The fertility crisis is here and it will permanently alter the economy

Damond Isiaka
11 Min Read


The world needs more babies.

Falling fertility rates have long been a concern for economists worried that aging societies could diminish the labor force, further exacerbate inflation, upend the consumer culture upon which mature economies depend and overwhelm government programs meant to care for aging populations.

Those changes are now upon us. A new study by the Organisation for Economic Co-operation and Development (OECD) says that declining birth rates will permanently alter the demographic makeup of the world’s largest economies over the next decade.

What’s happening: If forecasts hold up, 2064 will be the first year in modern history where the global death rate surpasses the birth rate.

But the world’s largest economies are already there: The total fertility rate among the OECD’s 38 member countries dropped to just 1.5 children per woman in 2022 from 3.3 children in 1960. That’s well below the “replacement level” of 2.1 children per woman needed to keep populations constant.

That means the supply of workers in many countries is quickly diminishing.

In the 1960s, there were six people of working age for every retired person, according to the World Economic Forum. Today, the ratio is closer to three-to-one. By 2035, it’s expected to be two-to-one.

Top executives at publicly traded US companies mentioned labor shortages nearly 7,000 times in earnings calls over the last decade, according to an analysis by the Federal Reserve Bank of St. Louis last week.

“A reduction in the share of workers can lead to labor shortages, which may raise the bargaining power of employees and lift wages — all of which is ultimately inflationary,” Simona Paravani-Mellinghoff, managing director at BlackRock, wrote in an analysis last year.

And while net immigration has helped offset demographic problems facing rich countries in the past, the shrinking population is now a global phenomenon. “This is critical because it implies advanced economies may start to struggle to ‘import’ labour from such places either via migration or sourcing goods,” wrote Paravani-Mellinghoff.

By 2100, only six countries are expected to be having enough children to keep their populations stable: Africa’s Chad, Niger and Somalia, the Pacific islands of Samoa and Tonga, and Tajikistan, according to research published by the Lancet, a medical journal.

BlackRock’s expert advises her clients to invest in inflation-linked bonds, as well as inflation-hedging commodities like energy, industrial metals and agriculture and livestock.

What it means: CEOs and politicians are already preparing for the baby bust.

Elon Musk, father of 12 children, has remarked that falling birthrates will lead to “a civilization that ends not with a bang but a whimper, in adult diapers.”

While his words are incendiary, they’re not entirely wrong.

P&G and Kimberly-Clark, which together make up more than half of the US diaper market, have seen baby diaper sales decline over the past few years. But adult diapers sales, they say, are a bright spot in their portfolios.

Other companies are also pivoting toward an older demo.

Nestlé’s chief executive, Mark Schneider, recently said he’s shifted the company’s priorities from producing infant formula to serving the nutritional needs of people over the age of 50.

Overstretched governments: French President Emmanuel Macron in January announced a plan for “demographic rearmament” in his country through fertility testing and more parental leave. Former President Donald Trump also recently promised that, if elected, he would support “baby bonuses for a new baby boom” in the United States.

The Centers for Disease Control (CDC) reported that the US birth rate in 2023 fell to a record low, reversing a small uptick seen during the Covid-19 pandemic. The Congressional Budget Office (CBO) is also predicting that deaths will outnumber births just over 15 years from now.

Those findings underpin the agency’s economic forecast and budget projections, said Molly Dahl, a senior advisor at the CBO.

“What you’re seeing is increased spending on programs like Medicare and Social Security as the baby boomers are aging into those programs. And then of course, fewer workers relative to the number of people who are receiving Social Security and Medicare benefits,” said Dahl.

Social Security payments still provide about 90% of income for more than a quarter of older adults in the United States, according to Social Security Agency surveys.

But without intervention, the Social Security trust fund will be depleted by the mid-2030s, meaning that only a portion of retirees’ expected benefits will be paid out.

The AI solution: Some business leaders and technologists see the boom in productivity through artificial intelligence as a potential solution.

“Here are the facts. We are not having enough children, and we have not been having enough children for long enough that there is a demographic crisis, former Google CEO and executive chairman Eric Schmidt said at the Wall Street Journal’s CEO Council Summit in London last year.

“In aggregate, all the demographics say there’s going to be a shortage of humans for jobs. Literally too many jobs and not enough people for at least the next 30 years,” Schmidt said.

But, he said, artificial intelligence will ease those problems significantly. A recent report by Goldman Sachs predicted that generative AI could raise global GDP by as much as 7% over a 10-year period.

Still, some experts say it’s too soon to tell how AI will impact the global economy.

A recent study by analysts at the Federal Reserve Bank of Richmond concluded that artificial intelligence could increase labor productivity between 1.5% and 18% over the next decade. “This ranges from barely noticeable to substantial,” they said.

The long-term solution to declining fertility rates, said Stefano Scarpetta, director for employment, labour and social affairs at the OECD, is to promote more gender equality and fairer sharing of work and childrearing. That also means more paid parental leave and financial support.

In the meantime, he said “this is not just a temporary blip.” Companies and governments need to prepare now for what he calls a “low-fertility future.”

China warns against ‘vicious cycle’ of decoupling from the West

Chinese Premier Li Qiang has warned against a “vicious cycle” of economic decoupling from the West, as Beijing struggles to contain rising global pushback over soaring electric vehicle (EV) exports, report my CNN colleagues Juliana Liu and Joyce Jiang.

Speaking to international executives at the “Summer Davos” forum in the northeastern city of Dalian on Tuesday, Li also defended his country against accusations that Chinese overcapacity in key green industries has led to dumping of products such as EVs and solar panels on global markets.

“If countries only consider maximizing their own interests, if we ignore the interests of others, and even go back in history and engage in decoupling … it will only raise the economic operating costs of the entire society and the world,” he said.

This will “drag countries … into a vicious cycle of scrambling for a cake that becomes smaller and smaller,” Li added. “This is something that we don’t want to see.”

The remarks by China’s second most powerful leader after Xi Jinping come a day after Canada became the latest Western country to consider imposing tariffs on EVs made in China. The Canadian government said on Monday that its workers faced “unfair competition” from Beijing’s “state-directed policy of overcapacity.” It will begin a 30-day public consultation period next month to assess possible responses.

Last month, the Biden administration quadrupled tariffs on EV imports from China, from 25% to 100%, aiming to protect American jobs and manufacturing. Chinese EV sales to the United States are tiny.

Prosecutors urge Justice Department to file criminal charges against Boeing over 737 Max

Prosecutors are urging the US Justice Department to file criminal charges against Boeing for safety issues surrounding its 737 Max, although top Justice Department officials haven’t made a final decision, a source familiar with the development tells CNN.

The possible criminal charges are just the latest severe blow to the reputation of Boeing, a company once known for the quality and safety of its commercial jets. Beyond two fatal crashes of the 737 Max in 2018 and 2019, the company has faced a series of questions about the safety and quality of its jets. In January, a door plug on a 737 Max flown by Alaska Air blew out early in a flight, leaving a gaping hole in the side of the jet, further damaging Boeing’s reputation.

The Justice Department and Boeing had reached an agreement in January of 2021 to settle charges that alleged the company defrauded the Federal Aviation Administration during the certification process of the 737 Max before it could carry its first passengers. The plane started service in 2017, but suffered two fatal crashes – in October 2018 and March of 2019 – which led to a 20-month grounding of the jet. The cause of the crashes proved to be a design flaw, Boeing has admitted.

Read more here.

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