GERMANY - Germany’s labour force could shrink by as much as a fifth by 2050, which could worsen the demographic problem and hinder economic growth, according to a new research report from Deutsche Bank.

Citing projections from the government-backed Institute for Employment Research (IAB), the report said that - all things being equal - the supply of labour would decline to 38.2m people from 44.5m now. Of the 6.3m workers lost, 4.5m would be in eastern Germany alone.

Germany’s economic growth potential could be reduced to 0.5% annually compared with 1.25% currently, the report said.

In June the bank’s chief economist Norbert Walter foresaw an “older and emptier” Germany in 20 years’ time.

Now the bank says a dramatic decline in the size of Germany’s workforce could also worsen its demographic problem. Experts say that from 2030, there will be just two workers for every pensioner compared with three currently.

However, the report acknowledged that if annual immigration to Germany rose to 400,000 annually, the supply of labour would remain unchanged until 2050.

“Given an average immigration balance of 150,000 per annum since 1950, immigration of this scale is highly unlikely,” it said.

The report also said an increase in the average birth rate to 1.6 children per woman from 1.4 now could somewhat compensate for the shrinking labour force.

Finally, the report said it was “a positive sign for both labour force and growth potential” that Germans were increasingly prepared to work longer and that the government would likely raise the retirement age.

Yet it added: “The positive effects of both this trend and a general hike in the retirement age…will be more than neutralised by the demographic development in the long run.”