Germany's population is projected to shrink by nearly 5% within 25 years, raising concerns about the sustainability of its pension system and overall economic health.
The Ifo economic think tank in Germany has revised its previous population reduction forecast from 1% to a more alarming 5% over the next 25 years, which if accurate, would result in the smallest population size since 1990. This adjustment is based on updated data from the country's statistical bureau, highlighting a stark demographic shift that poses significant challenges for various sectors of the economy and society.
Economist Joachim Ragnitz from Ifo warned that the demographic changes will have far-reaching implications, particularly affecting the labor market and economic growth. With a long-term growth rate estimated to hover around 0.4%, Germany faces added pressures from a declining workforce, notably a projected 12% decrease in the working-age population (ages 20 to 66). This decline in potential contributors to the economy threatens to compound issues of economic stagnation.
Additionally, the rapid increase in the number of retirees exacerbates the potential strain on the pension system, which may struggle to support a growing number of beneficiaries without a corresponding rise in those paying into it. The combination of a shrinking workforce, low growth rates, and increasing retirement rates sets the stage for a critical economic crossroads for Germany, necessitating urgent policy responses to mitigate the looming crisis.
