Even as the economy benefits from the so-called demographic sweet spot, where the majority of the population is of working age, research indicates that age is catching up with the region.
The Philippines currently enjoys a competitive advantage due to its young population, characterized by a favorable age structure that can drive economic growth.
The country’s working-age population (typically ages 15 to 64) is significantly larger than the dependent population (children under 15 and elderly over 64), creating opportunities for increased productivity, savings and investment.
Recent government data show the population of working age will peak around 2030 to 2040.
As of 2025, the population of around 120 million has a median age of roughly 25.7 years, making it one of the youngest populations in Southeast Asia, if not the world.
Unless the nation takes advantage of the beneficial period, the prosperity window will soon be missed.
Pinoy seniors well off
Governments in the region, according to the S&P report, recognize the coming demographic transition; they have been crafting policies to support elderly welfare and among systems “better positioned” are those in Thailand and the Philippines.
The region will remain a relatively youthful part of the world, but may also find slower growth stemming from the loss of its demographic dividend to be somewhat painful.
The report stated that most of Southeast Asia may soon experience an aging population.
“Economies won’t grow fast enough for the public sector to pay for increased pensions and public health care needs. Governments will continue to rely on families and the private sector to fill gaps in elder care,” a Standard & Poor’s Global Ratings report indicated.
Titled “Global Aging Trends Are Catching Up To Southeast Asia,” the report showed that aging trends will hit gross domestic product (GDP) growth in Southeast Asia, which in turn will require additional resources to support welfare.
According to the paper, there will be a greater requirement for resources to address aging.
It cited, as an example, an increasing call from households for governments to provide adequate pensions and healthcare to the aged.
“Aging trends will slow economic growth and raise fiscal demands of countries to support the needs of the elderly, such as health care and pensions,” S&P Global Ratings Asia-Pacific economist Vishrut Rana said.
Economies in the region will benefit from cheaper capital, as savings rates are expected to rise, allowing individuals to save for retirement. However, economies will also be impacted by weakening domestic spending growth, according to the report.
Depleted manpower
The aging of populations will also hurt companies reliant on domestic demand, as people focus more on saving.
“In the next decade, the growth in working-age population in the region will slow to about 0.9 percent annually from 1.4 percent over the past decade,” the report explained.
Growth is expected to be 0 percent around 2040, and workforces will then gradually decline.
S&P estimated that the slowdown in growth in the working-age population will subtract about 0.25 to 0.3 percentage points from gross domestic product (GDP) per year over the next decade.
The report warned that the region will likely run out of money before it can adequately care for its retirees.
“When the region’s elderly dependency ratio reaches 10 percent, its GDP per capita will be about a third lower than East Asia’s was at a similar stage of aging, even adjusting for purchasing power parity,” it added.
East Asia, of course, is led by the industrialized Japan, South Korea and Taiwan.
There is a wide variation in the speed of demographic changes in the region.
Thailand is facing the quickest demographic transition and economic impact.
Vietnam will follow, and the rest of the region, including the Philippines, has a longer window before facing significant economic changes due to aging.
To be sure, the Southeast Asian demographics are favorable compared with high-income economies and even to other emerging markets globally, the report conceded.
However, demographic changes are now underway that will significantly impact GDP.
Southeast Asia has been youthful for a long time, and the region has reaped significant demographic dividends over the decades; however, the situation is changing rapidly.
S&P’s report stated that the changes are most visible in two key measures: the working-age population growth and elderly dependency.
Over the coming decade, the region is expected to experience slower growth in the working-age population and an increase in elderly dependency ratios.
The effect would be to squeeze economies through lower labor availability, higher savings for retirement and increased fiscal demands.
Elderly dependency ratio measures the proportion of retirees to working-age adults.
A higher elderly dependency ratio means the government has a thinner base of productive workers to tax, to support the growing ranks of seniors in retirement.
While the working-age population in Southeast Asia is still expanding, its rate of growth is slowing, the report indicated.
Over the next 10 years, the annual growth rate is expected to decline by approximately 50 basis points.
Elderly dependency will rise over the same period due to lower fertility rates and increasing life expectancies.
Aging trend moves faster
“This is a new phenomenon. It took 38 years (from 1980 to 2018) for the dependency rate to increase by three percentage points; however, it will take only 12 years for the rate to rise by another three percentage points, reaching 9.9 percent by 2030.
The report cited a significant variation in the rate of demographic change across the region.
Thailand faces the sharpest demographic shift, with its working-age population set to decline over the coming decade.
