Demographics and the Global Economy: Germany's Demographic Challenges

By 2050, the world’s population will have grown by 32%, but the working age population (ages 15-64) will have only expanded by 26%. Amongst the more advanced economies, by 2050, the working age population will have shrunk 26% in South Korea, 23% in both Germany and Italy, and 28% in Japan. India’s population is expected to grow by 33%, however Russia and China’s working population will contract by 21%.

Despite the recent surge of immigrants and asylum seekers, according to the UN, Germany’s population is supposed to decline from its 2002 peak of 82 million to 74.5 million by 2050. However, it is expected that the migrants who stay in Germany will continue to follow the existing pattern of native Germans of raising too few children to replace previous generations.

Germany has a strong economy and low unemployment, but the fall in its working- age population is straining employers. A part of its demographic challenge can be attributed to the shift of younger people to the big cities from their home regions, which was delayed because of Germany’s decentralized structure. An increasing concern is the increase in skilled labor shortage, and with the older generation retiring, the slack tightens further because unemployment is already at 6%.

If there are less people working, it would be difficult to maintain Germany’s gross domestic product growth, and pensions and healthcare costs are expected to grow more rapidly, increasing the burden on the working population. The German government raised the official retirement age and is trying to encourage the population to save more, in addition to reducing the fiscal deficit to zero and aiming to cut public borrowing. According to the International Monetary Fund, the population in advanced countries would require an immediate eight- fold increase in immigration from less- developed countries to keep the elderly population stabilized.