Challenges of Demographic Shifts on State Ratings
Moody’s has issued a warning about the impact of worsening demographics on the fiscal health of states, as well as the potential for downgrades in their credit ratings. The increase in the dependency ratio of the elderly is seen as a major factor contributing to this challenge. Greece, in particular, is expected to face a significant increase in its dependency ratio over the next decade, ranking fifth among developed economies internationally.
Accelerating Population Aging in Developed Economies
According to the prestigious rating agency, the trend of population aging is on the rise in developed economies due to increased life expectancy and declining birth rates. The elderly dependency ratio, which measures the proportion of people aged 65 and over to the working-age population, is projected to reach 40% in the next decade, up from 32% in 2023. This means that a smaller number of workers will be supporting a larger number of retirees.
Japan is expected to have the highest dependency ratio at 60%, followed by Italy, Germany, Portugal, and Greece. By 2035, Greece’s dependency ratio is forecasted to reach 48%, up from around 37% in 2023. This demographic shift poses significant challenges for states in terms of fiscal sustainability and economic stability.
The Challenge of Aging Populations for Governments
As populations around the world continue to age, governments are facing significant fiscal challenges. Moody’s has highlighted the strain that aging populations put on state finances, with rising fiscal costs due to pensions and healthcare needs, and declining tax revenues as more people retire.
Impact on Government Spending
Moody’s reports that government spending related to population aging already accounts for 18% of GDP on average across the countries it covers. This is expected to increase by an average of 1.3 percentage points of GDP between 2025 and 2035. Countries that are aging faster, such as Portugal, Italy, and Spain, are projected to see the sharpest spending increases, ranging from 1.5% to 2.3%.
In Greece, government spending on pensions and healthcare currently stands at 20% of GDP, higher than the average. This is a trend that is expected to continue as the population ages, leading to higher per capita government spending and lower tax revenue.
The Forecasted Growth Rate for the Global Economy
According to a recent report by Moody’s, the global economy is expected to experience a modest growth rate of 0.5% between the years 2025 and 2035. This forecast takes into account various economic indicators and trends that are likely to shape the global economy in the coming decade.
While the projected growth rate may seem small, it is a positive sign that the global economy is expected to continue expanding in the next decade. This growth is attributed to factors such as technological advancements, increased trade opportunities, and improvements in infrastructure and productivity.
Despite the forecasted growth, there are still challenges and uncertainties that could impact the global economy in the future. Geopolitical tensions, climate change, and shifts in consumer behavior are just a few examples of factors that could influence the pace of economic growth in the coming years.
Overall, the forecasted growth rate of 0.5% for the global economy between 2025 and 2035 indicates a steady but cautious optimism for the future. It is important for policymakers, businesses, and individuals to remain vigilant and adaptable to navigate the challenges and opportunities that lie ahead in the global economy.
