You Say Goodbye, And I Say Hello

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The Demographic Challenge Facing Catalonia In The Aftermath Of The Global Financial Crisis

Ours is an age of rapidly ageing societies, and in this sense Catalonia is no different from the rest of the developed world. What is so new about our current situation is not the ageing itself,  but its velocity, and the global extension of the phenomenon. West European societies have been ageing steadily – in terms of their median population age -  ever since the coming of the industrial revolution, but now, following a sharp fall in birth rates and a sustained rise in life expectancy, our societies are ageing far more quickly than any previous generation could have contemplated.  Median ages in several countries are already around the 45 mark, and by 2030 the first pioneers will be breaking the 50 year barrier,

The economic and social implications of this are going to be profound, and, seemingly irreversible. Indeed, no other single force is likely to shape the future of national economic health, public finances, and policymaking in the coming decade as the unprecedented rate at which the world's population is ageing. Yet, strangely,  the issue has been receiving only a fraction of the attention that has been devoted to global climate change, even though, arguably, ageing is a problem our social and political systems are, in principle, much better equipped to deal with.

Among demographers, and economists interested in demography, the problem has been long been a source of anxiety, and a cause for preoccupation, since the impact on our present welfare systems is sure to be significant. Fortunately a good deal of research which can help us understand and anticipate events has already been carried out, even if policymakers have, to date, been reluctant to act on findings or draw the necessary conclusions.

The problem is, potentially, massive. According U.N. data, the proportion of the world's population aged over 65 is set to more than double by 2050, rising to 16.2% from 7.6% currently. By the middle of the century, about 1 billion over 65s will join the ranks of those currently classed as being of non-working age. The cost of supporting and caring for all these people will inevitably profoundly affect economic growth prospects and dominate public finance policy debates worldwide for many years to come.

The problem of population ageing is universal, as it is triggered by the decline in fertility that accompanies economic development, and will affect all the nations on the globe one day or another. The short term impact of population ageing, however, will be much more localised, since the pace of ageing varies greatly across countries and regions. The effects of the process are expected to be most pronounced in those countries that remained complacent in the face of ultra-low fertility rates - defined as  total fertility rates of 1.5 and under, and unfortunately Catalonia has long belonged to this group. What this in effect means is that Japan, the German speaking countries and much of Southern and Eastern Europe are ageing much more rapidly than their counterparts in North West Europe and the United States.

It is estimated that the median age of populations in Europe as a whole will increase from 38 today to 49 in 2050 (although this aggregate number hides significant differences between countries), and by that time Europe will be some 20 years older than the estimated average for Africa (which will be the youngest continent). Spain - with half its population older than 55 by 2050 – is expected to become the oldest country in the world, followed closely by Italy and Austria, with a projected median age of 54. These numbers are very high, and command respect, especially given the notable structural changes we have already seen in the German and Japanese economies, even though these countries have still only median age landmark of 45.

Predicting future population developments in Catalonia involves a greater than normal level of uncertainty  at the present time due to the very rapid population increase which has resulted from the substantial immigration the country has experienced during the last decade. Migration not only increases population size directly, but also indirectly, due to a higher level of births which is produced by the sudden increase in the population of child bearing age. Bearing this in mind, the  current estimates suggest that Catalonia’s population should continue to grow, and increase to a level of around 8,875 million by 2040 according to the median forecast projection of the Catalan statistics office (Idescat).  It should be emphasised though that this increase depends on many factors like continuing improvements in life expectancy, the birth rate and the net migration balance, and small movements in any of these over a long enough period of time can lead to large differences in the long term population level.

In particular the outcome of the present crisis is going to be critical, since the majority of migrants coming to Catalonia are economic migrants, and as such their rate of arrival (or departure) is very sensitive to conditions in the labour market. And with the prospect of continuing high levels of unemployment a new factor has appeared: young educated Catalans who find themselves forced to leave their home country in search of appropriate work. Who knows how many of these there will be in the years to come, or how many of them will eventually return.

One thing does look pretty certain though, and that is, as elsewhere, Catalonia’s elderly population will continue to grow, both in relative and absolute terms, and the population of 65 and over looks set to double in size, coming to represent more than 30% of the total population, while the working age population is expected to fall by nearly a fifth. The result will be that for every 10 persons of working age, by 2050 there are expected to be almost nine potentially inactive persons (either under 16 years or over 64). That is, the dependency rate is set to rise to around 90%, from its current  level of just under 50%. If current trends continue, average life expectancy at birth could well reach around 85 in males and nearly 90 in females by 2050, meaning there could well be an increase of over 5 years from the current levels.

The uniqueness of the phenomenon, and its unprecedented nature, mean that we have a long way to go in understand the full impact, but, as far as we are able to understand the issue at this point, population ageing will have major economic impacts and these can be categorised under four main headings:

i) ageing will affect the size of the working age population, and with this the level of trend economic growth in one country after another

ii) ageing will affect patterns of national saving and borrowing, and with these the directions and magnitudes of global capital flows

iii) through changes in national patterns of saving and borrowing, population ageing will probably influence the relative values of key assets like housing and shares.

iv) through changes in the dependency ratio, ageing will lead to pressure on the levels of national debt, producing, as we are already seeing, significant changes in ranking as between developed and emerging economies.

All in all, the consequences of societal ageing are going to be far reaching, producing a challenge to our current models of economic growth, and consequently pressuring our existing welfare systems for many years to come. Many of the issues involved – global economic imbalances, sovereign debt worries, the raising of retirement ages – are far from being unfamiliar topics in the context of the present financial crisis, as they have, one after another, come to slowly but steadily to the forefront. And it is here the greatest concern lies: given the difficult and protracted exit from the last global crisis, may we in fact find ourselves in the unfortunate position of saying goodbye to one crisis only to find ourselves saying hello to another, the ageing population one?

 

Edward Hugh

Economist and member ofthe Advisory Council of InTransit

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