COLUMN-Pandemic demographics complicate debt metrics: Mike Dolan
(The author is editor-at-large for finance and markets at Reuters News. Any views expressed here are his own)
LONDON, Jan 8 (Reuters) – By depressing world birth rates and population projections further, the still-raging pandemic may also damage the ability of economies to grow their way out of the additional debt piles COVID-19 has foisted upon them.
A report by HSBC this week said the pandemic’s impact on falling birth rates could weaken the pace of global population growth far more than the 1.87 million death toll to date – prompting them to bring forward their forecast peak in world population by as much as a decade to the early 2050s.
Peak population, once a distant prospect for future generations, would then fall within the life of a 40-year bond.
The report by HSBC economist James Pomeroy draws on a large body of work indicating the pandemic may cause a ‘baby bust’, as Washington’s Brookings think tank dubbed it late last year, rather than the child-bearing boom that some initially speculated would follow months of strict lockdowns.
For a start, the pandemic is still spreading like wildfire despite the rollout of vaccines and death tolls will almost certainly far exceed 2 million during 2021, alongside the many serious long-term illnesses it also creates.
But that barely registers in demographic trends on its own – that grim total is 0.03% of the total population and the disease accounts for just over 3% of the total deaths last year.
The potential hit to birth rates is up to 10 times bigger.
Brookings updated its estimates last month and expects at least 300,000 fewer births this year as a result of the COVID hit – a drop of more 5.5% from 2019 from models that see a 1% drop in the birth rate for every one percentage point rise in unemployment and a further 1-3% tied to historical evidence from the 1918 Spanish Flu.
Another U.S. study from October – by demographers Joshua Wilde, Wei Chen and Sophie Lohmann – used keyword Google searches for pregnancy-related issues.
“Our analysis suggests that between November 2020 and February 2021, monthly U.S. births will drop sharply by approximately 15%,” it concluded. “This would be a 50% larger decline than that following the Great Recession of 2008-2009, and similar in magnitude to the declines following the Spanish Flu pandemic of 1918-1919 and the Great Depression.”
The U.S. Congressional Budget Office also cut its birth rate projection due to the pandemic and last year expected the U.S. population to hit a peak of 374 million in 2046, 10 million fewer than the forecast it made in 2018.
HSBC’s Pomeroy cited a whole host of potential hits to already ebbing birth rates from the pandemic – job losses, financial constraints and uncertainties, difficult childcare and schooling in lockdowns, relationship stress and fewer couples meeting in person in the first place. Britain, for example, saw 73,600 weddings postponed between March and July.
But is this just a blip that will be quickly corrected with a return to ‘normal’?
Unlike min-baby booms seen after short, region-specific shocks in the past, the pandemic has lasted longer, is global in nature and with a potentially much more durable legacy on household finances and behaviours, HSBC said.
The recession of 2008 saw a 9% fall in births over the following four years, for example.
Pomeroy said HSBC’s future population scenarios all assumed a 15% drop in global births last year and some rebound in 2021 – but the most likely outcome was that long-term birth rates would be only 75% of the United Nations’ baseline forecast.
That leads to an earlier ‘peak population’ forecast in the 2050s of between 8 and 9 billion, with developed world populations already falling over the next decade to below 1 billion by 2100 – absent massive immigration.
“This generation has now been through the two most damaging recessions in peacetime,” the HSBC report said. “This will further widen generational inequality and enhance the perception and reality that having children is simply too expensive for many in a generation which is struggling to move out of the parental home.”
For those who see demographics as the dominant force driving potential growth rates, savings and investment, that outlook is alarming – not least for those who hope economies will quickly grow or inflate their way out of soaring debts incurred to mothball businesses and workers during repeated lockdowns.
The already dramatic impact of falling fertility rates on the age and savings behaviour of the population will only be greater – even if you believe arguments that more wage bargaining leverage for smaller working cohorts will lift inflation even as technology makes almost as many jobs obsolete in parallel.
Short of incentivizing people to have more babies quickly – something countries have tried with only patchy results – Pomeroy reckons governments will simply have to look harder at taxation or higher retirement ages to keep debt piles in check. And, of course, interest rates are going nowhere fast in that environment either if the debt is to remain sustainable.
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