Perspective 2035: Economic Policy for Growth and Prosperity in the Aging Society

This demographic transition has darkened the outlook for Germany’s economy. By 2035 annual growth in gross domestic product (GDP) will have more than halved. The good news, however, is that this drop in growth can be reversed by an astute economic policy. The decline can be halted and economic momentum restored. After a period of weak growth, it should be possible to bring the annual increase in GDP back to its usual average level of just under 1½ percent, and perhaps even slightly increase it.

Policies which would be particularly effective in combating the consequences of deteriorating demographics include integrating and training immigrants, expanding employment and the volume of work, increasing capital investment, raising productivity, encouraging start-ups and digital innovation, and accelerating technical progress. Numerous other areas of government policy will be similarly affected: public budgets, the social insurance system and infrastructure will require adjustment, while education and innovation facilities will need to be upgraded for the digital age.

Coping with demographic change will require a concerted effort in all areas of policy. However, the aging of society does not mean that there will in future be less dynamism, change, curiosity or renewal. On the contrary, there must be more of all of these to offset the negative consequences of the demographic transition. Only with an agile economy and an agile society can the drop in growth looming in the wake of changing demographics be averted.