The crisis of the aging population threatens the European economy

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Italy is expected to be the biggest victim of the decline, as an aging population will cut about 6 percent of the country’s GDP over the next 15 years. France and Germany will also see a sharp decrease, although less than the EU average.

Morgan Stanley says: The only country developing thanks to changing demographics is England. The country is expected to add four percent to the GDP by stabilizing its working-age population. However, it is expected that England will still face the problem of decreasing productivity.

Countries across the West are grappling with a steady decline in the working-age population, a trend already seen in countries such as Japan and South Korea. It is increasingly becoming a hot topic of conversation in European boardrooms. Reviewing more than 300,000 meeting transcripts, Morgan Stanley found that the number of repetitions of the phrase “aging population” has experienced a sharp increase in recent years, with approximately 5% of European senior executives raising the issue. However, the options available to policymakers to address the growing concern about a population time bomb do not look good.

There are two main ways to reverse the falling population, says Morgan Stanley. The realization of the most suitable option, i.e. the prosperity of the Avori child, is unlikely to be implemented quickly; Because even if there was an effective policy to increase the birth rate and it could be implemented immediately, it would take more than 15 years for this policy to affect the labor force. Therefore, this solution will have no effect in the short term.

According to the bank, recent steps to expand childcare services could act as a demographic benchmark, and high levels of net migration in recent years could support some fertility rates.

In fact, reforms to increase net immigration are the most likely way to address the crisis of declining working-age population and, consequently, economic growth.

The issue of immigration has flared up in Europe in recent years, and far-right and anti-immigration parties have gained significant ground this year. This has made it harder for governments trying to articulate the benefits of immigration to voters.

Morgan Stanley says: A third option to maintain GDP, which is at the lowest level of comfort, is to increase working hours for the remaining workforce. Raising the retirement age is another option that is likely to be unpopular with voters.

The most effective and yet realistic combination, the bank says, is more immigration combined with higher female labor force participation rates. This could close the current projected economic growth gap by increasing GDP by four percent.

While the shrinking workforce may lead to higher wages for other workers, Morgan Stanley notes that the negative effects of population decline on GDP are likely to have a negative impact on income.

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The bank’s report shows a series of obstacles for Europe to overcome one of its biggest existential challenges in the coming decades; A crisis that, according to Morgan Stanley, inaction will be disastrous.