By Bryan Lee

SINGAPORE may suffer the most among Asian economies from an ageing population, with the average growth in economic output falling more than 40 per cent over the next 25 years.

A new research report from Swiss banking giant UBS found that the Republic is set to be the world's third- fastest ageing nation, as the proportion of those aged 65 and above will double to 20 per cent in 2020.

This is a problem because of the decliine in the proportion of people who are economically productive.

In Singapore, factors such as a relatively low birth rate and high-quality health care, which helps people live longer, contribute to the ageing population.

The report estimated that the demographic change would slice 3 percentage points from long-term economic growth, while possible government support for the elderly could cost the country more than 7 per cent of gross domestic product (GDP).

The challenge of ageing is often associated with Europe and Japan, where shrinking workforces are grappling with an ever increasing burden of supporting the elderly.

But the UBS report, using United Nations data, found that four of the world's 10 fastest ageing populations are in Asia. Japan is in the No. 2 spot, followed by Singapore, South Korea and Hong Kong.

Mr Simon Smiles, who wrote the report, also said that China and Thailand are ageing more rapidly than Spain, France, Britain and the United States.

In Singapore, the sharp reduction in labour growth because of the ageing population will cause average GDP expansion to slow to 3.9 per cent between 2006 and 2030, down from 6.9 per cent from 1981 to 2005, said Mr Smiles in a phone interview yesterday.

This is the biggest absolute fall in GDP growth among the 16 Asia-Pacific economies studied, he said.

Japan's growth is estimated to halve to 1 per cent, from 2.4 per cent, while China's growth will slow from 9.8 per cent to 8.3 per cent.

Beyond economic growth, the greying of Asia's populations is also likely to hurt public finances as mandatory public pension plans may become inevitable.

Assuming a similar programme to that in Australia, the Singapore Government, for instance, may be saddled with an additional expense equivalent to 7.6 per cent of GDP, said Mr Smiles.

The Australian scheme pays out benefits equivalent to 25 per cent of the average wage for those eligible.

But there may be a silver lining for investors.

Hospitals, medical equipment makers and drugmakers should benefit, said Mr Smiles, as the elderly generally spend more on health care than younger people.

Life insurance and asset management firms should also get a boost from a growing need for wealth management for retirement.

Investors could even look at putting money in the business of death, said Mr Smiles, who cited Sydney-listed funeral service provider InvoCare as a potentially strong investment.

Beyond sector selection, he said demographic changes should also guide investors to put their money where more youthful and growing populations can support long-term growth. These countries include India, Pakistan, Vietnam, Indonesia and the Philippines.

This article was first published in The Straits Times on 26 June 2008.