Germany has a new worry, its working-age population may decline by 2℅ in 20 yrs

Germany is projected to experience a 2% decline in its working-age population by 2045, a development that could exacerbate concerns over growth constraints in Europe’s largest economy. According to a forecast released on Wednesday by the Federal Institute for Research on Building, Urban Affairs, and Spatial Development (BBSR), the number of people aged between 20 and 67 is expected to decrease, even as the overall population is anticipated to grow by 0.9% or 800,000 people, primarily due to net migration.

While net migration has bolstered the country’s total population, pushing it to a record 84.7 million in 2023, this influx has not offset the demographic shift in the working-age group. The population segment aged 67 and above, eligible for retirement, is projected to increase significantly by 13.6% or 2.2 million people, compounding the challenges posed by an ageing society.

This demographic change is poised to intensify the strain on Germany’s economy, which is already grappling with a significant workforce shortage. Currently, there are about 1.57 million unfilled jobs, highlighting a critical gap in the labour market that could hinder economic growth and productivity. German officials have underscored that managing this impending workforce deficit will be one of the most pressing challenges for sustaining economic momentum in the coming decades.

Germany is “becoming older and more diverse,”  Construction Minister Klara Geywitz told Reuters.. The challenges facing the country over the next two decades will include “securing skilled workers, integration, more age-appropriate housing, digitization across the country and adapting social infrastructures,” Geywitz said.

Germany’s working-age population reached its peak at the end of the 20th century, but demographic decline has been delayed due to the influx of millions of immigrants and an increasing number of women joining the workforce. However, these mitigating trends are now waning just as the post-World War II baby-boomer generation begins to retire. This shift poses a significant challenge to Germany’s economy, which will need to rely heavily on boosting the productivity of its existing workforce to sustain economic growth.

According to projections from Bloomberg Economics, Germany’s overall economic growth is expected to hover around 1% per year for the foreseeable future. This modest growth forecast is a consequence of the diminishing working-age population and the challenges posed by an ageing society.

Among its Western peers, Germany faces the most substantial demographic drag on growth for the next decade, surpassed only by Japan. Japan, which has traditionally been a more closed society with lower female workforce participation and a rapidly aging population, offers a parallel to the demographic issues Germany is encountering. Both countries are on similar paths, with Germany now approaching the demographic challenges that Japan has been grappling with for some time.

With inputs from agencies.