Economic Impact of Aging Populations
- SidLinx
- May 2
- 3 min read
“Economies worldwide are aging rapidly as a result of declining fertility and rising life expectancy.”
IMF comment.
Economic Challenge
The International Monetary Fund (IMF) reported the economic challenge, of aging populations is facing all governments worldwide. People are living longer, healthier lives, they are mentally alert and physically more capable than earlier generations at a similar age. Another significant issue affecting the economy is declining global fertility rates. An aging population that is living longer plus a declining birth rate, is a demographic shift that is expected to significantly slow economic growth in the 21st century.
New Zealand
Declining birthrates and an aging population are reshaping New Zealand’s economy in several keyways:
Slower Labour Force Growth: As more people move into retirement and fewer young people enter the workforce, overall labour supply declines. This can limit economic growth unless offset by higher participation from older workers or increased immigration, though these effects are limited.
Rising Public Spending: An older population increases demand for healthcare, pensions (superannuation), and aged care services, putting upward pressure on government spending and taxes.
Changing Consumption Patterns: Older populations spend more on healthcare and less on education and housing, shifting demand across sectors.
Potential Productivity Impacts: Productivity may fall if the workforce ages and there are fewer younger, highly productive workers, though older workers can still contribute significantly, especially if workplace flexibility is increased.
Strain on Social Systems: With fewer workers supporting more retirees, the sustainability of pension systems like New Zealand Superannuation comes under pressure, risking higher taxes or reduced benefits for future generations.
Savings and Investment: As people age, they tend to save less and draw down on their assets, which can affect national savings rates and investment levels.
In summary, New Zealand faces slower economic growth, higher fiscal pressures, and a need to adapt workplaces and public policy to support an older, shrinking workforce.
Global Impact. Ref: NZH article written by Liam Dann 27 April 2025.
Key points:
Aging Population Impact: The IMF report highlights that economies are progressively crossing a "demographic turning point" where the working-age population begins to decline, transitioning from a "demographic dividend" to a "demographic drag" on GDP growth.
Global Phenomenon: By 2035, all advanced economies and major emerging markets will have crossed this threshold, with most low-income countries following by 2070.
Economic Consequences: A rising old-age dependency ratio puts pressure on public finances due to increased spending on pensions, healthcare, and long-term care. It also leads to lower investment needs and downward pressure on interest rates, contributing to a more stagnant economy.
New Zealand's Situation: New Zealand's population is also aging, with projections showing a significant increase in the percentage of people aged 65 and over. This will strain the country's superannuation bill, which is projected to rise substantially.
Potential Solutions: While increased migration could help offset the demographic change, it brings its own challenges, such as the need for substantial infrastructure investment. Ultimately, raising the age of eligibility for superannuation is inevitable and should be implemented sooner rather than later to manage the change gradually.
Will an elected government of New Zealand bite the bullet and move the superannuation qualifying age to 67?
Boomers
Our generation will not live to see these trends play out. Millennials and generation Z will witness it. Interesting times ahead for the generations to come.
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