Asia’s demographic squeeze may not be destiny, BofA economists say

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Asia’s shrinking birth rates and rapidly aging populations are poised to reshape the region’s economic outlook, but the slowdown is not inevitable if governments and businesses successfully deploy artificial intelligence, invest in education and encourage longer working lives, according to a new report from Bank of America Securities economists Yvonne He and Helen Qiao.

FERTILITY FALLS BELOW REPLACEMENT LEVELS

The April 26 report said Asia’s average total fertility rate has fallen from roughly 6.0 births per woman in the 1960s to an estimated 1.87 in 2025, below the replacement rate of 2.1. Japan and South Korea are aging fastest, followed by China and Thailand, while India and Indonesia still retain younger populations and a longer demographic growth runway.

The economists said the drop in fertility reflects rising child-rearing costs, urbanization, expensive housing and education, as well as greater career opportunities for women that have increased the opportunity cost of childbearing.

GROWTH HEADWINDS BUILD

Population aging has long been linked to weaker economic growth, softer productivity and disinflationary pressure. BofA cited International Monetary Fund estimates that demographic headwinds alone could trim global GDP growth by about 1.1 percentage points over 2025 to 2050 versus 2016 to 2018 trends.

A shrinking working-age population limits labor supply, while older societies may generate fewer new ideas and less entrepreneurial dynamism, the report said. At the same time, slower household formation and weaker consumption demand can weigh on inflation.

THREE MAIN OFFSETS

BofA argued that aging does not have to equal stagnation. The report identified three policy levers that could partly offset demographic drag: stronger human capital, faster AI adoption and delayed retirement.

The economists said healthier and better-educated workers can sustain output even as workforce numbers decline. They also pointed to rising AI use globally, citing surveys showing 88% of organizations now regularly use AI in at least one business function, up from 78% a year earlier.

Longer careers could also help. Many Asian countries still have relatively low effective retirement ages compared with OECD averages, leaving room for gradual increases. China and Vietnam have already begun raising statutory retirement ages.

DIFFERENT COUNTRIES, DIFFERENT PATHS

The report emphasized that Asia is not a single demographic story.

Japan, Korea and Singapore are already at the frontier of aging and are leaning harder into automation and productivity upgrades. China and Thailand are entering a more compressed transition phase where policy reforms could still soften the blow. India and Indonesia, by contrast, remain younger and should focus on education, infrastructure and formal job creation rather than aging pressures for now.

WINNERS IN THE ‘SILVER ECONOMY’

As societies age, spending patterns are shifting. BofA expects stronger demand for wellness, fitness, preventive healthcare, travel, leisure and services tailored to older consumers. Smaller households may also lift demand for convenience foods, ready-to-eat meals and delivery services.

That means the demographic story may not just be about fewer babies. It may also be about more robots, older workers and consumers spending more on health, experiences and staying active.

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