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Australia's baby boom filling some of the immigration losses

Back in March I was chatting with a fellow parent at a school social event. After the prolonged lockdowns and enforced social distancing of 2020, we both agreed that it was great to be out and about. An obstetrician, this parent also happened to mention how unusually busy he had been in the prior months and this got me thinking more deeply on the topic of babies.

Looking further into all things baby related, it became evident that in strong contrast to other parts of the world, Australia is set to enjoy a coming baby boom. While it would be easy to flippantly attribute this great baby news to lock-downs and the thought that one can only watch so much streamed TV, in reality it means so much more.

The coming baby surge speaks volumes to the great levels of shared optimism we should have in our ongoing prosperity. Australians have both the confidence to commit to baby plans and the knowledge that a strong birth rate delivers long-term structural benefits.

This population growth is also good news for the long-term success of Real Assets. Quite simply, the more the Australian population grows, the higher demand for Real Assets serving our everyday needs.

Forecasting baby showers ahead for Australia

Unlike behaviours that saw a sharp drop in births during the GFC, Government Medicare data on early-stage pregnancy ultrasounds is signalling a mini baby boom on the horizon.

Early-stage (<16 week) pregnancy ultrasound referrals

Source: Australian Government Medicare statistics; as of 31 March 2021, item reports for Medicare Benefits Schedule – Items: 55700, 55703, 55704, 55705.

In a world troubled by the COVID-19 pandemic, the outlook in Australia is reassuring both for our Real Asset investments that rely on population growth, and for the broader economic backdrop. The baby confidence most certainly can equate to a healthy consumer.

Australia is bucking a global COVID-19 trend

While myths of a spike in birth rates nine months after blizzards or major electricity blackouts have been debunked in the past, Australia’s expanding families are looking markedly different to other parts of the globe where baby birth rates are steadily falling. COVID-19 impacts look to only have exacerbated these downward trends.

Data coming out of the US is particularly bleak. The US Centers for Disease Control and Prevention (CDC) reported that in a year not yet affected by COVID-19, 2019 already delivered the lowest birth rate for 35 years (sourced here and here). Provisional data for 2020 indicates an ongoing downward trend.

US: Crude birth rate (Live births per 1,000 population)

COVID-19 impacts are expected to see even less babies arrive this year with an estimated 300,000 fewer US babies expected in 2021, according to a study by the Brookings Institution think-tank.

Using real time Google search data, Germany’s Max Planck Institute for Demographic Research has also anticipated these declines for 2021. Their research focussed on Google search terms like "Clearblue" (the US pregnancy test) or "morning sickness" and has flagged greater decline in US birth rate than what followed the GFC in 2008-2009. This would be a similar magnitude to the declines following the Spanish Flu of 1918-1919 and the Great Depression in 1929.

Europe paints a similarly sobering picture. A survey of fertility plans in Europe showed that 50% of people in Germany and France who had originally intended to have a child in January 2020 were going to postpone baby plans, while in Italy, 37% of respondents have abandoned the idea altogether.

European fertility plans

These slowing overseas birth rates are likely to have been exacerbated by the impacts of economic slowdown, as the pandemic has disproportionately hurt working women.

Australia’s natural population growth partially offsetting immigration losses

Australia’s world leading population growth that has historically been bolstered by net migration will of course slow, given border closures and negative net migration. Based on our observation of all these trends, we would expect that Australia’s total population growth will stay positive, but most probably slow to around +0.5% in 2021. This is down from the +1.5% p.a. pre-COVID-19 levels of 2019.

We do expect an upward acceleration from those lower rates into 2022, and conservatively assuming a 10% year on year increase in Australian child births in 2021, population growth will likely then rise back to levels of around +0.7% over 2022. For reference, the latest monthly March 2021 ultrasounds in the earlier chart are up +20% on pre-COVID-19 March 2019 levels.

Immigration will also rebound

Australia is also in the enviable position of having both an accelerating birth rate from already high levels and a solid handle on the spread of COVID-19.

Solving quarantine logistics for a re-commencement of our controlled migration programme will be much easier than trying to kickstart the declining organic birth rates we are seeing offshore.

Strong local employment data will also facilitate a re-introduction of our migration, and the poor global COVID-19 experience will likely have only increased net migration demand for Australia. Immigrants have also traditionally had a higher birth rate than Australian-born citizens.

Finally, the natural motivation to re-invigorate our key export market of education is strong, with offshore students historically providing a key pool of prospective new Australians.

