GLOBAL – Japan will be the "test case" for many European countries facing similar demographic developments, according to macroeconomist Edward Hugh.

Speaking at the Morningstar Conference in Vienna last week, Hugh told delegates that changes in the dependency ratio would "influence" the pressure on global sovereign debt as public spending was increased, leading to a shift in rankings between developed and emerging economies.

He said countries such as Japan or Germany had the assets from which to draw to sustain living standards, public health and pension systems, but that some Southern and Eastern European countries currently lacked the assets to follow suit.

He also stressed that immigration was not a panacea for ageing societies as seen in Spain, where a migration wave had "merely led to a housing boom and major unemployment problems".

"It is very important, if you have a population policy or encourage immigration, that the economy have a sustainable trajectory," he said.

Hugh hinted at a possible connection between "rapidly shifting demographic structures" and housing busts, even "slow ones", such as in South Korea.

"Why did economists and politics ever start to think population did not matter?" he asked. "And now, suddenly, it is back on the agenda – at the same time emerging market sovereign debt is on the agenda."

He also argued that, with population figures, size did not matter.

"What does seem to matter is the population structure – i.e. the distribution of the age groups," he said.

The older a society becomes, the more interested it is in conserving existing pension and health arrangements, "even if it is detrimental to the young generation", while young people grow "increasingly apathetic and disillusioned with political process".

Separately, William Ledward, senior vice-president and portfolio manager at Franklin Templeton's fixed income group, said interest rate policies needed to be adapted to a society's age structure, and argued that Japan should actually raise its rate rather than cut it.

He said it made no sense for a society with a large share of retirees to lower interest rates in an attempt to get working people to spend more money.

In these societies, he said, pensioners should be incentivised to spend more, for which they need higher interest rates to boost their savings.

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