Western countries are approaching a demographic turning point that will significantly impact their economies and public finances. According to Moody’s and European Commission forecasts, Europe's population is expected to peak in 2029 and then begin a sustained decline. While the U.S. population peak is projected further out, around 2080, this outlook depends heavily on immigration levels. Without immigration, the U.S. population decline has already commenced. This demographic shift will intensify fiscal pressures due to an aging population requiring more healthcare and pension support.

Moody’s emphasizes that the challenges posed by an aging society arise well before actual population decreases begin. Currently, there are roughly three working-age individuals for each senior citizen in G7 countries, but this ratio is predicted to drop to two by 2050. This shrinking workforce will constrain economic growth and increase demands on public spending, particularly for social services and healthcare. Olivier Chemla from Moody’s explains that aging affects economies by slowing growth, altering consumer behavior, and influencing interest rates and sovereign debt yields.

The report highlights that the decline in population growth and shifting age structures will require countries to rely more heavily on productivity gains to sustain economic growth. However, advances in artificial intelligence and automation, while helpful, can only partially alleviate the economic drag from an aging workforce. Chemla points out that AI may improve the supply side of the economy but does not stimulate demand in the same way human consumers do, potentially limiting its ability to offset slower growth caused by demographic changes.

Moreover, the aging trend is not limited to Western nations. Emerging economies like China, Brazil, Thailand, and Turkiye are also experiencing rapid increases in their elderly populations, albeit at lower income levels compared to today’s advanced economies during their demographic transitions. These countries face significant challenges as they encounter aging-related costs sooner and with fewer resources. Moody’s warns this accelerated demographic transformation will compel policymakers worldwide to address the economic and fiscal pressures emerging from shrinking and aging populations.