Canada proves that age is cruel to global growth

Ottawa - The aging population is becoming the most weight to the labor market and Canada's growth prospects.

It is also the reason why the global economy may end up getting stuck in an era of low interest rates and weak demand.

The President of the Bank of Canada, Stephen Poloz, made a forceful speech last week, saying the five decades of expansion driven by the generation born after World War II is ending and that Canada's potential economic growth slowed to 1.5 per percent.

This rate is almost one percentage point lower than the average growth of gross domestic product in the last 35 years.

In the case of Canada, at least, business leaders should be considered lucky at the time for having a "very good return" of 4 percent, similar to that of some Asian companies, he said.

Young people need to think about work longer and save more to finance retirement than their parents were, and governments need to take tougher decisions regarding tax, trade and immigration policies to try to protect the marginal gains of future income growth , Poloz said.

"These people started to retire in recent years and the potential economic growth is slowing as a direct result of that," Poloz said last week in Quebec City.

"We can not just sit and wait for these forces, which act slowly, change of pace."

The largest population increase in the last 12 months occurred in the age group over 55 years, which grew almost six times more than the population aged 25-54 years.

This is a trend seen in most industrialized countries, such as Japan, where the central bank is facing deflation and anemic growth.

central banks around the world have established near zero or negative interest rates in order to regenerate inflation.

The slow global growth undermines the economy of Canada, which depends on foreign trade, because it limits exports of oil, machinery and minerals.

Due to the labor market fall, the base rate of the Bank of Canada interest rate of 0.5 percent, will not need to rise so early, not as much as in past economic recoveries, to keep inflation under control.

The so-called neutral rate that maintains the economy in balance, can be present only 0.75 percent in comparison with the peak of 5.5 percent registered before the global financial crisis, said Poloz.

"The most important force that has brought down the neutral rate is the steady decline in the potential growth rate of the economy," Poloz said.

"However, this decline is mainly driven by the aging of our population, which is slowing the growth rate of our workforce."