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Headed for the Sweet Spot

HEADED FOR THE SWEET SPOT:

WHY THE PHILIPPINES COULD SEE UNPRECEDENTED ECONOMIC GROWTH WITHIN THE NEXT 25 YEARS
COBENA Business Analytics and Strategy

KEY POINTS

  1. 1. From 2015 to 2040, Filipinos will gradually start to live longer, and have smaller families.
  1. 2. The Philippines will continue to be in the demographic sweet spot from 2015 through to 2040, potentially providing opportunity for increased government investment
  1. 3. By 2040, the country's dependency ratio will gradually decrease to be comparable to other younger ASEAN populations

Using historical population data from the Philippine Statistics Authority, the Philippine population was projected from 2015 to 2040 using the cohort-component method. This method applies the components of demographic change (fertility, mortality, and migration) to age group cohort populations. Starting from a population distributed by sex and age from a baseline date of 2015, each cohort was carried forward in time, while adjusting for deaths with age-specific death rates and generating the youngest cohorts using age-specific fertility rates. Due to unavailable data, migration was not considered.

Figure 1 shows the projected Philippine population and annual growth rates. The population will grow from 101 million in 2015 to 138 million by 2040. This increase will occur at a gradually declining rate; the annual population growth rate will decrease from 1.86% from 2010-2015, to 0.95% for 2035-2040. This implies Filipinos will gradually be living longer, and Filipinos will eventually have fewer children, resulting in smaller families.

Figure 1: Projected Population of the Philippines (2015 – 2040)

Looking at the population distributed by age group in Figure 2, the proportion of economically active population will slightly increase, but remain relatively consistent, making up 63% of the population in 2015, and going up to 66% by 2040. Comparatively, the proportion of the young dependent population will decrease from 32% to 25% in the same time frame. As such, the country's dependency ratio will also decrease, as shown in Figure 3.

Figure 2: Population Distribution by Age Group

Figure 3: Total Dependency Ratio

                                                                              

As a result, the economy will be within the demographic sweet spot within this time period; a higher proportion of the population is economically active, sufficiently providing for the younger and older dependent population.

Economies within the demographic sweet spot have opportunities for increased government investment in infrastructure and economic development as a result of a decrease in spending on government services primarily necessitated by dependent populations, such as basic education and primary healthcare. These economies also have opportunities for accelerated economic growth when individuals accumulate savings1.

If decent jobs are accessible to Filipinos between ages 15 and 39, and the total fertility rate declines, government investment and economic growth will intensify as the young dependent population continues to decrease1.

Among countries in ASEAN, the Philippines had the highest dependency ratio in 2015, as shown in Figure 4.

Figure 4: Dependency Ratio of Selected ASEAN Countries2

However, the decreasing proportion of young dependents, and the relatively young population compared to the aging demographics of Singapore and Thailand means the Philippines will gradually have one of the lower dependencies in the area.

Given proper investment in education, the Philippines could boast a large pool of young, highly educated and highly skilled workers within this time period. This could, as a result, attract additional investment into the country to further bolster economic growth.

KEY TERMS

ECONOMICALLY ACTIVE POPULATION refers to the population between the ages of 15 and 64.

DEPENDENT POPULATION is the population 1) below the age of 15, also known as the young dependent population, and 2) above the age of 64, or the old dependent population.

DEPENDENCY RATIO is the ratio of the dependent population to the economically active population.

References

1 Mapa D.S. (2015), Demographic Sweet Spot and Dividend in the Philippines: The Window of Opportunity is Closing Fast.

2 Other ASEAN country populations taken from Population Estimates and Projections, World Bank Group

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