“Is the West more closely resembling Japan?”

Economic growth

SHARE THIS STORY

Japan Jul13

Gradually the world’s major investors are recognising that demographics are a key driver for the global economy.  They are also becoming more doubtful about the ability of governments and central banks to overcome the challenges of ageing populations.

Standard Life, with assets of $275bn, have thus issued a new report which focuses on exactly these issues in relation to Japan.  They ask:

Is the West more closely resembling Japan?  “At face value, the answer is yes. Both are now experiencing slower rates of trend economic growth, rising levels of public sector debt, considerable central bank interference in debt markets, a series of failed initiatives to kick-start growth, ageing populations and weakening governments.”

This new interest is, of course, very encouraging.  The more these critical issues are debated, the more insight can be gained about the policies best designed to move us forward.  At the moment, policymakers and investors are mainly looking in the rear-view mirror, hoping to somehow return to the boom days of the 1983-2007 SuperCycle.

Japan is the classic example of how current well-intentioned, but fundamentally misguided policies can end up hurting the patient rather than curing them.  As Standard Life’s chart shows, Japan’s likely move into current account deficit (blue line) has come much earlier than the experts forecast.  This matters, because it means Japan will soon need support from overseas investors to meet its spending commitments and pension needs.

The current account is now just 1% of GDP, whilst the trade balance (blue column) has already gone negative.  This is the basis for premier Abe’s new policy of trying to stimulate exports by devaluing the yen.  But it solves only one of the two problems and makes the other worse:

  • Devaluing the yen could increase exports and reduce the trade deficit
  • But devaluing the yen means overseas investors lose money when they lend to the government

Driving with a view of the rear-view mirror will not solve today’s problems.  As we argue in chapter 12 of Boom, Gloom and the New Normal, the world urgently needs leaders with vision, who are prepared to look for new solutions as we transition to the New Normal.

PREVIOUS POST

Aluminium warehouse changes threaten caustic soda sales

18/07/2013

Strong aluminium markets have provided great support to caustic soda producers i...

Learn more
NEXT POST

US oil prices rise as housing starts slip and Detroit goes bankrupt

22/07/2013

Just as the blog feared, H2 seems to have started badly in terms of demand, and ...

Learn more
More posts
Global chemical industry – key trends for success in today’s New Normal
02/08/2020

The chemical industry is the best leading indicator for the global economy. On Friday, I had the pri...

Read
Oil prices signal potential end to the V-shaped recovery myth
26/07/2020

Oil prices have moved into another ‘flag shape’ – which previously provided critic...

Read
Bankruptcies now the key risk as hopes for V-shaped recovery disappear
19/07/2020

Governments, financial markets and central banks all originally assumed the Covid-19 pandemic would ...

Read
Merkel warns of need to prepare for No Deal Brexit
05/07/2020

Most people missed the fact that last Tuesday was the last possible date to delay the UK’s exi...

Read
World moves from Denial to Anger, as the Paradigm of Loss moves forward
07/06/2020

I have been warning about the Covid-19 risk since early February, and in April suggested here that: ...

Read
The New Normal for global industry
31/05/2020

The global chemical industry is the third largest sector in the world behind agriculture and energy,...

Read
Debt, deflation, demographics and Brexit set to challenge London house prices
17/05/2020

London property websites haven’t used the word “reduced” for many years. But it...

Read
The bill for two decades of doomed stimulus measures is due
03/05/2020

The Financial Times kindly made my letter on the risks now associated with central bank stimulus the...

Read

Market Intelligence

ICIS provides market intelligence that help businesses in the energy, petrochemical and fertilizer industries.

Learn more

Analytics

Across the globe, ICIS consultants provide detailed analysis and forecasting for the petrochemical, energy and fertilizer markets.

Learn more

Specialist Services

Find out more about how our specialist consulting services, events, conferences and training courses can help your teams.

Learn more

ICIS Insight

From our news service to our thought-leadership content, ICIS experts bring you the latest news and insight, when you need it.

Learn more