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The Covid Baby Bust Could Reverberate for Decades


The number of babies born globally has declined sharply in the last year, with the combined effects of the pandemic, lockdown restrictions and the global recession that followed all weighing on the fertility rate. The effects on some businesses will be immediate, but a large part of the demographic impact may be permanent, meaning that there will be longer-running economic effects too.

The Brookings Institution estimates that there will be 300,000 fewer U.S. births in 2021 than would have been expected prior to the pandemic. There were 3.8 million U.S. births recorded in 2019. China reported just over 10 million births last year, down by more than 12% from the 11.8 million births in the previous year.

The drop has accelerated the general trend towards lower fertility rates, especially in developed countries. Japan’s famously low fertility rate is less markedly different now than it was 20 years ago. In Germany, the U.S., U.K. and France the total fertility rate—the number of children an average woman will have in her lifetime—is now below two, and not expected to rise. Japan’s rate fell to 1.36 in 2019.

Previous examples of natural disasters and pandemics reducing the birthrate, like the Spanish Flu, preceded the widespread use of contraception. Education levels and other social factors like the average age of new parents were wildly different to today’s, so direct comparisons are difficult to make.

In some more recent examples like that of SARS in Hong Kong, fertility slumped during the epidemic before rebounding to above pre-pandemic levels. But that was a brief and limited episode compared with this one. Recessions tend to reduce fertility too. In the aftermath of the global financial crisis and euro crisis, one study found that falling birthrates were strongly related to increases in unemployment, affecting the worst-hit European countries most severely.

An expectant mother browses baby products in a shop in Hong Kong.



In the years following the global financial crisis, the U.S. fertility rate has not recovered to its levels immediately preceding it. According to the University of New Hampshire, 2.3 million fewer babies were born in the U.S. between 2008 and 2013 than would have been expected if fertility rates had stayed at 2007 levels. Some of the decline in fertility is due to structural change, but there is little doubt among social scientists that the economic uncertainty caused by the crash reduced birthrates.

In December, South Korea’s central bank suggested that the decline in the country’s fertility rate in 2020—to 0.84, already the world’s lowest—would be lasting as delayed marriages led to permanent social changes and fewer children born overall.

The most obvious part of the economy to feel the impact immediately will be companies which make products for newborn children and their parents.

In the last 12 months, China has recorded the slowest increase in its imports of powdered milk, the key ingredient for baby formula, in nearly five years. One example of a stock that has suffered is A2 Milk Company Ltd., listed in both New Zealand and Australia. Its shares had risen by almost 1000% between the beginning of 2016 and mid-2020. Now, half of that increase has been lost, as the extent of China’s decline in fertility has become clear.

Western companies like Reckitt Benckiser, which produces infant formula and


which owns the Huggies diaper brand have been forced to address the sudden shortfall in births. Reckitt is aiming to shift into adult and particularly senior nutritional products, and Kimberly-Clark into markets where the birthrate has not slowed so sharply. But the effect is notable. Both stocks, along with competitors

Procter & Gamble



are down by between 8% and 16% over the last 6 months, bucking the broad market rally. Individually, the firms can try to move into different markets, but it is very difficult for them all to succeed at the same time.

In the longer-term, the effects could be far deeper and more pervasive across a range of asset classes.

Recent economic research has suggested that falling birthrates are a major factor in the declining interest rates of recent decades—in some estimates even the largest single factor. The large drop in fertility in the U.S. in the 1960s and 1970s was, according to a landmark study published by the Federal Reserve in 2016, the largest factor responsible for falling growth rates after 1980 and the joint-largest responsible for falling real interest rates, along with the change in employment rates.

Likewise, Bank of Japan research published in 2018 indicates that more than 40% of Japan’s decline in interest rates between 1960 and 2015 was caused by changes in the working-age population, about half of which down to declining numbers of births, and the other half down to increased longevity.

Unlike some of the other factors at play, declines in fertility are close to impossible to alter globally. One country can prop up its demographics with immigration from another, but globally that is a zero-sum game. Employment, productivity and longevity can change, but a shrinking workforce caused by births two decades prior is easy to see coming and difficult to do much about.

Several countries have experimented with plans to boost fertility rates, but with limited successes so far. Even in Hungary, where the government is more publicly committed to raising birthrates than almost any other, the fertility rate still sits at just 1.49 as of 2019.

That means that any enduring drop in births should suppress bond yields in the long term. It is entirely possible that bonds with maturities of more than 20 years in particular, which account for very long-term growth expectations, remain indefinitely lower compared with their pre-pandemic level.

Just as it has taken a year for the extent of the drop in fertility to become more clear, it will take several more before the full extent—and any recovery —is obvious. Some stocks are already feeling the impact, but the drop in births in 2020 and 2021 may have a much more extensive impact on financial markets for decades to come.

Write to Mike Bird at [email protected]

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