Japan is facing major demographic changes that will have significant implications for its economy, according to NAB.
An economic analysis of Japan by NAB Group Economics said Japan’s population is declining but also ageing, causing the drag on the workforce to be potentially even greater.
“A clear implication of Japan’s demographics is a lower GDP growth rate,” said NAB.
“Without an improvement in the rate of productivity growth, GDP growth will remain at very low levels – it could even turn negative in the decades ahead.”
The report said that population growth in Japan has been decelerating since the mid-1970s and turned negative in 2008.
“The number of 0–14-year-olds has been declining consistently since the late 1970s,” said the economic update.
“However, while the population is falling, the number of people 65 and over is still growing.”
As a result, NAB said the dependency ratio has been increasing, driven by increases in the elderly dependency ratio.
“In 1950 there were around 12 workers per person 65 or over, in 2013 it was around 2.5 and it is projected to keep falling,” said the economic report.
Fewer workers, the report said, lowers the amount that can be produced.
“Fewer younger workers may also mean a less dynamic, adaptable and innovative economy,” said NAB.
Population ageing, the economic report said, may also lead to a decline in overall savings rates.
NAB said government efforts to reduce its deficits through increases in taxes reduces savings rates across all age groups as they absorb the impact both through lower spending and lower saving.
An ageing population the report said is also placing pressure on government budgets.
“This is of particular concern for Japan given its poor fiscal position; its level of government debt is well above other advanced and major economies, particularly on a gross basis,” said NAB.
The report noted, however, that Japan is evolving to meet some of these new challenges by increasing the participation of women in the workforce including the expansion of childcare and that the ability to work longer is increasing.
“The challenge for Japan, and other countries that experience simultaneous population decline and ageing, is the resulting adjustment that is required to economic and social structures,” said NAB.
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