According to Patrick’s proprietary model, Japan will experience little or no real economic growth over the coming 35 years. The situation is Japan is very difficult. The population is expected to shrink by 17% between 2010 and 2050 and they have the highest proportion of older retired citizens of any nation on Earth.
So far, Japan has not had to confront the bond markets directly. The government has been able to borrow money directly from Japanese citizens who have historically had a high savings rate. But the savings rate has diminished over the past few years and will diminish further as the population ages. That means Japan will soon have to borrow money on the open bond markets and that’s where the problems will begin. Because of Japan’s older population (older people are far less likely to protest), the country has almost no social unrest or violent demonstrations. But when (not if, but when) Japan is forced by the bond markets to initiate government austerity measures, depending on the severity of the cuts, Japanese citizens will likely protest.
Japan has the oldest median age and life expectancy of all the countries covered by this model. The extremely low fertility rates coupled with low immigration will contribute to a 17% reduction in population between 2010 and 2050. All those older retired citizens will put immense pressure on Japanese entitlement programs. The current situation is completely unsustainable and will come to an abrupt end when the government can no longer borrow money from its own citizens. The massive debt load combined with increased interest rates will force dramatic spending cuts in the years ahead.
Compared with the rest of the world, Japan has a massive “youth deficit” and the largest retirement community (as a percentage of the total population) of the entire developed world. Unfortunately, there’s no easy way out of this situation for Japan. Their government debt (as a percentage of GDP) is higher than any European country including Greece and Spain. And with the population actually shrinking over the next few decades, Japan will have to take drastic measures to get its finances back into balance. That means Japan will experience an extended recessionary period at some point over the coming years.
DISCLAIMER: Projected results are NOT guaranteed. The forecasts for Japan above were calculated based on projected population data obtained from the World Bank website. The economic forecast used this demographic data along with adjusters for net exports, relative age distribution and per capita income projections. The political volatility forecast used the same demographic data along with adjusters for youth population percentage, projected economic growth and public government debt level. Please see the model methodology for more details.
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All of the countries covered by the economic forecasting model are ranked below. They are each linked to the country’s respective page, so please feel free to explore other countries you might be interested in.
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