Leading economies must rely more on foreign workers to offset aging populations, top central bankers warn

A shrinking working-age population across the developed world is putting long-term economic growth and price stability at risk, top central bankers warned at the Jackson Hole symposium last week, the Financial Times reports. The heads of the Bank of Japan, the European Central Bank, and the Bank of England each flagged labor shortages driven by aging societies as a structural challenge that will worsen in the coming decades.

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But there’s an obvious, albeit unpopular in the current political climate, fix — foreign workers. With birth rates at historic lows and people living longer across developed nations, countries have ballooning financial responsibilities to support growing retired populations and a shrinking workforce to help fund them. The entrance of more foreign workers would serve a “crucial role” in addressing this, European Central Bank President Christine Lagarde argued.

Lagarde also attributed the Eurozone’s “unexpectedly” strong recovery from the pandemic to a rise in foreign workers, who accounted for more than half of labor force growth since 2022, despite only representing 9% of it. Looking ahead, Lagarde warned that without an uptick in foreign workers, the Eurozone could see 3.4 mn fewer working-age people by 2040, which would have serious knock-on effects for both labor market conditions and output.

The impact on Japan — famous for its shrinking population — from foreign workers has been even greater, with the country’s tiny foreign worker population — accounting for only 3% of the total labor force — being responsible for half of recent labor force growth, Bank of Japan Governor Kazuo Ueda also said at the summit. Nonetheless, despite the clear economic benefit — and maybe necessity — the proposal is still a mostly unpopular one for the voting public, much like in the EU.

Bank of England Governor Andrew Bailey argued that the demographic issue facing the UK and others has not been given the importance it deserves. The UK could see 40% of its population above the age of 64 by 2040, which will come coupled with a fall in labor participation rates, he explained. But while there’s a growing agreement from the top central bankers, political sentiment in the world’s most developed nations is yet to shift, with anti-migrant rhetoric becoming an increasingly common part of electioneering by parties of all stripes.

MARKETS THIS MORNING-

Asian markets are in the red in early trading this morning, led by Japan’s Nikkei inching down 1.0%. The Kospi (0.8%), Hang Seng (0.2%), and Shanghai Composite (0.2%) are also in the red.

THE CLOSING BELL-

The EGX30 remained flat at yesterday’s close on turnover of EGP 4.1 bn (22.6% below the 90-day average). Regional investors were the sole net sellers. The index is up 20.4% YTD.

In the green: Rameda (+3.4%), Qalaa Holdings (+1.5%), and Arabian Cement (+0.9%).

In the red: Misr Cement (-1.4%), Raya Holding (-1.3%), and Eastern Company (-0.9%).