Europe’s population is projected to peak in 2029, Moody’s warns of fiscal strain

Europe’s population peak in 2029 is projected to mark the start of a long-term decline in the European Union, according to the European Commission, as reported by CNBC. Moody’s has warned that the more immediate issue for public finances is ageing: G7 economies have about three working-age people for each person over 65, a ratio the ratings agency expects to fall to roughly two by 2050.

CNBC reported that Moody’s sees difficult economic and policy choices ahead as countries confront falling fertility rates and rapidly changing age structures. The agency’s concern is not confined to the point when a country’s total population begins to contract. Pension, health-care and care costs can rise as the pool of workers supporting older people narrows.

Why can ageing strain public finances before population falls?

A country can still add people overall while its population becomes older. Moody’s said the resulting shift can curb economic growth, raise spending pressures and alter consumer demand. It also said ageing can affect real interest rates and sovereign yields, according to CNBC.

The mechanism includes both supply and demand. Moody’s said a smaller workforce limits an economy’s productive capacity, while fewer households and consumers can weaken demand. Governments may therefore have to rely more heavily on productivity gains to maintain growth, the agency said.

Europe’s forecast differs from the U.S. outlook

The 2029 date applies to the European Union, rather than to Western economies as a whole. The U.S. Census Bureau’s central projection puts the peak of the American population at 2080, CNBC reported. Under the bureau’s low-immigration scenario, the peak would arrive in 2043.

Immigration is therefore material to the U.S. demographic outlook. CNBC reported that, excluding immigration, the country’s population decline has already begun. The contrast illustrates why aggregate population forecasts should be read alongside assumptions about migration and the age composition of residents.

Can AI offset an ageing workforce?

Olivier Chemla, a vice-president in credit strategy and standards at Moody’s, told CNBC that artificial intelligence and higher productivity could ease part of the challenge. Technologies that improve factory and service-sector output can support the supply side of the economy, he said.

Chemla said those gains would be incomplete offsets because automation does not address weaker consumer demand associated with fewer households and consumers. Moody’s therefore does not treat productivity improvements as a full answer to the long-term economic effects of an ageing population.

The demographic shift extends beyond Europe and the U.S. CNBC reported that China’s share of people aged 65 and older rose from 7% to 14% over the past two decades, while Brazil, Thailand and Turkiye are on similar paths. Moody’s said emerging economies may face the costs of ageing at lower income levels than advanced economies did.

This story draws on original reporting from CNBC.