[Population Cliff] ④ Half of the Population Will Be Seniors Aged 65 and Over in 50 Years... Population Structure Reversal, Inflation Entrenchment

'Low Birthrate → Decline in Working-Age Population ↓ → Increase in Dependency Ratio · Decrease in Consumption → Entry into Low Growth, National Debt Increase'
If Fertility Rate Drops by 0.25, Growth Rate Falls by 0.9%P... Japan Also Hits Peak Working-Age Population and Faces Consumption Cliff

[Asia Economy Sejong=Reporter Kwon Haeyoung] Recently, low birth rates have emerged as a major social issue, but this is not merely a problem of population decline. The core issue is that, along with low birth rates, the aging population has increased, and South Korea is expected to face a reversed pyramid-shaped 'population inversion' about 50 years from now, where the elderly population will surpass the working-age population. This reversed pyramid population structure could become a time bomb that sharply increases the dependency ratio, worsening national finances, and also lead to rising production costs due to the rapid decline in the working-age population, potentially entrenching the high inflation currently affecting the world. It is a disaster that will strike the reversed pyramid population structure caused by population decline.

◆Rapid Decline in Working-Age Population... Entrenchment of Inflation＝According to the 'World and Korea Population Status and Outlook Reflecting the 2021 Population Projections' released by Statistics Korea on the 27th, the proportion of the working-age population (ages 15-64) is expected to shrink from 71.0% in 2022 to 46.1% by 2070. Meanwhile, the elderly population aged 65 and over is projected to surge from 17.5% to 46.4%, meaning half of the population will be elderly. The total dependency ratio, which is the number of dependents (youth population + elderly population) per 100 working-age people, will also nearly triple from 40.8 to 116.8 during the same period. This is the result of a sharp decline in fertility rates. South Korea's total fertility rate in the second quarter was 0.75, about half of the 1.3 recorded ten years ago in 2012.

This rapid decline in the working-age population caused by falling fertility rates is inevitably a fatal blow to the country's economic growth rate. The vicious cycle of 'low birth rate and aging → decrease in working population → increase in dependency ratio, decrease in consumption, investment, and employment → entry into low growth, increase in national debt' is likely. It is obvious that growth rates will fall if there are fewer people working. If welfare demands surge but there are fewer taxpayers, national debt will inevitably balloon like a snowball.

The bigger problem is that the domestic population cliff, combined with global population decline, could trigger unprecedented inflation. According to Charles Goodhart, Emeritus Professor at the London School of Economics (LSE), in his book 'Population Inversion,' the global economy has so far been able to maintain low prices by receiving labor supply through China's integration. However, the aging of advanced countries and the reduction of new Chinese workers could lead to population structure inversion, resulting in increased production costs and decreased output, thereby entrenching high inflation worldwide. Looking at the working-age population trends, the Group of Twenty (G20) countries increased by 1 billion over the past 30 years but are expected to increase by only 20 million over the next 30 years. China, which provided cheap labor, is projected to decrease by 190 million.

◆Declining Growth Rate, Increasing National Debt... "South Korea's Government Debt to Reach 140% of GDP in 40 Years"＝There are many studies indicating that low birth rates and aging will deal a fatal blow to the national economy by lowering economic growth rates and increasing national debt. The Korea Economic Research Institute analyzed in its March last year report, 'International Comparison of Low Birth Rate and Aging Trends and Policy Implications,' that every 0.25 decrease in total fertility rate lowers economic growth by 0.9 percentage points. South Korea's total fertility rate is expected to fall from 0.81 last year to the 0.7 range this year. The Organisation for Economic Co-operation and Development (OECD) also warned in its 2060 fiscal outlook report released last year that without policy responses, South Korea's per capita potential growth rate will fall to the zero percent range after 2030.

Some view Japan's long-term recession, known as the 'Lost 20 Years,' as caused by demographic changes?that is, aging experienced earlier than South Korea. Japan's working-age population peaked at 87 million in 1995 and then declined. From that point, a consumption cliff began, with reduced spending on housing, automobiles, and dining services, followed by a prolonged period of low growth with economic growth rates mostly around 1%.

As the elderly population that the younger generation must support increases, without strong pension reforms or spending restructuring, the national fiscal condition is expected to worsen further. The OECD's recent 'Korea Economic Outlook 2022' report projects that the government debt ratio will rise from the current 50% of GDP to over 140% by 2060. This is due to the rapid aging population doubling social spending from the current 12% of GDP by 2060. The OECD stated, "Considering the rapid population aging and the urgent tasks to expand social safety nets, South Korea will face greater long-term spending pressures than most other OECD countries," and added, "To stabilize debt, additional revenue or spending cuts equivalent to 10% of GDP will be required by 2060."

Professor Cho Young-tae of Seoul National University Graduate School of Public Health said, "Some industries will be hit by the decline in the working-age population on the production side, while others will not, but the consumer market will be much more affected," adding, "As the number of earners decreases, the market size shrinks, and industries highly dependent on domestic demand will be hit, causing growth rates to gradually decline."