Impact of the German Aging Population on the Country's Economy

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What impacts will the aging population
of Germany have on its economy?

Contents

Abstract. . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

Main arguments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2

Dependency burdens . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Consumption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4 Savings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4

Labor Pool. . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6

Conclusion. . . . . . . . . . . . . . . .. . . . .. . . .. . .. .. . . . . . . . .. .. . . . . . . . . . . . . . . .. . . 7

Appendices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8

Bibliography . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . .8

Abstract
The objective of this research paper is to explore, analyze and survey the implications of Germany’s demographics on the country’s economy. The motivation behind this study is to add to the understanding of social-economic issues in one of the Eurozone’s heavyweights and its impact for years to come. This paper looks into Germany’s demographic trends, consumption trends, savings trends, Germany's pension policy and labor market effects. This paper draws on estimates and analyses from relevant literature, including scholarly journals and government publications to illustrate and quantify its points. Conclusions drawn from this study shows that the definitive impact of population aging on economic growth is reflected in consumption, savings, labor pool and dependency burdens. Practical implications can be surmised from this paper; policy makers, native citizens, immigrants and other stakeholders might wish to refer to this paper for an understanding and perspective of the social phenomenon and derive solutions to problems in its sphere. However there are limitations to this research as it is done through literature review and the demographic-economic variables are not constant. Further research will be required to gather concise and quantifiable data to support its claims.

Introduction
Germany's aging problem is serious because during the past 30 years, German women have produced children at an average rate of less than 1.4 babies per lifetime (Tim Colebatch, 2004). In 2009 The Federal Statistic's Office (Germany) forecast Germany's rapidly aging population was likely to decline by 20 percent to around 65 million by 2060. The drop will be accompanied by a dramatic shift in the amount of elderly people in Germany. Of the country's current 81 million inhabitants, some 20.6 percent are now aged 65 (2011). But in 2060, assuming that fertility rate remain constant and life expectancy increase at a steady rate, that percentage will increase to 33 percent.

Following a rapid recovery from the 2008-2009 recessions, economic growth has slowed in the second half of 2011 for Germany (OECD,2012). Policy makers are faced with domestic issues interfering with mid-term growth potential, one of them namely rapid population aging. Deutsche Bundesbank published a report in April 2012 announcing that if the dampening effects of demographics can be mitigated by appropriate reform measures, it will largely be possible to maintain the current rate of potential growth of roughly 11/4% per y ear...
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