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Population decline directly linked to drop in Japanese potential growth rate

  • 2016-03-01 15:00:00
  • , Sankei
  • Translation

(Sankei: February 27, 2016 – p. 3)

 

 The population decline is the largest structural problem of the Japanese economy. Its continuation would accelerate the decline in consumption and labor shortage, directly leading to lowering the Japanese economy’s potential growth rate, an indicator of the country’s economic strength. The government urgently needs to stop the deceleration in economic growth by creating new industries and reforming labor markets through bold deregulations.

 

 “I want you to study the impact of a decline in the working-age population (on economy),” Prime Minister Shinzo Abe told Minister in Charge of Economic Revitalization Nobuteru Ishihara on Feb. 25 at a ministerial meeting on a monthly economic report held at the Kantei. This is because Abe has a strong sense of crisis that a decline in the working-age population between the ages of 15 and 64 could be a hindrance to the Japanese economy. In a Cabinet meeting on Feb. 26, Ishihara promised he would have the Cabinet Office analyze the impact in detail.

 

 On account of the rapidly declining birthrate, Japan’s working-age population has continued to decrease. As a result, Japan is said to be plagued by a “population onus” that puts a burden on Japan’s economy and public finances. This will reduce the rate of increase in the workforce and productivity. The Japanese economy’s potential growth rate calculated based on the current situation has dropped to around the mid-0% range compared with about 3-4% in the 1980s.

 

 The decline in the potential growth rate is weakening the foundation of the Japanese economy. This is evidenced by the fact that out of 13 quarters in total since the October-December quarter in 2012 when the second Abe administration was formed, the real gross domestic product marked negative growth in six quarters.

 

 How Japan should deal with the population decline? “It is important for the government to revitalize the economy more than ever by intermittently promoting growth strategies such as regulatory reform,” said Motoshige Ito, a professor at the University of Tokyo graduate school. As a rapid improvement in the birthrate cannot be anticipated, there is no option other than to steadfastly promote structural reform such as policies for improving productivity to cover the labor shortage.

 

 By launching new three arrows including a “desired birthrate of 1.8” and “no instances in which people are forced to leave their jobs to provide nursing care,” the Abe administration continues to discuss productivity improvement by utilizing IT or artificial intelligence and labor reform for women’s empowerment.

 

 Doing nothing will allow the Japanese economy to continue gradually declining. “The government needs to swiftly take further actions,” said Ito, calling on the government to accelerate its measures.

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