Ireland will soon have one of the fastest ageing populations in Europe with potentially “stark” implications for employment and the economy in the future, Central Bank governor Gabriel Makhlouf has warned.
In an address to the OECD (Organisation for Economic Co-operation and Development) in Paris, Mr Makhlouf noted that while Ireland’s workforce is ageing, the trend “somewhat lags what we see in other European countries”.
This is because of relatively high fertility rates during the early 2000s which he said “would continue to support growth in the working age population in the near-term”.
However, rapidly falling fertility rates since then – Ireland’s fertility rate has fallen from two in 2003 to 1.5 in 2023 and is converging on the EU average of 1.4 – “means that from the mid-2030s onwards, Ireland has one of the fastest ageing populations in Europe”, he said.
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Mr Makhlouf cited a recent report from the Department of Finance which predicts that the State’s old-age dependency ratio (the number of retirees to workers) will increase from 23.1 per cent in 2022 to 55.2 per cent in 2065.
Instead of having three to four workers for every retiree, the State will soon only have just one, with implications for economic growth and the exchequer in terms of pension and healthcare provision.
Mr Makhlouf said the long-term growth rate of the economy was expected to slow by 2050 to below half its historic average growth rate observed over the last half century.
A mitigating factor is migration, he said.
“Over the period 1995-2020, all European countries saw an increase in the share of international migrants in their population, but Ireland’s trajectory stands out: from just over one in 20 international migrants in the population in 1995, by 2020 this was one in five, similar to figures for Austria, Germany and Sweden,” he said.
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The governor noted that migration in most countries has been hard to predict “and in the case of Ireland at least, it has been historically under-predicted”.
On the assumption that net migration returns to pre-pandemic levels of around 40,000 per year, the Department of Finance predicts labour force growth here will stay in positive territory through to 2047.
“The point here is not so much to get bogged down in population or migration projection scenarios – which, as I said, are highly uncertain – but rather to highlight the extent to which migration can help mitigate the demographic and growth-drag from ageing populations and falling fertility rates,” Mr Makhlouf said.
“This could allow time for governments to develop and implement other policies, mainly around labour force participation and productivity."
His speech was primarily on Europe’s labour market, which he said had remained relatively resilient in the face of several recent shocks. “However, looking ahead, some labour-market cooling is expected,” he said.
[ Older workers will have to delay retirement as fertility ‘plummets’, warns OECDOpens in new window ]
While this reflects a cooling of labour demand, Mr Makhlouf said the slowdown in employment growth also reflects demographic factors “that were initially rather slow-moving, but are now beginning to bite”.
He added: “Between 2024 and 2027, the euro area working age population is projected to fall by 0.7 per cent (or 1.5 million workers between the ages of 15 and 64). The longer-term impact is stark: the old-age dependency ratio in the euro area is set to increase sharply from 33.7 in 2022 to 51.2 in 2050.
“An older population with lower consumption and higher savings could place downward pressure on aggregate demand, limiting price growth in certain sectors. At the same time, a shrinking working-age population will tighten labour markets in the absence of increases in labour force participation rates."
