THE new-year message from investors and policymakers is the same: Europe has turned the corner. Even so, this year’s economic outlook remains dire. A forecast from the IMF on January 23rd envisages GDP falling by 0.2% in the 17-strong euro area and growing by just 0.2% in the wider 27-strong European Union (EU). But even if a sturdier recovery does eventually get under way, Europe’s longer-term growth prospects will be dulled by an unwelcome new demographic trend.

This year the EU as a whole starts on a long journey—one already begun by the euro area in 2012. The EU’s working-age population (aged 20-64, as Europe’s statisticians define it) starts falling in 2013, from last year’s peak of 308.2m, and will drop over the next 50 years to 265m in 2060 (see chart). The working-age population may be shrinking but the number of older people will carry on rising. That will raise the old-age dependency ratio from 28% in 2010 to 58% in 2060. These demographic shifts, which may be tempered by people working longer, reflect an earlier transition from post-war baby boom to baby bust. They would be even bigger but for an assumed net inflow of over 1m (mostly young) migrants a year.
Europe’s ageing population will cast a pall over growth, which is driven by rising employment as well as higher labour productivity. Higher participation rates in the workforce and lower jobless rates may allow employment to grow a bit until the early 2020s; thereafter it is expected to decline. Based on what may well be an optimistic assumption about potential labour-productivity gains, the European Commission last year projected economic growth of just 1.4% a year in the EU over the next half-century.
Adverse demography will hurt European public finances. The commission expects a rise in annual age-related public spending in the EU of four percentage points of GDP over the next 50 years. Austerity already feels interminable, and there is no end in sight.