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Study suggests Japan may become insignificant without strong economic reforms

Publication Date : 17-04-2012

 

Japan may drop out of the ranks of leading countries, as it is expected to see negative growth in its gross domestic product from the 2030s if it does not implement an effective growth strategy, according to an economic forecast from the 21st Century Public Policy Institute released Monday.

The research institute of Japan Business Federation (Keidanren) announced the nation's long-term economic forecast along with 49 countries and Hong Kong for the period until 2050.

According to its calculations based on four scenarios, Japan's growth rate will be negative and the scale of its economy will shrink from the 2030s onward due to the rapidly aging population.

The institute conducted the calculations by predicting Japan's population, trends in saving and investment, and changes in productivity such as improvement in production efficiency in the future.

According to the benchmark scenario in which Japan maintains its productivity on the same scale as other developed countries, Japan will experience negative growth from the 2030s and its GDP growth from 2041 through 2050 will be negative, declining 0.47 per cent on average each year.

This scenario predicts the Japanese GDP, which currently ranks third in the world, will slide to fourth, with about a GDP of one-sixth of the United States and China.

Japan's GDP per capita is expected to rank 18th, with South Korea overtaking the nation. South Korea is expected to rank 14th.

In another scenario, improvement occurs in the labour market with the female employment rate growing to the same level as northern Europe.

In this case Japan's GDP will fall at a rate of minus 0.46 per cent on average from 2041 through 2050 and minus 0.17 per cent from 2031 through 2040.

A more pessimistic scenario shows a different picture. In this case Japan's GDP rate will shrink 1.32 per cent on average from 2041 through 2050. Japan's GDP scale would rank ninth in the world, which would be about one-eighth of the United States and China.

In the final scenario where Japan experiences another two "lost decades" with productivity remaining the same as the period from 1990 to the 2010s, GDP will fall at a rate of minus 0.86 per cent from 2041 through 2050.

The government plans to raise the consumption tax to 10 per cent by fiscal 2015. However, if Japan does not carry out extensive financial reconstruction, government debt will expand to about six times GDP in 2050.

The institute's report said Japan will return to being an insignificant country in the Far East if this situation continues.

Japan's most pressing needs right now are improvement of the labor situation for women and the elderly; a boost in commerce from the economic growth of emerging nations; implementation of fiscal reconstruction and reform of the social security system.

 

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