Monday, April 5, 2010

Singapore: The Future Has Grey Hairs

In exact counterpoint to my analysis of Malaysia’s demographics, Morgan Stanley (again! I love these guys) covers Singapore’s ageing work force, and the implications for economic growth in our southern neighbours:

Can Mr. Productivity Fight the ‘Silver Tsunami'?

...The Singapore economy is ageing and the pace of population greying will take on a new meaning in the coming decades (see factbox below for more details). Indeed, the dependency ratio (ratio of dependents to working-age population) has reached a historical low of 34.7% in 2010 amid a growing population base, implying that the economy is now in its final phase of reaping the ‘demographic dividend'. The current total fertility rate (TFR) has sunk as low as Japan's 1.27. This has been below the replacement rate of 2.1 since 1975. Ironically, the stark decline in TFR post 1950s and the sub-replacement fertility rate had helped to engineer an improvement in the dependency ratio via lower child dependency. Yet, the flip-side should soon rear its ugly head as the current working population grows old without replacement, leading to rising old-age dependency, arguably the more inferior sort of dependency.

They think that Singapore will eventually lose 1% of its growth potential over the next five years, a trend that I think will get worse as the population ages further. The greying of East Asia’s workforce will also likely slow growth in Taiwan, South Korea, and Hong Kong as well, with the only possible exception being China due to its still sub-optimal capital-labour ratio.

Malaysia has of course the opposite problem – our dependency ratio is high but mostly due to a higher proportion below the working age threshold. Which means over the next few decades, we’ll probably see a 1%-2% rise in our growth potential, provided of course that we have the right policies in place to harvest the “demographic dividend” of a rapidly increasing work force.

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