Fertility rates have collapsed in the world’s 10 largest economies

Consumer demand

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Top 10 fertilityOne of the great myths of our time is that the world’s population is inevitably growing.  Almost everyone has heard that the population is certain to reach 9bn by 2050, from today’s 7.3bn.

Yet births in 2013 in the G7 economies (almost half of the global economy) were at the lowest level since the Great Depression year of 1933.  And as I noted last year, global fertility rates have halved since 1950 to average just 2.5 babies/woman – and in many countries are already below replacement level of 2.1 babies.

As a result, there is great doubt about whether the population will continue to expand beyond 2030.  On current trends, the population will peak within a decade at 8.3bn, and then decline.

Essentially, we have all been fooled by the rise in life expectancy, which is 50% higher today than in 1950.  

If people are living longer, then the population must rise, even if fewer babies are being born per woman.  But within a decade, today’s ageing BabyBoomers will start dying in large numbers.  And then we will suddenly realise there are not enough young people to replace them.

The chart above highlights the issue, based on the UN Population Division’s low scenario for the world’s 10 largest economies (which are almost 2/3rds of the global economy):

  • US fertility rates have halved to 1.7 babies/woman since 1950 (black), whilst China has fallen from 6.1 to just 1.1 babies/woman (red)
  • Japan, the 3rd largest economy has seen rates fall from 3 babies to 1.1 babies (blue): Germany has fallen from 2.2 babies to 1.2 babies (dark blue)
  • France, the 5th largest, has seen them fall from 2.8 babies to 1.6 babies (orange); the UK has fallen from 2.2 babies to 1.5 babies (green)
  • Brazil, the 7th largest, has seen them fall from 6.2 babies to 1.3 babies (yellow); Russia has fallen from 2.9 babies to 1.2 babies (black)
  • Italy, the 9th largest, has halved from 2.4 babies to 1.2 babies (pink); India has fallen from 5.9 babies to 2 babies (brown)

Of course, if I talk to my friends in the central banks, they tell me that none of this matters.  They are confident they can create constant growth with the right mix of tax and stimulus policies.  They also believe inflation is due to monetary policy, not supply/demand balances.  So if they print more money via Quantitative Easing, they can create inflation.

But after years of this debate, I see no sign that they are right.  My argument is simple – only babies can create demand once they have grown up and start earning an income.  All central banks can do is create ‘wealth effects’ by boosting asset prices in housing and stock markets.

The argument about monetary policy is thus a fallacy.  The vast increase in births during the post-War BabyBoomer period meant demand soared, inevitably creating inflation.  Supply simply couldn’t keep up, especially as the economy was transitioning from a war-time basis.  You can’t eat tanks, or wash clothes in fighter planes.

The collapse in fertility rates means this pattern is now reversing.  Today, we have all the supply built for the Boomer-led SuperCycle.  But the lack of babies, combined with the ageing population, means demand is inevitably weakening.  Older people already own most of what they need, and their incomes are declining as they enter retirement.

My view is therefore that the central banks are guilty of wishful thinking at our expense.  And by creating such high levels of debt, they have actually created even more headwinds for growth.  Today’s young people now have to repay all this debt at a time when the arrival of deflation means the cost of debt is actually increasing.

 

 

 

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