News Column

UAE to reap rich demographic dividend from young population

August 7, 2014

Babu Das Augustine Banking Editor

Dubai: A relatively young and fast growing working population in the UAE will have a positive impact on the economic growth of the country, according to a study by Moody's Investor's Service.

The study showed that the working age population in the age group of 15 to 64 in the UAE grew at rate of 25 per cent between 2000 and 1015 and is set to grow by more than 3 per cent between 2015-30. This is in sharp contrast to already negative growth in working age population in many developed countries such as Germany, Japan, Greece and Finland.

In all the Gulf countries working age population grew strongly in the last 15 years. While Qatar reported working age population growth in excess of 35 per cent, in Oman and Bahrain it grew in excess of 10 per cent during this period.

Moody's expect that the demographic dividend that drove economic growth in many countries in the past will turn into a demographic tax that will ultimately slow this growth for most countries worldwide.

"Demographic transition, frequently considered a long-term problem, is upon us now and will significantly lower economic growth," said Elena Duggar, a Moody's Senior Vice President and one of the authors of the report.

According to Moody's by next year, more than 60 per cent countries it rates will be officially "aging". The United Nations (UN) definition for aging is populations with more than 7 per cent elderly at age 65 or higher.

By 2020, the number of €˜super-aged' societies will increase to 13 globally from three today. The UN defines populations with more than 20 per cent elderly as "super-aged". By 2030, 34 countries will be super-aged.

The unprecedented pace of aging will have a significant negative effect on economic growth over the next two decades across all regions. The global working-age population will grow nearly half as fast through 2030 as during the previous 15 years (by only 13.6 per cent compared to 24.8 per cent).

Pressures on labour supply

All Gulf countries including the UAE have a very low share of elderly (+65) in the society. In 2015 it constitutes only 0.5 per cent of the total population and is expected to reach 1.8 per cent in 2030. In Saudi Arabia the share of elderly in the population will be 3 per cent in 2015 and is expected to reach 7 per cent in 2030.

All countries, except a handful in Africa, will face either a slower-growing or declining working-age population and corresponding pressures on labour supply. Furthermore, 16 countries will see a decline of over 10 per cent in their working-age population in the same period.

Population aging will also reduce household savings rates, which will reduce investment. Academic estimates indicate that a one percentage point (pp) rise in the old age dependency ratio (the ratio of population aged 65+ to the population 15-64) will lead to a 0.5-1.2 percentage point decline in the average savings rate.

These developments will lead to significantly lower economic growth. In a sample of 55 developed and emerging market economies. "Aging will reduce aggregate annual economic growth by 0.4 per cent in 2014-19 and by a much larger 0.9 per cent in 2020-25.Aging is not just a developed-world problem. Many emerging market countries are already classified as aging, such as Russia, Thailand, Chile and China," Duggar.

Policy reforms in the medium term that improve labour participation, spur immigration in a country, and encourage financial inflows can partially mitigate the impact of aging on economic growth. Innovation and technological progress that improve labour productivity and human capital can also dampen the effects of the rapid demographic changes on economic growth over the long term.

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Source: Gulf News (United Arab Emirates)

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