pressure to succeed and an increasing number of women choosing to pursue careers are thought to be the underlying reasons why fewer children are still preferred.
In fact, eyeforpharma says, the majority of the content’s urban populations – which already have low birth rates – share similar preferences over family planning.
As urbanisation continues to increase in these ageing societies, great strain will be imposed on healthcare resources and economic sustainability.
In an ageing world, monetary policy is not that effective ... we need a lot more fiscal policy with structural policies AMLAN ROY Strategist, State Street Global Advisors