THEpopulation ageing in Italy and the face of the economy and public spending will change throughout the EU. By 2070, Italy will lose around 6 million inhabitants and it will have a strong decline in the workforce, with significant consequences on the economy and public budgets. Not just the pil potential will be affected, reducing growth prospects, but also the public spending for social security, healthcare and long-term care will rise, with a growing risk for private pockets. The study by Intesa Sanpaolo – Research Department, through a re-elaboration of the data from the European Commission's Aging Report 2024, calls into question the Commission's optimistic forecasts and suggests a more cautious analysis and targeted political interventions to face future challenges, such as the reform of social security policies and the promotion of productivity.
Demographic decline and the future of work
According to the Aging Report 2024, the Italian population is expected to fall dramatically from 59 million to just over 53 million by 2070. This decline of around 6 million inhabitants is attributed to low fertility rate, one of the lowest in the EU, set at 1,24 in 2023. Only Malta and Spain have lower rates. The European Commission predicts, however, a reversal of the trend, with an increase in the fertility rate up to 1,45 by 2070, based on a hypothesis of "convergence" towards EU countries with higher fertility rates, but could be overly optimistic.
The demographic decline will profoundly affect the job market. The working-age population will decrease by 7,2 million, bringing the elderly dependency ratio to over 65%, compared to 41% in 2022. The reduction in the workforce and employment will be less dramatic (-3,5 .2,9 and -XNUMX million respectively), thanks to an increase in participation and employment, in particular among the older age groups and among the female population.
Impact of aging on potential GDP
The aging population will have a negative impact on potential GDP growth. In the short term, within the next ten years, the decline in labor contribution will reduce potential GDP growth from the current value of close to 1% to a minimum of 0,5% between 2031 and 2033. However, in the long term term, productivity growth and capital growth could push potential GDP back to an average of 1,4% between 2040 and 2060, and then slow down again to 1,1% by 2070. These too forecasts are based on technical convergence hypotheses, but which may not take into account the structural weakness of productivity in Italy.
Spending projections: when age increases costs
According to the Commission's estimates, the grocery public age-related increase by one percentage point of GDP over the next 15 years, reaching a peak of 28,3% of GDP between 2036 and 2040. After this peak, a decrease in grocery retirement thanks to the reduction in the coverage rate and benefit ratio. However, the grocery . is expected to increase from 6,3% of GDP in 2022 to 6,5% in 2048-2061, and spending on long-term care will grow from 1,6% of GDP to a peak of 2,2% in 2052-2068. There is a risk that these expenses will increasingly burden private individuals rather than public welfare.
A more cautious perspective
Intesa Sanpaolo's analysis highlights that the Commission's projections could underestimate the impact of aging on public spending and the economy. The most realistic risk scenarios indicate that age-related public spending could exceed by more than two percentage points compared to the Commission's baseline scenario. To address these challenges, it is crucial to take a more approach prudent, which includes:
- Reform of social security policies: review and strengthen social security policies to ensure the sustainability of the pension system in the face of increased public spending.
- Stimulate productivity: promote policies that incentivize innovation and productivity growth, to counteract the negative effect of the aging workforce on potential GDP.
- Public spending planning: adapt public spending forecasts to real demographic dynamics and potential pressures on public budgets, to avoid future surprises and ensure sustainable management of resources.
