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Published: Sunday, 22 Sep 2013 | 2:14 AM ET By: Dhara Ranasinghe | Senior Writer



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Asia is expected to see one clear demographic trend emerge in the next decade: a widening divide between the southeast, where the working-age population is growing at a strong pace, and the northeast, where the labor force is forecast to shrink.

"The next decade will be very different from previous decades when most of Asia was still experiencing demographic dividends, including China and Korea," Bank of America Merrill Lynch (BofAML) Economist Hak Bin Chua said in a report.

"Japan was largely the only country that was aging and shrinking in terms of its labor force and population in the previous decade. But in the coming decade, several Asian countries – including China, South Korea, Hong Kong and Thailand – will see their labor forces shrink. This will have important implications for GDP [gross domestic product] growth, consumer spending and asset prices, judging from Japan's experience," he said.

Japan is home to the fastest aging population in the world, with almost a quarter of its population over the age of 65. The country has struggled with sluggish growth stemming from a shrinking workforce, which has put pressure on the government to boost productivity levels.

In June, the United Nations (U.N.) revised its 2012 population estimates, which analysts say highlight Asia's demographic divide.

The U.N. sees the working-age population in Indonesia and the Philippines peaking in 2058 and 2085 respectively, later than previously anticipated. At the same time it brought forward forecasts for other Asian countries including China, where theworking-age population is expected to peak in 2015, and its total population, currently around 1.3 billion people, is seen decreasing after 2030.

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Mark Hall, vice president, country manager Singapore for recruitment firm Kelly Services, adds: "One of the challenges when you talk about a growing working-age population is, how do you give them jobs?"

Analysts point out that, despite having young populations to provide labor and spur consumer spending, countries such as the Philippines, Indonesia and India also suffer from an outflow of workers and talent overseas that is sometimes referred to as a "brain drain."

"You have talented workers in India who have grown up in an environment where there is an aspiration to move to wealthier countries such as Australia or Singapore," said Hall. "This perception is difficult to overcome."

India and Indonesia, the two Asian countries hardest hit by the rout in emerging markets, have also been criticized for failing to capitalize on abundant labor resources and low labor costs, as they haven't done enough to attract foreign direct investment, another key factor driving long-term growth rates.

In the parts of Asia that are aging, such as Japan, China, South Korea and Taiwan,analysts said they expected to see further steps to increase productivity or change the structure of the workforce to help offset the implications of an aging population.

China,for instance, is expected to continue encouraging its workforce to move out of agriculture and into more productive parts of the economy, while Japan is exploring ways to get more women to enter the labor market.

While there are many ways to limit the growth impact of a declining working-age population, none are easy, said Prior-Wandesforde. "Even with more women in the workforce the problem may not be surmountable if the working age-population is falling rapidly as it is in Japan."

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