In contrast, the working-age population in the wider region is expected to continue growing by approximately one percent per year over the same period.
Vietnam faces the second-quickest demographic change measured by the expected growth in working-age population over the next decade, with population growth slowing to under 0.7 percent annually in the coming decade.
“We estimate that the drop in working age population growth implies a drop in GDP growth by about 0.25 to 0.3 percentage points per year over the next decade,” the S&P report said.
For a region expected to grow at 4.7 percent per year, this is not a sharp decline.
However, the growth impact is substantial in Thailand, which is expected to see a hit of 40 basis points or more on its current trend growth of around 2.7 percent.
A revealing part of the report is how figures show that the region is aging before becoming wealthy.
When the elderly dependency ratio reaches about 10 percent, GDP per capita will be about $20,000 in purchasing power parity terms.
By comparison, when the elderly dependency ratio was 10 percent in East Asia, its GDP per capita was about $30,000 on a purchasing power parity basis.
Other global emerging markets have a similar profile of elderly dependency to that of Southeast Asia.
“These other regions have the benefit of a higher initial GDP per capita. The capacity of individuals and governments in Southeast Asia to fund a prolonged retirement period will be strained as the base of working-age adults shrinks,” warned the report.
Challenges include changing savings profiles (individuals saving more while the public sector saves less), as well as an increased need for pension funding and other fiscal expenditures, such as healthcare.
Societal factors that lower the expectation of government support in retirement will help the region.
People are more accustomed to receiving social and family support for aging-related healthcare and care-at-home services, rather than expecting these services from the government.
Aging trends in Southeast Asia suggest significant shifts in the economy, particularly in saving rates and the state’s fiscal requirements.
Young households, low savings
Over the working-age years of 25 to 55, households build up precautionary savings, while the rate of savings accelerates in middle-aged households.
Households then gradually spend their surpluses later in life.
“We see this trend in savings data from the US Consumer Expenditure Survey. While there will be global differences in behavior, we think the overall pattern of saving over age is comparable across geographies,” according to the report.
Another essential aspect mentioned in the report is the aggregate income and spending profile by age group, which showed “income and spending both rising with age until middle age and then declining.”
The proportion of households with people in middle age or older is set to expand modestly. The most significant economic impact may flow from the reduced share of younger people who do not save.
The rising proportion of middle-aged households (and older) will translate into increased savings.
At the same time, slower growth in the working-age population will mean lower future demand and slower growth in loans and spending.
According to the report, as higher savings meet lower spending, interest rates are expected to fall.
Part of the interest rate drop will be mitigated, as infrastructure investment needs remain substantial.
Higher elderly dependency rates will lead to increased demands on government funds, resulting in rising public spending on healthcare requirements and the need for significant strengthening of public-sector social safety nets across Southeast Asia.
Pension systems will require public resources to meet commitments and to expand coverage to more households.
Spending on infrastructure tailored for the elderly is also expected to rise.
Aging also causes unfavorable shifts in the tax structure, as the ratio of taxpayers to those who don’t pay taxes can fall.
There is some mitigation of the added fiscal needs due to Southeast Asian countries’ traditional reliance on community and family for healthcare and welfare for the elderly.
“There is a low reliance on the public sector for these services,” the report held.
Structural labor market changes can offset these changes. These may include higher labor-force participation rates, such as through the inclusion of more women in the workforce and higher retirement ages.
Aging prep uneven
Thailand has the highest aging preparedness in the region, but also faces the most rapid rate of aging.
For all economies, the fiscal demands of demographic transition will be significant.
One aspect of demographic transition is supporting the welfare of elderly households. Measures include boosting retirement savings, expanding pension coverage and strengthening social safety nets.
There are, however, gaps in financial independence for elderly households, especially for vulnerable, lower-income households that may not be adequately prepared for retirement.
The other aspect is supporting the growth of the economy over the demographic transition, where policies can include:
•Bringing more seniors into the workforce, such as through skills training;
•Broadening labor force participation rates. This would increase the base of workers on whom to support retired people.
•Raise retirement ages;
•Raising productivity, ensuring that GDP continues to grow sustainably even as population growth slows; and
•Utilize technology to enhance elderly care and increase the productivity of elderly workers.
Adjustment growing difficult
Demographic change has begun in Southeast Asia. This shift will be characterized by a gradual slowdown in working-age population growth and a marked increase in elderly dependency rates.
Tailwinds to growth will ease in the coming years, alongside other economic shifts, such as changes in savings rates and spending patterns.
