The 2029 Turning Point: Europe's Population Shrinks, Moody's Warns of Global Fiscal Pressure

The credit rating agency Moody's warns that the century's biggest fiscal pressure will not wait for populations to actually shrink. According to its latest report, the European Union will reach its peak population in 2029 before entering a long-term structural decline — a demographic turning point that will fundamentally reshape the global economic landscape.

European Commission projections put the EU population peak at 2029, while the United States Census Bureau estimates that the US population will not peak until 2080 under its main scenario, or 2043 if immigration is low. Without the contribution of immigrants, the US population has in fact already begun to shrink. But Moody's stresses that the fiscal burden of aging appears long before the actual population decline occurs.

Today, G7 countries have roughly three working-age people for every resident over 65. That ratio is projected to fall to two to one by 2050. The consequences are layered: slower economic growth, ballooning pension and health care costs, shifting consumption patterns, and pressure on government bond yields and real interest rates.

Olivier Chemla, vice president for credit strategy and standards at Moody's, explains that population aging hits economies through four main channels: slower growth, fiscal pressure from pensions and care costs, changes in consumer demand, and shifts in real interest rates and government bond yields. "This is partial mitigation because you can indeed replace and boost the supply side of the economy in factories and services, but robots do not consume — at least not yet — so on the demand side there will still be a gap that slows growth," he told CNBC.

The Moody's report highlights that population growth, long a driver of growth and creditworthiness, is now reversing direction. Declining fertility rates and an unprecedented pace of change in age structure are altering that picture. "Fewer workers will limit productive capacity, while fewer households and consumers will weaken demand. As a result, countries must rely more on productivity to sustain growth," the report said.

What makes the situation more complicated is that this phenomenon is not confined to Europe and the United States. Developing economies are also aging rapidly. The share of China's population aged 65 and over has doubled from 7% to 14% over the past two decades, with Brazil, Thailand, and Turkiye following a similar trajectory. The difference is that these countries will face the costs of aging at far lower income levels than the advanced economies that aged earlier. In Europe, a similar shift took several decades.

For Indonesia, the implications of this global demographic shift cannot be ignored. As a country whose demographic dividend is expected to peak in the 2030s, Indonesia has a relatively short window to harness its productive-age boom before entering an aging phase. Failure to convert the demographic dividend into high productivity risks putting Indonesia on the path of advanced economies now grappling with the fiscal burden of the elderly — but at a lower level of per capita income. Structural reforms in education, health, and the labor market will be crucial over the next decade.

"Fewer workers will limit productive capacity, while fewer households and consumers will weaken demand. Countries must rely more on productivity to sustain growth." — Moody's report

The big question now: will policymakers act before the 2029 turning point arrives, or wait until fiscal pressure forces more painful reforms? With the window narrowing, today's decisions will determine whether population aging becomes a crisis or a managed transition.