Thursday 3 December, 2020
During the early stages of the pandemic, a number of pundits confidently predicted that lockdowns would lead to a baby boom, the rationale being that bored young couples would run out of Netflix shows to watch and spend more time in the bedroom.
This was always a dubious piece of logic. People don’t generally make important life decisions based on temporary gaps in their social calendar. Even if couples spent all their lockdown time in bed, it doesn’t follow that they’d suddenly forget how contraception works.
In fact, economists and fertility experts around the world believe the opposite is happening. Couples are having fewer children, and we are in the middle of a baby bust.
History shows that fewer children are born during times of economic uncertainty, and when you add the safety concerns of a pandemic into the mix, it’s not surprising that many wealthy nations expect 2021 to bring a slump in new births.
In the US, the Brookings Institution estimates there will be 3.3 million babies born in 2021, a 13% drop from 3.8m in 2019. In China, analysts at Barclays recently lowered their expectations of 2021 births from 15.7m to 13.0m, a fall of 11% from 2019 levels.
It’s a similar story around the world, particularly in developed nations where fertility rates were already trending lower. NZ’s fertility rate recently hit its lowest level on record – and that’s before any Covid-19 impact.
Spare a thought for the Millennials aged 29-36, who have now had two major economic shocks to contend with. The Great Recession of 2008 pushed back career and economic milestones for many young people, forcing them to delay starting a family. For these couples, COVID-19 has come at exactly the wrong time.
Hoping for a baby boom once the pandemic is over may also be wishful thinking. Demographic studies show that women who delay having babies at any point either don’t have them or have fewer than originally planned. So, while there may be a short-term spike in pregnancies when the pandemic is behind us, we could soon return to a longer-term period of decline.
This concerns governments because of the impact on future aggregate demand and the shrinking pool of workers that will have to support an aging population. That’s why countries like Finland and Singapore are offering financial incentives to have more children. China is expected to include similar incentives in its next five-year plan.
But a lower fertility rate has implications for investors, too.
There are the obvious losers in the baby products industry – nappies, infant formula, toys. Given the size of the Chinese infant formula market, this will be an earnings headwind for several large multinationals in 2021.
The impact on housing should also be considered. While the pre-pandemic demographics looked favourable for US housing, with the chunky Millennial cohort moving through their thirties, a sharp drop in fertility rates may throw a spanner in the works. Delays in starting a family will inevitably have a negative impact on housing demand.
On the flipside, there could be an increase in discretionary expenditures that childfree couples veer towards – e.g. travel, restaurants, and clothing. Spending on pets, or fur babies, may also see a boost.
These are just a few examples of the sensitivities thrown up by changes in demographic assumptions. It’s not a precise science, and some of the changes are likely to be at the margin. But in our view, rather than leading to a baby boom, Covid-19 threatens to accelerate the long-term trend towards smaller families. In the absence of significant government assistance, perhaps the only way to reverse the trend will be a sustained period of global economic prosperity.
As thematic investors, we look to identify and leverage the global ‘themes’ and trends that underpin and shape market performance.
Nathan Field is the Portfolio Manager of Kiwi Invest’s Global Thematic Fund.