Moody’s demographic alarm
Agency warns Greece will soon have the fifth highest dependency ratio for the over-65s
Moody’s warned on Tuesday that worsening demographics and the increase in the dependency ration of the elderly constitute a serious fiscal challenge as well as a cause of downgrades of states’ ratings. Greece, as it states, is expected within the next decade to have the fifth highest dependency ratio among all developed economies internationally.
As the prestigious rating agency points out, population aging continues to accelerate in developed economies as people live longer and birth rates decline. The elderly dependency ratio, which measures the proportion of people aged 65 and over to the working-age population (15-64), is expected to rise to 40% over the next decade, from 32% in 2023. This means that a declining number of employees will support an expanding pool of retirees. According to the agency Japan will continue to record the highest dependency ratio (60%), followed by Italy, Germany, Portugal and Greece; for this country it will be 48% by 2035, from around 37% in 2023.
Growing dependent populations pose a significant fiscal challenge for governments and put severe credit pressures on states, Moody’s underlines: Fiscal costs rise as people retire due to pensions and higher healthcare needs, while tax revenues fall as income shifts from employment to retirement. Consequently, an increasingly aging population means higher per capita government spending and lower tax revenue.
Across the countries Moody’s covers government spending related to population aging is already significant, at 18% of GDP on average, and is projected to increase by an average of 1.3 percentage points of GDP between 2025 and 2035. “The cost of aging will increase more in countries that are predicted to age faster,” it says.
The sharpest spending increases (by 1.5-2.3%) are expected in countries that are aging faster, such as Portugal, Italy and Spain. In Greece, government spending (pensions, healthcare) currently stands at 20% of GDP, higher than average, and is expected to increase by 0.5% in 2025-2035, according to Moody’s.
