Taiwan’s potential GDP growth likely to slow on rising aged-population

Taiwan’s potential growth in its gross domestic product is likely to slow down against the backdrop of rising old-age population. Slower working age population growth implies slower GDP growth. Meanwhile, old people are often less productive than those of middle age, which also has negative implications for potential growth.

Taiwan is facing the acute problem of population aging, the result of a low fertility rate and a longer life span. Growth in working age population has fallen to an average of 0.4 percent y/y in the recent five years (2011-15), down from 0.9 percent in the 2000s. And the situation is likely to worsen further. According to the projections from National Development Council, working age population will shrink -0.6 percent per year in 2016-20 and -1.1 percent in 2021-30.

Further, real GDP grew just 2.5 percent on average in the recent five years, notably lower than the 4.2 percent witnessed in the 2000s. The two key components, labor and productivity, have both deteriorated during the period.

In addition to headline GDP growth, demographic changes would also have impacts on consumers’ spending patterns and the structure of industrial sectors. As population ages, consumers’ demand will shift towards healthcare, elderly care and the related services, away from the basic needs like food, clothing and housing.

Moreover, shifting demographics also has implications for financial investment. People normally want to save and accumulate assets during their working life. During retirement however, they will reduce savings and liquidate the stock of assets in order to pay for the living expenses. Moreover, old people tend to be more risk-averse than the middle-aged people as the time horizon of their investment is shorter, DBS reported.

Meanwhile, Taiwan’s position as a net international creditor will be strengthened as outward investment increased and could mean the TWD assumed a degree of safe haven status during times of global turbulence.