Baby bust heralds stagnant economies

Trend is most marked in countries hit hardest in the downturn, posing threat to output growth

PUBLISHED : Thursday, 08 May, 2014, 1:47pm
UPDATED : Friday, 09 May, 2014, 12:34am

The 2008 financial crisis did more than wipe out billions in wealth and millions of jobs.

It also sent birth rates tumbling around the world as couples found themselves too short of money or too fearful about their finances to have children.

Six years later, birth rates have not bounced back. For the economy, that is not good news.

Economists attribute up to a third of economic growth to more people joining the workforce each year than leaving it, resulting in more producing, earning and spending. Now this secret fuel of the economy is running out.

"For the first time since [the second world war], we're no longer getting a tailwind," said Russ Koesterich, chief investment strategist at BlackRock. "You're going to create fewer jobs … All else equal, wage growth will be slower."

Births are falling in China, Japan, the United States, Germany, Italy and nearly all other European countries. Birth rates have fallen the most in some regions that were hit hardest by the financial crisis.

In the US, three-quarters of people surveyed by Gallup last year said the main reason couples were not having more children was a lack of money or economic worries. The trend is emerging as a gauge of future economic health - the growth in the pool of potential workers, ages 20-64 - is signalling trouble ahead.

This labour pool had expanded for decades, thanks to the vast generation of baby boomers born in many countries in the first few decades after the second world war.

Now the there are barely enough new workers to replace the retiring boomers.

Growth in the working-age population has halted in developed countries overall. Even in France and Britain, with relatively healthy birth rates, growth in the labour pool has slowed dramatically. In Japan, Germany and Italy, the labour pool is shrinking.

The Congressional Budget Office has estimated that the US economy will grow 3 per cent or so in each of the next three years, then slow to an average 2.3 per cent for the next eight years. The main reason: not enough new workers. Slower economic growth will limit wage gains and make it difficult for middle-class families to raise living standards.