MLI Senior Fellow and author of Economorphics warns that aging populations can bring lower growth, restricted credit and more bear markets
OTTAWA, February 27, 2014 – In a commentary paper released today by the Macdonald-Laurier Institute, MLI senior fellow Linda Nazareth alerts Canadians to the impending end of favourable demographic conditions for economic growth. The demographic “window” that has benefitted much of the developed world for 50 years or so, is about to “slam shut”.
In the paper, titled How to Open Economic Doors When Canada’s Demographic Window Closes, Nazareth, an economist and author of the new book Economorphics (economorphics.com), writes that “When the labour force is expanding more quickly than the youth-dependency rate, more money is being paid in taxes and less is going into education, relatively speaking, and strong conditions are created for economic expansion”, but many nations are moving out of this “sweet spot”, with potentially dire consequences. And so Canada will have to deal with its own demographic challenges while dealing with a global economy that is buffeted by demographic change.
Nazareth writes that “an older population consumes differently than a younger one, and they work differently as well. That’s going to weigh on Canadian growth, but the situation is going to be made that much worse given that the rest of the world is also experiencing the same impact of the closing demographic windows”. We could be seeing lower economic growth, restricted access to credit and more bear markets as people move out of their working and saving years.
She points to projections by the Bank of Canada which show that in the absence of any adjustments, the average incomes of Canadians could be as much as 20 percent lower by 2032 than they would have been without population aging.
But demographics isn’t necessarily destiny, writes Nazareth: “Germany, the largest nation in the Eurozone, actually has the worst demographics (the median age in the country is 45) but ironically it is the one with the strongest economy. The reason? Very strong economic productivity, a situation that is not mirrored in many other European countries”.
Canada, which has been less affected by economic shocks than the rest of the world, can mitigate the economic ill-effects of an aging population if we apply the right policies that will increase birth rates, encourage immigration and attract foreign labour, and increase innovation and productivity. “This can still be a golden age for Canada”, she writes.
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Linda Nazareth is an economist, broadcaster, and speaker. She is the author of The Ever-After Effect and The Leisure Economy, as well as frequent commentator in the national media. The Senior Fellow for Economics and Population Change at the Macdonald-Laurier Institute, she is an expert on demographics and trends, and speaks frequently to business groups, translating big-picture trends into information they can use for their own strategic planning. For more information, visit www.economorphics.com or email firstname.lastname@example.org.
The Macdonald-Laurier Institute is the only non-partisan, independent national public policy think tank in Ottawa focusing on the full range of issues that fall under the jurisdiction of the federal government.
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