Harry S. Dent, Jr., the author of “The Demographic Cliff” and renowned economist, pictured a gloomy economic outlook for South Korea. He warned that in 2018 South Korea could face a demographic cliff with a bigger economic impact than that of the Asian financial crisis in 1997 and the 2008 global financial crisis.
 

Dent in his bestselling book predicts that the global economy will be trapped in low growth following shrinking global spending caused by a shortage of young population after the baby boomer generation. In an interview with the Maeil Business Newspaper, he claimed “inevitable global economic depression is looming”, citing decreasing population, aging society and excessive public and private debts.

In particular, he envisioned the demographic cliff in China will escalate from 2025, the worst “tsunami” to global economy. “China is at the epicenter of the next global bubble burst, “ Dent said. “It will have the hardest landing of any major country and it will hit the countries that export the most to it like Korea, Taiwan, Japan and Australia.”

He forecast that such global demographic slowdown and China Tsunami will lead to “a massive debt deleveraging, financial asset bubbles bursting from stocks to commodities to real estate, and the highest unemployment since the 1930s.”

He warned that South Korea will also face a serious demographic cliff. “If Korea does not find ways to increase its birth rate soon and rapidly, or to attract more immigration, your demographic spending trends and workforce growth will decline for decades to come, like Japan's.”

As Japan’s spending wave peaked in 1996 and dwindled ever since, South Korean consumption would reach its peak in 2018 in his analysis. According to Statistics Korea, the percentage of the population over 65 years old will spike up to 40 percent in 2060 from the current 13 percent.

The Korea Development Institute predicts South Korea's economic growth rate would drop to 2% in 2020 and further to the 1 percent range in 2030, because of the country’s rapidly aging population. With shrinking and aging populations that will lead to the declining number of economically productive population and a labor shortage, Asia’s fourth largest economy may fall into a low growth trap.

As part of efforts to cushion the impact of the demographic cliff, South Korea should raise the retirement age to 75 over the coming decades and offer government-subsidized childcare, which will help increase the country’s birth rate, he suggested. He also noted that North Korea’s relatively young workforce could be a solution to the aging population problem in South Korea.

“The best thing that could happen is if the N. Korean regime got overthrown or toppled and the two countries combined,” Dent said. “It will be challenging at first to combine two very different cultures and to invest in the infrastructures that are lagging there. But that would pay off demographically in spades decades down the road.”

Shrinking and aging populations will also affect industries. “The industries that will do the best will be the ones that aging baby boomers continue to spend on: health care, nursing homes, pharmacies, convenience stores, smaller downtown condos and townhouses, home maintenance and security, health and life insurance, and so on. The big industries that will get hit the hardest are housing and real estate, automobiles and furniture, appliances and furnishings,” he said.

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