As the population in the West ages, a decline in labor force and rising costs will put pressure on public finances, warned rating agency Moody's ( Moody 's).

Europe is at the forefront of this demographic change. According to predictions by the European Commission, the EU population may peak as early as 2029, "after which it will begin a sustained long-term decline."

The U.S. Census Bureau estimates that under its main projection scenario, the U.S. population will not peak until 2080; under a low immigration scenario, it will peak in 2043. If the impact of immigration is not taken into account, the decline in population has actually already begun.

However, Moody's indicates that the fiscal pressures brought about by an aging population will emerge before the population actually begins to decline.

Moody's states that in today's G7 economies, there are approximately 3 working-age individuals for every person over the age of 65; by 2050, this ratio is expected to drop to about 2, which will further put pressure on growth and public finances, including the healthcare system.

Olivier Chemla, Vice President of Credit Strategy and Standards at Moody's, stated on Friday in the program "Squawk Box Europe" on CNBC, that population aging will affect the economy through various channels, including a slowdown in economic growth, increased costs for pensions and care services putting greater pressure on public finances, changes in consumer demand, as well as changes in real interest rates and sovereign yields.

A report released by Moody's last week predicts that the aging of the global population will have a fundamental impact on the global economy and present difficult policy choices.

Moody's writes that although population growth has long been a favorable factor for growth and credit conditions, the decline in fertility rates and the unprecedented speed of changes in the age structure are changing this situation.

The report states: 'Fewer workers will limit production capacity, and fewer households and consumers will weaken demand. As a result, countries will have to rely more on productivity to maintain growth.'

The Impact of AI

Shemla stated that artificial intelligence and increased productivity can only partially offset the long-term challenges brought about by an aging workforce.

He said, "This is only a partial mitigating factor, because of course you can replace and enhance the economic supply side in manufacturing and the service industry, but at the same time, robots do not consume—at least not yet—at least for now. Therefore, on the demand side, you will still face a gap, which will drag down growth."

Moreover, it's not just Europe and the United States; emerging economies are also experiencing rapid aging. Over the past 20 years, the proportion of the population aged 65 and above in China has doubled from 7% to 14%, and Brazil, Thailand, and Turkey are also on a similar trajectory.

The report states that these countries will face the costs of aging at income levels far lower than those of previously developed economies that have aged. The report points out that in Europe, it took several decades for this change to occur.