LONDON and NEW YORK, July 21, 2011 /PRNewswire/ -- Canada's unique demographics and rapidly ageing population will create challenges for future GDP growth if left unchecked. The country is already taking important steps to tackle its ageing population, but there is more to be done, argues a new research report by Schroders, the global investment management company.
In the report, co-authors Virginie Maisonneuve, Head of Global Equities at Schroders, and Katherine Davidson, examine how the larger-than-usual baby boom in Canada and significant immigration in the 50s and 60s has resulted in a unique demographic profile.
Canada has been quick to recognise its impending demographic transition and adjust its institutions accordingly. The only ways to break the relationship between reduced labour supply as baby boomers retire and lower GDP growth is "to increase immigration or raise participation rates, especially of older workers," quotes Virginie, and Canada is doing just that.
However, this will not be enough to meet the growth challenge. Future growth will have to be driven by improvements in labour productivity. Furthermore, Canada is expected to face the highest age-related spending of any OECD member state(2): "The challenge for Canada today is to manage the costs of a rapidly ageing population without compromising its superior health status and further worsening standards of service" the paper states.
With a strong record in controlling costs, Canada is well-placed to meet this challenge. For example, it spends 10% of GDP on health care versus the US at 16%(3). There is also a lower reliance on the state for pension provision with private pensions and other investments providing over 40% of retirement income, compared to the OECD average of 20%(4).
Other interesting findings:
- By the 2020s, all population growth is expected to come from immigration and many sectors of the economy will be dependent on foreign workers. It is unlikely that immigration could be raised to high enough levels to fully offset the effect of domestic population ageing(5).
- While the healthcare and financial sectors should increase their share of GDP, other sectors – education, manufacturing, construction and retail – will decrease in importance(6).
- Early recognition and steps to address the demographic issue result in a pension plan that is expected to be perfectly solvent by 2050 – a marked contrast with US Social Security, which is expected to face a permanent shortfall by 2016 and be completely exhausted by 2039(7).
- Canada is well-placed to address its demographic challenge with one of the strongest fiscal positions in the OECD, a well-developed private pensions sector and a strong record for controlling healthcare spending(8).
Virginie Maisonneuve, Head of Global & International Equities at Schroders:
"Demographic analysis is part of a coherent macroeconomic and thematic road map that serves as a framework to our stock analysis and selection. Many of our current holdings listed in Canada are resource companies. They will need to adapt to the demographic challenges that we have highlighted in this report in order to ensure success and shareholder value."
Notes to Editors
Schroder Investment Management North America Inc.
Schroder Investment Management North America Inc. is a unit of Schroders plc (SDR.L), a global asset management company with approximately $322.8 billion under management as of March 31, 2011. Our clients include major financial institutions such as banks and insurance companies, as well as local and public authorities, public and private pension funds, endowments and foundations, intermediaries and advisors, and high net worth individuals and retail investors.
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(1) IMF (2009), Fiscal Implications of the Global Economic and Financial Crisis
(3) CBO (2010), The Long-term Outlook for Health Care Spending
(4) OECD (2009), Pensions at a Glance
(5) McMullin et all (2004), Labour Force Ageing and Skills Shortages in Canada and Ontario
(6) Fougere et al (2007), A sectoral and occupational analysis of population aging in Canada using a dynamic CGE overlapping generations model
(7) CBO (2010), Long-term Outlook for Social Security
(8) OECD Economic Outlook 86, 2010
SOURCE Schroder Investment Management North America Inc.