PANGKOR, Sept 7: Governments will be powerless to stop a decline in global economic growth in coming decades as populations age, an international conference of business leaders heard on Saturday.

Hans Reich, chief executive of German lender Kreditanstalt fuer Wiederaufbau, and Eisuke Sakakibara, a former Japanese vice finance minister for international affairs, predicted recessionary conditions and declining living standards.

Both said economic policy makers would be unable to muster the will for painful reforms.

They warned that unsustainable increases in public spending might result in a crisis in social-security systems and falling per-capita income.

Singapore Trade Minister George Yeo said the world’s economic growth, now powered by the United States, was likely to suffer until East Asia, especially China and India, became the new drivers of growth.

Yeo said current projections showed China and India would add 200 million people to their middle classes in the next five years.

But that may not be quick enough to boost slowing demand.

Between now and the time when East Asia becomes a major engine of global demand, the world economy may not be able to escape a major trough, Yeo told the conference at the Malaysian resort island of Pangkor Laut.

Reich said the economic problems were likely to be more severe in the United States and Japan than in Europe.

Citing Germany as an example, Reich said the active working population was set to contract by one-third and growth in gross domestic product to decline steadily.

He added that European Commission data showed that Europe might see a half-percentage-point reduction in potential annual growth, resulting in a cumulative GDP loss of nearly 20 percent over the next five decades.

Major industrialised countries, such as the US and Japan will face similar or even sharper increases in their retirement-age population, Reich said.

Sakakibara expected bond markets to gain prominence over stock markets as investors reacted to the gloom and uncertainty ahead.

The world would move into a period of deflation after decades of inflation, he said.

The deflation will last for decades, he said. We have to manage it. If we succeed, it may be a blessing in disguise. If we fail, it will spiral downwards into a depression.

With China now a major economic force and India on the rise, he said other Asian countries, including Japan, would have to develop niche markets.

On Friday, he told Reuters Japan was headed for an “unavoidable” financial crisis as current leaders muddled through, but added that problems were domestic and should not cause damaging ripples around the world.

He said Japan’s leaders should not intervene in its falling stock market, which early this week hit 19-year lows.

Stock market fever is over and we are entering the period of fixed-income securities.—Reuters