Moody’s recently issued a warning regarding the challenges posed by worsening demographics, specifically the increase in the dependency ratio of the elderly. This trend not only raises fiscal concerns but also has the potential to lead to downgrades in states’ ratings. Greece, in particular, is projected to have the fifth-highest dependency ratio among all developed economies in the next decade.
The aging population in developed countries is a growing concern as people are living longer while birth rates decline. This shift is expected to see the elderly dependency ratio rise from 32% to 40% in the next decade, meaning fewer working-age individuals supporting a larger pool of retirees. Japan is currently facing the highest dependency ratio at 60%, followed by Italy, Germany, Portugal, and Greece.
Moody’s emphasizes the significant fiscal challenges that governments will face due to the increasing dependent populations. As retirees require pensions and higher healthcare services, government spending rises while tax revenue falls. Across various countries, government spending related to aging populations is already significant, at 18% of GDP on average, and is projected to increase further by 1.3 percentage points between 2025 and 2035.
Countries like Portugal, Italy, and Spain are expected to see the sharpest spending increases due to their aging populations. In Greece, government spending on pensions and healthcare currently stands at 20% of GDP and is estimated to increase by 0.5% between 2025 and 2035, according to Moody’s.
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