In 2012, the European Council asked the Economic Policy Committee for an update on the age-related expenditure projections by the autumn of 2014, to take into account new population projections by Eurostat, the statistics agency of the European Union.
The projections are meant to provide an indication of the timing and scale of the economic effects of the ageing population of Europe.
The 2015 Ageing Report said that “the age structure of the EU population is projected to dramatically change in the coming decades due to the dynamics of fertility, life expectancy and migration rates.”
In what may seem a contradiction the population is projected to be larger by 2060, but it will also be much older than it is now. The EU population is expected to increase by almost 4% (from 507 million in 2013 up to 2050), when it will peak (at 526 million) and will thereafter decline slowly (to 523 million in 2060).
In 2013 in the European Union the states with the largest population were: Germany (81million), France (66 million), the United Kingdom (64 million), Italy (60 million) and Spain (47 million).
According to Eurostat’s projections, the UK would become the most populous EU country in 2060 (80 million), followed by France (76 million), Germany (71 million), Italy (66 million) and Spain (46 million).
Britain comes to the lead
These projections have led to speculation in the press that the surge in the UK population could make it the largest economy in the EU and that this would lead to a change in the balance of power, with the UK taking over from Germany as the most influential country.
Another important finding of the report is the economic impact of ageing on the pension arrangements.
The old-age dependency ratio (people aged 65 or above relative to those aged 15-64) is projected to increase from 27.8% to 50.1% in the EU. This means that the EU would move from having about four working-age people for every person aged over 65 years to two working-age people.
The decline in births among the European-born population is expected to take place with an increase in migration to the EU, which over the entire period up to 2060 is expected to number 55 million.
The immigrants are expected to be concentrated in a few countries: Italy (15.5 million), the UK (9.2 million), Germany (7.0 million) and Spain (6.5 million).
The report did note that these are only projections and that changes in the coming years could well mean that the forecasts will be proved wrong.
“Germany may well conclude that the best way to counter its declining influence would be to invite in more foreigners, and thereby grow more swiftly than now seems likely,” a report from the London Telegraph commented.
Nevertheless, the EU report observed that: “Indeed, the population of working age is projected to decline substantially in the coming decades, as large cohorts of people retire and are replaced by smaller ones of younger workers.”
The consequences of these changes for economic growth are significant. “In the EU as a whole, the annual average potential GDP growth rate in the baseline scenario is projected to remain quite stable over the long-term, albeit much lower than in previous decades,” the report said.
The danger, the report added, is that if fertility rates are lower than expected, then growth rates could be much reduced.
One of the conclusions of the report is that even if there is large-scale immigration into the European countries the world population share of the current EU Member States halved from 14.7% in 1950 to 7.2% in 2010, and it is expected to drop close to 5.0% in 2060, despite the projected net migration flows,
World population shares of Japan, China and the US have also declined in recent decades. By contrast Africa’s world population share is projected to increase at the fastest rate of all continents to over 28% in 2060. In Asia, a slight decline is expected though it is projected to still account to over 50% of the world population in 2060.
Europe, the report noted, is currently the oldest continent with the highest old age dependency ratio, and will remain so in 2060. Other parts of the world are however also experiencing a dramatic ageing of their populations, with old-age dependency ratios climbing to levels clearly above the ones in Europe now on all continents except Africa. The demographic change is pronounced in particular in China, where the old age dependency ratio is at similar levels to the European one at around 50% in 2060.
Instead of focusing in short-term fluctuations in the stock market it may well be more wise to look at the longer-term demographic changes.