Canada’s aging population to create economic challenges if left unchecked: Report

Future growth must be driven by improvements in labour productivity
||Last Updated: 07/25/2011

Canada's unique demographics and rapidly aging population will create challenges for future gross domestic product (GDP) growth if left unchecked, according to a new study by global investment management company Schroders.

The only way to break the relationship between reduced labour supply as baby boomers retire and lower GDP growth is "to increase immigration or raise participation rates, especially of older workers," said Virginie Maisonneuve, head of global equities at Schroders and co-author of the report.

However, this will not be enough to meet the growth challenge. Future growth will have to be driven by improvements in labour productivity, found the report. Furthermore, Canada is expected to face the highest age-related spending of any Organization for Economic and Co-operation and Development (OECD) member state, the report said.

"The challenge for Canada today is to manage the costs of a rapidly ageing population without compromising its superior health status and further worsening standards of service," it said.

With a strong record in controlling costs, Canada is well-placed to meet this challenge, said the authors. For example, it spends 10 per cent of GDP on health care versus the United States at 16 per cent. There is also a lower reliance on the state for pension provision with private pensions and other investments providing over 40 per cent of retirement income, compared to the OECD average of 20 per cent, found the report.

Canada’s unique demographic profile is a result of the larger-than-usual baby boom and significant immigration in the 1950s and 1960s, said the report.

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