Both births and immigration a key part of Australia’s population story

Population growth from both the natural birth rate and immigration are key driver of the Real Assets we invest in for our income clients, and we remain very confident in the long-term Australian population story.

In a troubled world we should be optimistic about the future, I certainly am.

 

Ashton Reid is a Portfolio Manager at Martin Currie Australia for the Legg Mason Martin Currie Real Income Fund. Also available as an Active ETF (Managed Fund) ASX:RINC. Martin Currie is a Franklin Templeton specialist investment manager, and Franklin Templeton is a sponsor of Firstlinks. This article is general information and does not consider the circumstances of any individual. Past performance is not a guide to future returns.

For more articles and papers from Franklin Templeton and specialist investment managers, please click here.

 

7 Comments
Andrew Smith
May 20, 2021

Interesting but the long term decline in fertility rate to 1.75% will not be arrested by a baby bubble, especially if its parents bringing plans forward. Further, there is no empirical evidence vs. subjective opinions in media, from demographic research of immigration and population growth being responsible for environmental degradation, anywhere, but used too often in Australia using discredited eugenics based messaging (aka Trump et al.) for political points and dog whistling, to deflect from more robust environmental measures, but our NOM net overseas migration or 'temporary churn over' is very important. Global population is expected to peak mid century (China maybe already?) then decline, when the issue is how to support services for ageing populations from relatively smaller working age cohort and budgets, vs. simply increasing taxes and decrease benefits for workers and future retirees? It's one reason we have super, to take pressure off future budgets...... and encourage long term temporary self supporting residents e.g. international students (family/friends), backpackers etc. who pay significant amounts of GST, and PAYE if working, to government budgets (but media creates antipathy by describing them falsely as 'immigrants' increasing 'population growth'). Missing this significant temporary churn through closed borders may not be apparent in budgets till after the next election..... a significant inward flow to budgets and becoming increasingly important....

David Williams
May 20, 2021

Unless we can make serious inroads into improving health from midlife, no amount of extra children now will enable us to deal with the economic effects down the track. As well as the immediate funding needs for aged care, we must invest in a achieving a healthier older population via a major boost in longevity awareness from midlife. It's already too little, and may be too late. Included in that education needs to be insights into how seriously we are frittering away our longevity bonus by perpetuating a sense of entitlement for everyone to 'retirement' at age 67.

Gael
May 20, 2021

Population decline is a positive for the World and to celebrate growth in human population is missing the point of grave threat to our planet and our very existence.
The planet is already grossly overpopulated and Australia has one of the fastest population growths in the developed world. Australia's economy is surviving in spite of just about zero migration so you can't argue that population growth is good for the economy. It is bad for our quality of life and the future of our children.
This growth in population is at our peril.

Howard Coleman
May 20, 2021

In the 1800s many books were written about how a world population of over 2 billion was unsustainable: there would be wars over food; water and living space. This proved wide of the mark as human ingenuity found ways to produce more food from less land, and to use less water in doing so. Then in the 1970s the doomsayers said that by the 1990s the world would run out of oil and people would need to give up owning cars. This again proved wide of the mark as human ingenuity found ways of producing more oil at lower cost.
What the doomsayers in every generation ignore is that human ingenuity is amazing at solving seemingly intractable problems.
As for prosperity, it comes from only three sources: increased population; increased participation and increased productivity. Stop any one of them (say population growth) and our economy will go the same way as has happened in Italy and Japan where they have been getting relatively poorer for decades. The alternative is they could work until older or start younger, say perhaps carrying on working to at least 75 (increased participation); or they could work longer hours or for lower pay (increased productivity). Alternately we can both innovate for greater productivity, while increasing our population - the alternative I'd prefer for myself, my children and my grandchildren.

Jason
May 25, 2021

I think the quality of life is pretty good in Japan. Low unemployment, great food, beautiful countryside, strong sense of identity. They probably work too hard though.

I think Australia has been a land of abundance with relatively few people. However things are getting more expensive and more congested.



Gael
May 26, 2021

The truth is Howard, species on this planet are being annihilated including flora and fauna. Your argument is humancentric and human survival is dependent on balance on this planet. We have upset the balance to a huge degree. In Australia, we cull kangaroos. We attack mouse plagues that are a threat. The global human population is in plague proportion.

Jenni
May 20, 2021

This article continues to perpetuate the myth about population growth being good, when there is ample evidence that this is not sustainable. Increasing population has done very little for our standard of living in the last ten years with per capita GDP pretty stagnant and lots of negatives like increased congestion. The author should read Crispin Hull’s recent analysis of the budget as it provides a much better analysis of the effects of population growth.

 

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