The baby boomers will be responsible for the average wealth in Spain growing less in the next 20 years. According to the latest report from CaixaBank Research, "the aging of the population due to the retirement of baby boomers will reduce per capita GDP growth by 0.5 percentage points per year over the next two decades." When such a large group stops working, the GDP, which measures everything that is produced in a year, will suffer.
The first cohort of baby boomers turns 65 in 2023, and in the next two decades this entire generation will gradually retire. The group is made up of those born between 1958 and 1975. They receive that name because it corresponds to the years of the boom in the birth rate. This phenomenon is not the heritage of Spain, since it occurred before in other countries such as the US, where it occurred between 1946 and 1964.
GDP per capita is a good indicator of the wealth and health of an economy because it goes beyond the numerical number of GDP. It measures how this growth is being achieved: if it is with improvements in productivity or only with the arrival of labor.
In this case, the massive entry of workers to the list of pensioners will cause the index (GDP per inhabitant) to grow less because there will be more dependents and fewer people producing. The exponential increase in retirees will occur at a time when the Spanish economy is moving away from Europe in terms of GDP per capita. In Spain for the last 15 years -as the Bank of Spain showed in its latest annual report- GDP per capita is 17% below that of the euro zone while before the real estate crisis of 2007 it was 9% below.
Now the demographic structure does not row in favor of reducing that gap with the euro zone. Although from CaixaBank Research they remember that there will be other European countries that will experience a similar situation due to the aging of their populations. “The magnitude of these macroeconomic effects of aging by country will depend on other dynamic and idiosyncratic factors, such as consumption habits in each country, the aggregate productivity of the economy and by age group, the predisposition to delay the moment of retirement, as well as elements associated with the quality of public services or the characteristics of the Social Security system”, explained sources from CaixaBank Research.
That process will also have a direct impact on generic GDP simply because there will be fewer employees. “The contribution of the labor force to GDP growth would turn negative starting in 2033. Precisely, the decade of 2030-2040 is when the greatest negative impact on the labor force of the retirement of baby boomers will occur ”, reads the report. Although there may be corrective elements. For example, an increase in immigration or in the number of active workers could curb these negative effects. The attached graph shows the projections made by CaixaBank Research on GDP in three scenarios with a greater or lesser presence of corrective measures in the labor force, such as those mentioned for net immigration flows or an increase in the employment rate.
The report also analyzes the future behavior of retirees at the consumption level to analyze in greater detail how they affect GDP. According to the data extracted from CaixaBank's operations, "the level of consumption after retirement is reduced." Specifically, 1.2% after one year of retiring, and up to 6.4% after five years of concluding working life. In addition, the report highlights that "the important role that savings play in determining the adjustment in the level of consumption after retirement becomes clear." Thus, for the same level of income, greater accumulated savings allows maintaining a higher level of consumption.
The arrival of the baby boomers in retirement obviously raises questions about the sustainability of the system. The CaixaBank Research report proposes "boosting productivity through reforms linked to European funds and illuminating a greener and more digital economy that allows for dynamic and sustained potential growth to be achieved."
