Asia's Central Banks Can Do Little About Their Biggest Challenge
(Bloomberg) -- Bank of Japan Governor Haruhiko Kuroda says it’s the most significant challenge facing his economy. Bank of Korea Governor Lee Ju-yeol says it’ll be tougher to manage than record levels of household debt or future Federal Reserve interest-rate increases.
The issue perplexing Asia’s central bankers: demographics. And making matters worse is the realization there’s very little they can do about it.
“In an aging world, monetary policy is not that effective,” said Amlan Roy, global chief retirement strategist at State Street Global Advisors in London. “Central bankers are over-stretching their boundaries. We need a lot more fiscal policy with structural policies.”
An older population typically means a smaller workforce with fewer taxpayers and prime-age consumers. Potential economic growth rates slide, and inflationary impulses fade as the population grays.
While central bankers can respond with lower benchmark interest rates or even more drastic stimulus such as Kuroda’s unprecedented monetary experiment, that’s merely easing the symptoms. The cure -- dramatic labor-market reforms and increased immigration -- aren’t in the purview of central bankers, meaning governments subject to the whims of voters are forced to do the heavy lifting.
To be sure, Asia as a whole is still younger than Europe and North America, which will retain bigger cohorts of elderly through 2030, United Nations data show. That’s thanks largely to youthful populations of the Philippines, Bangladesh and India. Even still, the 60-and-older contingent will make up about 17 percent of the population across Asia by 2030, approaching the size of the younger-than-15 crowd, according to UN data.
In what’s been dubbed the “Asian century,” the risk is that the continent goes the way of Latin America in the 1990s, failing to make needed changes in employment, taxes, education and health care -- ultimately threatening growth and job creation and aggravating inequality, Roy said.
Here are details from five Asian economies with some of the biggest demographic challenges:
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