GERMANY DOMINANCE OVER AS DEMOGRAPHIC CRUNCH WORSENS / THE TELEGRAPH

Germany dominance over as demographic crunch worsens

Germany's workforce will shrink by 6m over the next 15 years, declining even faster than Japan's

By Ambrose Evans-Pritchard

7:58PM BST 01 Jun 2015

Life expectancy for women is expected to continue rising to 88 and for men to 84 by the middle of the century, creating a massive social burden Photo: AP

Germany’s birth rate has collapsed to the lowest level in the world and its workforce will start plunging at a faster rate than Japan's by the early 2020s, seriously threatening the long-term viability of Europe’s leading economy.

A study by the World Economy Institute in Hamburg (HWWI) found that the average number of births per 1,000 population dropped to 8.2 over the five years from 2008 to 2013, further compounding a demographic crisis already in the pipeline. Even Japan did slightly better at 8.4.
 

“No other industrial country is deteriorating at this speed despite the strong influx of young migrant workers. Germany cannot continue to be a dynamic business hub in the long-run without a strong jobs market,” warned the institute.
 

The crunch is aggravated by the double effect of a powerful post-war baby boom followed by a countervailing baby bust – the so-called “Pillenknick”. The picture in Portugal (nine) and Italy (9.2) is almost as bad.
 

The German government expects the population to shrink from 81m to 67m by 2060 as depressed pockets of the former East Germany go into “decline spirals” where shops, doctors’ practices, and public transport start to shut down, causing yet more people to leave in a vicious circle.
 

A number of small towns in Saxony, Brandenburg and Pomerania have begun to contemplate plans for gradual "run-off" and ultimate closure, a once unthinkable prospect.

Chancellor Angela Merkel warned in a speech in Davos earlier this year that Germany will lose a net 6m workers over the next 15 years, shrinking gradually over the rest of this decade before going into free-fall.

The International Monetary Fund expects the decline in the 2020s to be more concentrated – and harder to handle – than the gentler paces of decline seen in Japan so far.

Britain and France are in far better shape, with an average of 12.5 births per 1,000 in from 2008-2013. The IMF expects both countries to overtake Germany in total GDP by the middle of century and possibly even by 2040, implying a radical shift in the European balance of power.



^{Light line is birth rate in Germany. Dark line is death rate}


Germany’s leaders are themselves acutely conscious that their current hegemonic position in Europe is largely a mirage, certain to fade as more powerful historical currents come to the fore.

The HWWI said the numbers in the crucial 20-65 age group will drop from 61pc to 54pc by 2030, pushing the dependency ratio towards 1:1 and calling into question the solvency of the public pension system. Life expectancy for women is expected to continue rising to 88 and for men to 84 by the middle of the century, creating a massive social burden.

“We want people to face up to the enormity of the problem,” said Dr Andres Wolf, one of the authors of the report.

“It is a fiscal danger and it is a long-term danger to the ability of German companies to innovate and develop new products,” he added.

While ageing societies can enjoy a rise in per capita income for a while, they tend to do so by living off past creativity and intellectual capital. This reserve is exhausted over time. It becomes progressively harder for older countries to remain at the technology frontier.



The HWWI said Germany must open it doors to further immigration of trained workers but fears that it will be a hard sell to voters in the current stormy atmosphere.

The anti-euro Alternative fur Deutschland party (AFD) has broken into several regional parliaments with a hard-line stance against immigrants. There are already almost 10m foreign-born nationals in the country - 12pc of the total – with a further 400,000 migrants are expected this year.
 
Germany cannot easily turn around the demographic tanker. Academic studies show that fertility rates tend to be structural – caused by deeply-rooted cultural patterns and social systems – and change very slowly in peacetime.

The demographic crisis explains why Germany is so determined to run a budget surplus and drive down its public debt ratios, hoping to avoid a Japanese-style debt-trap before it is too late.



Whether this is best achieved by austerity is a contentious issue. Budget cuts have led to a negative rate of public investment over the past decade, even though parts of the German canal system, railways and national infrastructure are slowly falling apart.

The IMF says Germany would do itself and the rest of the eurozone a favour by spending more to prepare for its old age, not less.