Number of Australians aged 85 or older projected to triple by 2065-66, according to government forecast.

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Australia will see more deaths than births by the 2060s, hitting a milestone already surpassed by advanced economies including Japan, Germany and France, according to a government report.

In its latest Intergenerational Report released on Monday, Australia’s Treasury forecast that the country’s population will hit 39.3 million by 2065-66, 1.8 million lower than projected in its last outlook in 2023.

The Treasury said it expects population growth to average 0.9 percent annually over the next four decades, compared with 1.4 percent over the prior 40 years.

The number of Australians aged 85 or older is projected to triple by 2065-66, with immigration accounting for all population growth as the fertility rate falls to 1.34, the Treasury said.

Despite plunging birthrates, the Treasury said it expects the economy to more than double in size by the mid-2060s, citing productivity gains due to artificial intelligence and greater workforce participation by women and older Australians.

Treasurer Jim Chalmers said that while Australia’s economy faces serious risks due to the demographic shift, it also holds “substantial” advantages compared with its peers.

“The report confirms Australia is better placed and better prepared to deal with rapid change than most countries, but despite our advantages we cannot be complacent,” Chalmers said in a statement accompanying the report.

The outlook comes as Australia, whose economic growth is largely dependent on migration-driven population growth, grapples with deteriorating living standards amid a long-term slowdown in labour productivity.

Australia’s 20-year average for annual productivity growth fell to 0.8 percent in 2023-24, compared with 1.8 percent in 2003-04, according to the Australian Bureau of Statistics.

Greater labour productivity allows an economy to produce more goods and services with the same amount of man-hours, raising economic growth and boosting living standards.

The Business Council of Australia on Monday expressed scepticism about the assumptions in the government’s economic outlook, saying it “cannot be taken for granted” that long-term productivity growth will rise to 1.2 percent due to AI.

The council, which represents more than 120 of Australia’s largest companies, said real gross domestic product per person is almost $2,000 lower today than expected under the 2023 forecast, due to weak productivity growth.

“This is not a problem that starts 40 years from now – Australians are already paying the price for our failure to lift productivity through lower living standards,” Business Council Chief Executive Bran Black said.

“Every man, woman and child in Australia is almost $2,000 worse off because we haven’t achieved the path anticipated in the 2023 Intergenerational Report.”

Tim Robinson, a research fellow at the Melbourne Institute of Applied Economic and Social Research, said that while AI may improve Australia’s lagging productivity, the “extent and timing” of the potential gains are uncertain.

“We’ve had a flat level of labour productivity for around a decade. Without it, the Australian economy can’t grow as fast without running into inflation issues, and people’s living standards don’t improve by as much as they did in the past,” Robinson told Al Jazeera.

“If the Australian economy achieves the productivity growth assumed in the Intergenerational Report, that would be a marked turnaround,” Robinson said.