Japan’s aging population is shrinking GDP

Japan, the world’s one of oldest society, has a rapidly growing aging population and shrinking labour force. Recently, analysts and economists suggested that due to the transition in the demographic model, Japan will face a decline in economic growth.

“Japan’s economy contracted by 0.2 percent in the first three months of this year over the previous quarter, ending eight consecutive quarters of growth, Japan’s longest period of uninterrupted growth since 1989.” (avaliable at: https://www.ft.com/content/7ce47bd0-545f-11e8-b3ee-41e0209208ec)

 

With the slowest growing of the G7 economies in 2018, Japan also had the second-weakest performance of major economies last year. According to Rob Carnell, head of research and chief economist for Asia-Pacific at ING, the reason why Japan fails to keep up with the growth rates seen in other advanced economies because “Japan’s demographics weaken its GDP growth.” In addition, the International Monetary Fund (IMF) also deduced that “A rapidly aging population and shrinking labour force are hampering growth.” 

In another report, IMF further concluded that “the impact of aging could potentially drag down Japan’s average annual GDP growth by 1 percentage point over the next three decades.”

Since 2010, Japan’s population starts to decline exponentially with a reduction of 1,3 million people. The number of elderly people aged 65 or older accounts for 26.7 percent of the total population and according to Japan’s local government, it is estimated that in 2050, 40% of the population will be over 65. As a result of this, the country’s social security budget has increased by 15% since the government needs to spend more on pensions, healthcare, and other social services.

Double impacts of shrinking labour force and aging population mean an increase in government spending and a decrease in productivity and expenditures. With a reduced workforce, Japan’s economic impacts of the labour shortages are becoming more severe and apparent as Teikoku Databank announced that “bankruptcies due to labour shortages in the first half of 2017 were up by 290 percent from four years ago.” In another word, this leads to economic stagnation and hampers Japan’s economic growth.

 

 

 

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