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Spain Faces Low Birth Rates and Aging, but Compensates with High Immigration

Spain Faces Low Birth Rates and Aging, but Compensates with High Immigration

7th May 2024

Topic of the Week:

In the summer of 2023, billionaire Elon Musk tweeted: «By far, the greatest danger facing civilization is the collapse of the birth rate,» confirming that he had just fathered twins, his ninth and tenth children.

If we look at the birth rate in Spain, it is one of the lowest among OECD countries, around 1.2 children per woman, and far from the natural replacement rate set at 2.1. According to the National Institute of Statistics (INE), 520,000 children were born in Spain in 2008. In 2022, this figure was 330,000, and during this time deaths have fluctuated between 400,000 and 450,000 in 2021.

The situation and outlook would be dramatic if it weren’t for the fact that Spain is still attractive as a recipient of population from other countries. In the latest published data for 2022, Spain’s net migration with foreign countries was positive by 727,005, the highest in 10 years. Figures very similar to those expected for 2023, where the total Spanish population increased by 1.2% compared to 2022, reaching 48,592,909. Forecasts indicate that we will be 50 million by the end of 2027. This increase has been entirely due to the increase in foreign-born people.

In Spain, faced with the dilemma of promoting birth rates or immigration, it seems clear that planners have opted to promote immigration to revitalize the country’s decrepit population structure. This formula is simpler and has immediate effects. Spain has a great advantage that other countries don’t have, which is sharing a cultural, religious, and linguistic affinity with Latin America. 50% of foreign-born workers are from this continent, which has a population of 600 million. Many of these inhabitants are young people eager to build a future that they cannot find in countries with high rates of insecurity and lack of opportunities.

This is a drama for the countries of origin because those who start a new life outside their country of birth are usually the most capable, determined, and prepared, so this flight leaves very negative effects on the societies they leave behind. Countries will increasingly compete to attract increasingly scarce labor due to demographic changes. A clear example is Japan, a country that loses 1 million people a year from its workforce and has historically been reluctant to immigration. Currently with 2 million, the country has the ambition to increase this number to 10 million over the next decade.

One of the consequences of having an aging population and low fertility rates is the sustainability of the pension system, a system that when it was created had 4 workers per retiree. Today, the ratio is 2.4. To put it in context, and according to official data, foreign-born people represent 20% of the working population, despite not exceeding 13.3% of the total population, and receive 1.6% of contributory pensions. The fact is that without the workforce that comes to Spain, the Public Pension System would be unsustainable. With current dynamics, pensions will reach their greatest tension when people who are now 40 years old retire. By then, we will be the European country that spends the most on pensions in 2050. Additionally, and we must not forget the intergenerational unfairness that leaving future generations with a debt that far exceeds the GDP to maintain the current standard of living represents.

Finally, it would be desirable that, with a marked labor shortage in many countries due to demographic changes, households would benefit from a lower risk of unemployment and an increase in real wages and income. This would be something similar, although keeping a distance, to the effects experienced by the workers who survived the Black Death in Western Europe in the 14th century.

Spotlight on Markets:

We conclude a week loaded with important macroeconomic data, among which the FED meeting and employment data in the US stand out, which we will comment on later. In any case, the impact on markets on both sides of the Atlantic has once again been different, while in Europe concerns that interest rates will remain high for longer negatively affected the Ibex 35 (down 2.7% for the week) and the Euros Stoxx 50 (down 1.7%). On the other hand, the US stock markets closed the week with slight gains, with the S&P 500 rising by +0.55% and +1% for the Nasdaq 100. The performance of corporate earnings, which continues to be strong in the US, could have been the main reason for the disparity in behavior.

The behavior of the bond markets did move in parallel, with the long-term benchmarks for US, German, and Spanish debt yielding -15, -9, and -11 basis points respectively, to close the week at yields of 4.5% for the Treasury, 2.49% for the Bund, and 3.25% for the Bono. The interpretation of this behavior suggests that some market participants were anticipating even more restrictive comments from the Federal Reserve.

In the alternative assets segment, gold remains strong, regaining the $2,300/oz level without any noteworthy industry news. Therefore, we interpret that some central banks continue to buy this asset to increase its weight among their strategic reserves. Regarding oil, the week saw a significant relaxation in prices, with Brent closing at $82.80/bbl, down almost 8%. The main cause was the easing of tensions between Iran and Israel.

In terms of macroeconomics, we had an intense week in terms of data, of which it is worth noting that in China the economic weakness continues with weak PMIs, although slightly above the expansion zone. In Europe, the following data was published:

i) the data of the CPI totally in line with what was expected (+2.4%) and very close to the objective of 2% of the ECB ii) the GDP of the eurozone that surprised positively, but maintaining itself in very low levels, +0.4% compared to the estimated +0.2%, and iii) the unemployment rate remained at 6.5%.

In the US, we saw several important references that together suggest that the economy remains very strong but could be losing some traction, especially in terms of employment, where job creation is slowing down. However, this is also affected by price and wage levels that do not seem to be losing traction at the moment. This is the main reason why the FED changed its discourse. There could even be one or no rate cuts in 2024 (compared to the 3 indicated by the official discourse of the central bank) due to the persistence of high prices that are not getting closer to the desired levels. The second maneuver of the organism was to announce that it reduces drastically the speed of reduction of its balance, selling around a third of the bonds that it sells currently (95.000M USD) starting from the month of June, which guarantees higher levels of liquidity in the economy and that was the key factor for the stock markets to retake the path of purchases. And all this despite the fact that other data such as the PMIs, the labor costs, the unemployment rate or the confidence of the consumer disappointed the created expectations.

In the coming days the macroeconomic references will not be too relevant: in China the PMI Caixin will be known together with the levels of exports and imports, in Europe the PMI of services, the retail sales and the minutes of the last meeting of the BCE will be published, while in the US the most outstanding will be the expectations of the University of Michigan.

The Quote:

We close with the following quote by the geographer and writer, Jared Diamond: «Perhaps our greatest distinction as a species is our capacity, unique among animals, to make counterproductive decisions.»

Asset class performance summary (05/06/2024)

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