Sustaining Growth in an Aging World
Source details
- Canonical URL
- Sustaining Growth in an Aging World
Other formats
Bibliographic details
- Authors: BERTRAND GRUSS, DIAA NOURELDIN
- Published: June 2, 2025
Key findings
- The demographic dividend that supported global expansion will soon become a demographic drag.
- In advanced economies the share of working-age people is shrinking already; the largest emerging market economies will reach this demographic turning point within the decade; the most populous low-income countries will get there by 2070.
- Improved labor market outcomes for people aged 50 and older, thanks to better health, could contribute about 0.4 percentage point annually to global GDP growth in 2025–50.
- Global growth would still be about 1.1 percentage points slower than in prepandemic years if governments do nothing, with demography’s drag accounting for almost three-fourths of the decline.
- Policies to improve people’s human capital and keep them in work as they age could offset a large portion of the projected growth drag.
Healthy aging (evidence and labor-market effects)
- Data on individuals from 41 advanced and emerging market economies show recent cohorts aged 50 and older have better physical and cognitive capacities than earlier cohorts of the same age.
- Cognitive capacities: "A person who was 70 in 2022 had the same cognitive health score as a 53-year-old in 2000."
- Physical health improvements documented include measures such as grip strength and lung capacity.
- Estimated labor-market associations over a decade for someone aged 50 or over:
- Increase of about 20 percentage points in the likelihood of remaining in the labor force.
- An additional six hours worked per week.
- A 30 percent increase in earnings.
Economic impact (channels and country heterogeneity)
- Demography affects growth through:
- Fertility, mortality, and migration altering population growth rates and age structures, directly reducing the share of the working-age population.
- Potential strain on public finances if longevity implies more years in retirement.
- Slower population growth leading to fewer new ideas and inventions, compounding productivity slowdowns.
- Savings and interest-rate channels:
- Longer retirement incentivizes higher worker saving, increasing aggregate savings.
- A shrinking workforce reduces investment needs; aging influences the supply of savings and demand for investment, driving interest rates.
- Cross-border reallocation:
- Capital may flow from old, high-saving economies to younger, capital-scarce economies.
- Incentives for labor migration from younger, labor-abundant economies to older economies facing labor shortages.
- Outcome heterogeneity:
- Some advanced economies with relatively older populations (such as Japan) are likely to see their economies shrink.
- Canada and the United States are expected to continue growing during this century, albeit at a slower pace.
- China: growth is projected to slow by about 2.7 percentage points relative to 2016–18, driven by adverse demographics and the end of rapid catch-up to the world’s productivity frontier.
- India: projected milder growth decline of about 0.7 percentage point in 2025–50 as near-term demographics remain favorable; India and low-income developing countries are set to experience a sharper growth slowdown from 2050 onward.
Policies that help (scenario assumptions and simulated effects)
- Rationale: Many workers leave the labor force after 50, well before statutory retirement age; health improvements suggest policies can enhance older workers’ human capital and extend productive working lives.
- Scenario assumptions:
- Governments implement additional public health measures that narrow cross-country gaps in the functional capacity of older individuals by about one-fourth over the next four decades.
- Health measures are complemented by changes to retirement plans, training programs, and more flexible work conditions that incentivize a gradual rise in the effective retirement age in line with improvements in life expectancy.
- Policies narrow gender gaps in labor force participation by three-fourths by 2040.
- Simulated impact:
- These policies could boost global annual output growth by about 0.6 percentage point over the next 25 years.
- This boost offsets almost three-fourths of the estimated demographic drag during that period.
- Distributional effects:
- India could see a strong boost to growth given large existing gender gaps in labor force participation.
- European economies where the effective retirement age is low relative to life expectancy (such as Greece, Italy, and Spain) would benefit from incentivizing longer working lives.
- Feasibility:
- For the majority of countries in the study, the assumed improvements in health and labor supply are comparable to trends observed over the past two decades and are thus described as "within reach."
Study provenance and authors
- This article draws on Chapter 2 of the IMF’s April 2025 World Economic Outlook, by Bertrand Gruss, Eric Huang, Andresa Lagerborg, Diaa Noureldin, and Galip Kemal Ozhan, with support from Pedro de Barros Gagliardi and Ziyan Han.
- BERTRAND GRUSS is a deputy division chief in the IMF’s Research Department.
- DIAA NOURELDIN is a senior economist in the IMF’s Research Department.
Sustaining Growth in an Aging World — F&D Magazine, BERTRAND GRUSS, DIAA NOURELDIN, June 2025
Content in this bundle
- Sustaining Growth in an Aging World