Harnessing the Synergy of Artificial Intelligence (AI) And Human Capital Restructuring in Ageing Economies

Jong-Wha Lee and Warwick McKibbin

in Research Studies from South East Asian Central Banks (SEACEN) Research and Training Centre

Abstract: Asia is undergoing one of the fastest demographic transitions in the world, characterised by rapidly declining fertility rates and rising life expectancy. Population ageing poses significant challenges to economic growth, price stability, fiscal sustainability, and financial stability. At the same time, rapid advances in artificial intelligence (AI) and digital technologies offer new opportunities to offset labour shortages, raise productivity, and reshape monetary and financial policy frameworks. This report examines the macroeconomic and financial consequences of population ageing in Asia and explores how synergies between AI-driven technological innovation and human capital development can help mitigate its adverse effects. Drawing on theoretical insights, empirical evidence, and country case studies from SEACEN member economies, the analysis highlights how ageing affects growth, inflation, saving and investment behaviour, interest rates, and the transmission of monetary policy. The report emphasises that ageing is not mechanically deflationary or growth-reducing; its net effects depend critically on institutional settings, labour market adaptability, and the pace of technological adoption. A central finding is that population ageing does not, in itself, lead to lower living standards or macroeconomic stagnation. Economies that invest in human capital across the life course and promote inclusive AI-driven technological adoption can substantially cushion the adverse growth effects of ageing. The report also identifies key challenges for central banks, including a declining natural rate of interest, changes in the transmission of monetary policy, and rising financial stability risks related to pension systems and asset markets. As population ageing puts downward pressure on equilibrium real interest rates, monetary policy space becomes more constrained, increasing the risk of hitting the effective lower bound. Failure to adequately account for demographic trends may lead to persistently tight or overly accommodative policy stances, underscoring the importance of incorporating demographic factors into estimates of potential output and the natural rate of interest. AI also has important implications for monetary policy. Productivity gains from AI may partially offset demographic pressures on the natural rate of interest, while AI-driven efficiency improvements could ease labour shortages and lower production costs. At the same time, stronger investment and demand effects may counteract these supply-side gains, leaving the net impact on inflation uncertain. Moreover, AI may alter price-setting behaviour, wage dynamics, and financial intermediation, complicating monetary policy transmission. Central banks, therefore, need to closely monitor AI’s evolving effects on inflation dynamics, labour markets, and financial systems.

Date: 2026
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