What is a drag on aging: Implications for economic growth
The working-age population in Latin America has increased dramatically in the last decades of the twentieth century and the first decade of the present century. However, the rate of population growth has slowed in recent years and the IMF expects a further slowdown in the years to come.
Real GDP growth in Latin America can be volatile due, at least in part, to the region’s relative dependence on commodity production. Through the noise, the trend rate of economic growth in the region seems to have slowed in recent years.
Not all countries in the region will experience a significant deceleration in the number of people of working age. However, countries with the strongest demographic prospects tend to be among the poorest in the region. Even if these countries enjoy a robust economic growth rate over the next decades, their small economic size will limit their effect on regional production.
The region’s largest economies will collectively experience much slower population growth rates, which will put headwinds on Latin America’s economic growth rate for years to come.
Since high rates of investment spending tend to support productivity growth, the region could offset demographic headwinds on economic growth by accelerating capital accumulation. But, there is little reason to expect savings and investment in the region to grow significantly, at least not in the foreseeable future.
Latin America is likely to continue to experience poor economic growth rates in the years to come. With an expected increase in the region’s working-age population through the mid-1930s, the demographic outlook in Latin America is not as dire as in Europe or China. But, the region is unlikely to experience robust economic growth rates over the next several decades if its domestic savings and investment rates remain depressed.
Latin America’s working-age population is expected to continue to grow
In the fifth report in our series on the demographic outlook in different regions of the world and the associated implications for economic growth, we turn our attention to Latin America. To facilitate the analysis, we follow the nomenclature of the International Monetary Fund (IMF) and aggregate 33 countries in “Latin America and the Caribbean”. Not only does this aggregation include all the nations of South America, Central America, and the Caribbean, but it also includes Mexico. Hereinafter, we will simply refer to this region as “Latin America”. Among the major regions of the world that we have analyzed so far in this series, Latin America is the smallest in terms of economic size. The region represents less than 10% of global GDP.
The global population in Latin America has more than doubled since 1970, and the United Nations (UN) projects that in total it will increase by 17% more by 2050 (Figure 1). Although Latin America does not experience as much population growth as Africa, where the population is expected to almost double by mid-century (see part II), the region does not look like China either (part III) or to Europe (part IV). The UN expects the population to decline in China and Europe by 2050. The marked increase in the overall population in Latin America over the past 50 years is due to the region’s high birth rate. led to a tripling of the working-age population (i.e. people aged 15-64) during this period.