Global stock markets price the future. They look to economic growth. Right now, to inflation easing back.
So, as the year opens, markets are rising again.
If we look back at some of the highest rates of economic growth in developed nations, they’ve come courtesy of the baby boomers. The generation that was born into large families following the terror and destruction of World War II.
My late grandfather (on my father’s side) returned from war and had eight children. My parents and their many siblings were part of this baby-boomer generation.
Today, this generation control some of the highest levels of wealth on record.
Some analysts are anxious of them retiring en masse. And transitioning their wealth.
I’m not so worried about that here. Countries like the US, Australia, and New Zealand — where they’re concentrated — have, at least for now, attractive labour markets.
Declining numbers could be replaced by migrants — providing economic opportunity is maintained.
But what I am worried about are fast-declining birth rates. These are spreading from developed nations to developing ones, from China to Southeast Asia.
Poster child: Italy’s declining bambinos
Source: Italian Children’s Market
Case in point: Italy’s population is about 60 million. That’s expected to decline to around 54 million in 2050. And 47 million by 2070.
The problem is one of the world’s lowest birth rates. Just 1.2 children per woman. And a fast-ageing population, where deaths far exceed births.
In 2021, the population dropped 384,000 — a city the size of Florence.
I have seen this visiting Europe. Towns where real estate prices are permanently depressed. Where childcare centres and schools struggle to stay open.
In one case, a childcare centre operated as a senior drop-in centre and café to try and better use its space.
So why is the birth rate so low in Catholic Italy? And why is this trend growing throughout the world?
It is useful to look at Italy for key lessons.
The economic problem
Italian women are reluctant to have children because so many face economic uncertainty.
It becomes a self-fulfilling cycle. As the population ages, the challenge of supporting a burgeoning pension bill contributes to that uncertainty.
The majority of welfare payments in Italy today go to superannuitants. There is little left to reduce taxes, support businesses, or reduce high levels of public debt. That debt, in turn, creates an interest problem.
Working-age people face a lack of job security, expensive childcare, and a tough property ladder. Often, they are still living at home with their parents well into adulthood.
Further, Italy sees very low rates of single-parent families. While these make up 20% of families in New Zealand, they are only around 10% in Italy.
Many women seek higher education, remain living with their parents, and face a very uncertain job market. So couples marry later. They postpone having children. Perhaps foregoing that altogether.
Many of the brightest graduates leave to work in more promising labour markets, taking their education and skills with them.
Postindustrial disaster
In the end, Italy and much of the industrial world may be staring into the barrel of disaster.
There is an ever-increasing senior population. Fewer children. And a shortage of workers to grow the economy.
Gradually, these economies become more focused on older people. In Italy, they call it the ‘gerontocracy’.
The voters are older. They vote for policies that benefit older people. The crunch in working-age people means state funds become focused toward supporting older people.
Meantime, Italy’s famous bureaucracy, complex tax system, and very high rates of tax evasion continue to stifle growth.
The move to the Euro has reduced the competitiveness of Italian family businesses, many of which struggle with lower productivity.
Unfortunately, Italy — like Japan, which is also facing a very similar level of problem with a rapidly ageing population — does not attract large numbers of productive migrants.
Many of the migrants to Italy have been lower-skilled, doing the jobs Italians do not want to do. While highly-skilled workers have enjoyed the open-border opportunity of the EU to move to more prosperous labour markets.
Yet Italy has many paths for potential migrants:
- An estimated 60 million people worldwide could qualify to be Italian citizens if they have Italian blood on their father’s side. Under the privilege of jure sanguinis — ‘right of blood’ — it can be possible to claim Italian citizenship from ancestry. Dating back to when Italy became a country in 1861.
- Further, it is possible to get residency visas for individuals who can show passive income of at least €31,000 per year. Or can invest €500,000 in listed Italian companies (€250,000 in start-up companies).
- There are also visas for self-employment, freelancers, and entrepreneurs wanting to start businesses who can show resources of at least €50,000.
Yet, in reality, migration patterns come down to the attractiveness of the labour market. Its ability to create jobs. And to pay them well.
Lessons for investors
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Investors have the brightest chance of seeing economic growth in countries with vibrant and productive labour markets.
Despite ageing populations in the US, Australia, New Zealand, and to a lesser extent the UK, these countries have managed to attract positive rates of net migration. Because there is relatively low unemployment. And, in particular, comparatively low rates of youth unemployment.
As an investor in Client Wholesale Portfolios focused on developed markets, I tend to avoid companies that exist in countries with high or growing rates of youth unemployment. The writing is on the wall here.
Certain listed Italian companies themselves have been investing into other parts of Europe and into Latin America to diversify in this regard.
China is another country facing an ageing population and very high rates of youth unemployment. Nearly 20% of China’s youth (16 to 24) count as unemployed. Like Italy, China tends to lose graduates to other parts of the world.
But things are looking up for other developed markets:
- Tourists, students, and new resident migrant numbers are growing again in the US, Australia, and New Zealand.
- We expect the UK to push skilled migration numbers now that they are out of the EU.
- And Italy’s new government has made declining birth rates, the population issue, and productivity a key priority.
All this means certain real estate-based positions, bought now at good value, could position the prudent investor for longer-term growth.
Baby boomers in the West may be set for decline over the next decade. But migration flows around the world for those in search of opportunity is set to bounce back from the pandemic. And generate economic growth in key areas.
Maintaining the right environment for productivity is vital. As is avoiding the sort of bureaucracy and mismatched education system that has hampered countries like Italy.
Regards,
Simon Angelo
Editor, Wealth Morning
(This article is general in nature and should not be construed as any financial or investment advice. Vistafolio services are for Wholesale or Eligible investors as defined in the Financial Markets Conduct Act 2013. Please request a free consultation if you would like to discuss your eligibility.)