The average age of Koreans will reach 50 in 2045 thanks to the country's rapidly aging population, the Royal Bank of Scotland said in a report Tuesday.
"Korea has the fastest aging population on the planet and by 2016 its working-age population will contract," Erik Lueth, an RBS analyst, wrote in the report titled "the economic impact of Korea's demographic transition."
"Korea has just overtaken the US in average age and will be older than Europe by 2020. By 2045, Koreans will be 50 years of age on average and about to become the oldest nation globally."
The economic impact of population aging will be felt much earlier, with Korea's working-age population falling faster than that of Europe and Japan by 2020, the report said.
By 2025, Korea's working age population will drop by 1.2 per cent a year; by 2050 it will be declining by close to 2 per cent.
Korea's old-age dependency ratio, or the ratio of pensioners (those aged 65 and above) to workers (those aged 15-64), is currently at around 17 per cent, which is below those of other advanced economies, but is expected to increase by 15 percentage points every 10 years, according to the report.
It noted that by 2039, there will be more pensioners than workers, and by 2050 every worker will have to support 1.65 pensioners.
With the labor force projected to shrink from 2016 onward, Korea's potential growth, or the rate at which the Korean economy grows when its capital stock and labor force are fully employed, would also slow, the report said.
The report predicted that potential growth would fall from 4.2 per cent in 2011 to 3.1 per cent by 2023.
The growth of GDP per capita is expected to drop as well as output per worker needs to be shared with an increasing number of pensioners. It forecast growth to fall from the current 3.4 per cent to 2.6 per cent in 2023, but rebound to 2.9 per cent by 2050.
While population aging will have a limited impact on inflation, fiscal soundness or asset prices, the report said, declines in national savings and aggregate investment are inevitable.
The current account will remain at the current level of 2.4 per cent until 2018, start to decline from then on, and turn into deficit by 2034, the report said, adding that this deficit would reach 4 per cent of GDP by 2050.