Central Bank of Ireland Governor Makhlouf warns demographic decline and rapid AI adoption could reshape euro area labour markets and inflation dynamics

The Central Bank of Ireland published remarks by Governor Gabriel Makhlouf delivered at an OECD seminar in Paris on how demographics, migration and technology are set to reshape Europe’s workforce. He noted that while the euro area labour market has held up well after recent shocks, some cooling is expected, with slower employment growth increasingly reflecting demographic constraints. Makhlouf cited projections that the euro area working-age population (15–64) will fall by 0.7% between 2024 and 2027, equivalent to around 1.5 million workers, and that the old-age dependency ratio will rise from 33.7 in 2022 to 51.2 by 2050. He argued that ageing could dampen aggregate demand and price growth in some areas while a shrinking workforce could tighten labour markets and raise wages and services inflation, with health and age-related services potentially facing more persistent relative price increases, creating increasingly segmented inflation that complicates central banks’ economy-wide price stabilisation. He pointed to higher labour force participation, including beyond traditional retirement ages, and inward migration as partial responses, alongside productivity measures such as implementing proposals in the Draghi and Letta reports on completing the Savings and Investment Union and removing single market barriers, and preparing for fast AI adoption through more flexible labour markets and expanded training and upskilling.