Aging Population to Cut East Europe Deeper Than West, IMF Says

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Eastern Europe is suffering from aging and shrinking populations more than the West, and those countries are less prepared to deal with the issue

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Europe’s eastern wing is suffering from aging and shrinking populations more than the West, and those countries are less prepared to deal with the issue, the International Monetary Fund said.

For years, demographic studies have suggested Europe’s economy will slide into crisis as its workforce shrinks and the elderly demand more expensive services including health care. Under that scenario, outnumbered younger generations will struggle to pay for it all.

The situation is worst in the 20 countries stretching from the Baltic Sea to the Balkans, which will see their populations decline by 12% by 2050, said Tao Zhang, deputy managing director of the IMF. The size of their workforces will drop by a quarter, meaning the number of retirees per employee will double, he told a forum in Dubrovnik, Croatia.

 

 

“In this region, the population is aging before getting rich enough, making the situation worse than in western Europe,” Zhang said Monday. “The demographic challenges could significantly slow economic growth. A shrinking labor supply and lower productivity of older workers, together with greater pressure on public finances, could cost countries about 1% of gross domestic product per year.”

The problem should be tackled by raising the retirement age, extending incentives for people to get jobs, including retirees, as well as by importing workers, Zhang said at the meeting of finance ministers and central bankers in the Adriatic Sea resort.

 

 

That may be difficult for voters in a region inundated by populism and hostility to immigrants from outside of Europe. In countries like Croatia, there’s also resistance to raising the retirement age, on the grounds that people have a shorter life expectancy than in the West.

“These are social and political decisions that every country has to make for itself,” Poul Thomsen, the director of the IMF’s European department, said in an interview. “But the shortage of labor is a major issue, not some abstract long-term issue.”

Undercutting Growth

The emigration of workers from the European Union‘s eastern members to western Europe had probably shaved of seven percentage points of output per capita from those countries’ efforts to catch up with their richer counterparts, Thomsen said, citing an IMF study.

Higher wages and better services such as healthcare and education can also help keep people at home or lure them back. Croatian central bank Governor Boris Vujcic urged caution, however, about paying workers more, as it could undercut productivity that’s still lower than in more developed countries.

“Raising wages will not solve the problem entirely,” he said.

In the region’s biggest econom

ies, including Poland, Hungary and the Czech Republic, companies have complained they are losing money because they can’t find enough workers, even after years of double-digit wage increases. For its part, Croatia has for years felt the pinch of a labor shortage in tourism, its main industry.

“The demographic challenge is the key issue for the survival of the Croatian nation,” Prime Minister Andrej Plenkovic said.