Japan’s ageing population challenges hopes of economic growth

Economic growth

SHARE THIS STORY

Japan Dec13

The blog’s new series on the likely demographic impact on the world’s Top 5 economies today moves across NEA to focus on Japan – the world’s 3rd largest economy ($6tn).   As the chart shows:

  • It has seen life expectancy (red column) increase by a third since 1950, to reach 82 years today
  • At the same time, its fertility rate (green) has collapsed by two-thirds, to average just 1.1 child per woman
  • This is the same level as in China, and occurred without any population control policies

Japan now shares with Germany the distinction of having the oldest population in the world, with a median age of 46 years.  This is even more remarkable when one remembers that Japan’s life expectancy was just 44 years only a century ago.

Data from the new OECD Pension Book highlights the key issue that arises from this:

  • Average earnings in Japan are ¥4.79m ($55k)
  • 80% of its adult population were in the Wealth Creator 25-54 age group until 1975
  • But since then, the Wealth Creator percentage has been falling whilst the percentage of New Old 55+ is rising
  • Today an astonishing one in two adults are New Olders, and 42% of the adult population are over 65

The drop in average income on retirement is stark.  The full pension is paid from 65 and is just 16% of average income after 40 years employment.  A second earnings-related pension is also available in different forms, adjusted for earnings and contribution period.  Thus the OECD calculates combined pension income totals an average of 33% of median earnings.

Clearly this drop in income on retirement makes it impossible for Japan to replicate the growth seen in its earlier ‘economic miracle’, when the population was young.  Household spending is, after all, nearly two-thirds of its GDP.  Equally, it is no surprise that Japan has seen more or less permanent deflation since 1990 as demand continues to weaken.

Only one recent Bank of Japan governor has had the courage to state the obvious conclusion.  Masaaki Shirakawa was governor until last year and argued that Japan’s “low growth was mainly attributable to demographics, or more specifically, a rapid aging of the population”.  He went on to suggest:

“The implications of population aging and decline are also very profound, as they contribute to a decline in growth potential, a deterioration in the fiscal balance, and a fall in housing prices. Given that other developed countries will face the same problems despite some differences in timing and magnitude, the economic effects of demographics deserve further study.”

The next part of this series will examine the evidence for Shirakawa-san’s conclusion as we turn to examine the position in the US, Germany and France.

PREVIOUS POST

ACS webinar on Thursday

10/12/2013

Will 2014 finally be the year of economic recovery? There are signs of a stronge...

Learn more
NEXT POST

US shale revolution puts squeeze on European chemicals groups

12/12/2013

The Financial Times has carried an excellent analysis this week of the key shal...

Learn more
More posts
Budgeting for paradigm shifts and a debt crisis
27/10/2019

It is now 8 years since John Richardson and I published our 10-year forecast for 2021 in Boom, Gloom...

Read
Paradigm shifts create Winners and Losers
20/10/2019

MY ANNUAL BUDGET OUTLOOK WILL BE PUBLISHED NEXT WEEK Next week, I will publish my annual Budget Outl...

Read
Markets face major paradigm shifts as recession approaches
06/10/2019

Major paradigm shifts are occurring in the global economy, as I describe in a new analysis for ICIS ...

Read
No Deal Brexit still a likely option if opposition parties fail to support a new referendum
15/09/2019

Canada’s normally pro-UK ‘Globe and Mail’ summed up the prevailing external view of Brexit las...

Read
UK, EU27 and EEA businesses need to start planning for a No Deal Brexit on 31 October
28/07/2019

New UK premier, Boris Johnson, said last week that the UK must leave the EU by 31 October, “do or ...

Read
London house prices edge closer to a tumble
21/07/2019

After the excitement of Wimbledon tennis and a cricket World Cup final, Londoners were back to their...

Read
G7 births hit new record low, below Depression level in 1933
14/07/2019

If a country doesn’t have any babies, then in time it won’t have an economy. But that...

Read
From subprime to stimulus…and now social division
06/07/2019

The blog has now been running for 12 years since the first post was written from Thailand at the end...

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