Germany’s growth increasingly hit by demographic change, its central bank says

[BERLIN] Germany’s demographic change suppressed economic growth in the past decade and is expected to further hold back expansion, the country’s central bank, the Bundesbank, said.

In the past 10 years, ageing reduced annual output by about 0.4 percentage points, with the effect likely to increase to 0.6 percentage points a year in the future, it said in a report published on Thursday (Jun 18).

“The labour supply will continue to decline as the population ages,” it added. “Demographic change can hardly be stopped, but its economic consequences can be mitigated.”

Like many advanced economies, Germany has had more old people leaving the workforce than young ones entering it.

While high levels of migrants and women taking up jobs have partly offset the impact, the Bundesbank does not expect that to last. 

The central bank repeated its plea to increase workforce participation. It also identified growth potential in boosting the hours that part-time employees work.

Technological changes are impacting hiring in several sectors, and the transformation could lead to a mismatch between qualifications and the needs of the labour market, going by the analysis.

However, artificial intelligence has not yet massively affected demand for workers in Europe’s largest economy so far. 

“The rapid spread of AI could reduce companies’ staffing needs and thus lower the demand for labour,” the Bundesbank said.

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Even so, it added: “German companies expect AI to have virtually no impact on employment on average in the coming years.” BLOOMBERG