Aging population to sap German growth

Germany's ageing population will undermine potential economic growth by the middle of the next decade as more of the baby boomer generation heads for retirement, the country's central bank predicted Monday.

"In the medium term, falling population and the ageing of the workforce in Germany will significantly reduce economic growth," economists from the Bundesbank in Frankfurt wrote in their monthly report for April.

Based on current trends, the number of people of working age in 2025 will be the same as in 2016, the experts predict, meaning that potential growth will fall to "significantly below 1 percent" from the almost 1.25 percent seen between 2011 and 2016.

Germany, once known as the "sick man of Europe," has become the continent's economic powerhouse in recent years, recording 1.9 percent growth in 2016.

Meanwhile, the country's unemployment rate, at 5.8 percent, is the lowest since reunification in 1990.

Early-2000s labor market reforms brought many of Germany's jobless back into work, while a high proportion of women are in employment compared to other advanced economies.

But, the coming years will see the number of Germans in the 60-to-75-year-old cohort grow by more than 3 million, as people born during the baby boom, lasting until the late 1960s, reach retirement age.

Meanwhile, the number of German-born people aged between 45 and 54 will fall by 3.5 million, and there will be 2.5 million fewer between 15 and 29 years old.

Relatively high levels of immigration and higher productivity among older workers, who have more experience and training and higher rates of participation in the economy, are expected to compensate for the effects of ageing for a time.

But the number of people available for the labor force will begin falling by 2025 at the latest, even in a very high immigration scenario with some 300,000 new arrivals per year.

Companies could already be holding off making long-term investments in Germany because of the population outlook, the Bundesbank economists suggest.

"According to forecasts, growth in the medium term will largely be supported by developments in productivity," the experts add, with an increase in the next few years before a slowdown to levels last seen in the 2000s.