2018日本经济中期展望（英文版）-1mb

Mizuho Economic Outlook & Analysis Summary

I. Mega-trends Surrounding the Japanese Economy

1. Geopolitical Conditions: US-China Global Power Contest

• The global order is shifting from a unipolar US-centric structure to a "G2" order centered around the US and China.
• Japan is moving from a US-centric stance to a more balanced one in this new global order.
• Side effects of the US-China contest include the rise of protectionism and geopolitical risks.

2. Asia's Population Bonus

• Asia's growing middle class is expected to drive consumer market expansion.
• The population bonus period, where the productive-age population ratio increases, is expected to continue in South Asia and ASEAN, but not in Singapore and Thailand.
• By the mid-2020s, India is projected to surpass China as the world's most populous country.
• The middle class and above in Asia, especially in China, India, and ASEAN5, will significantly expand and become a key driver of consumer spending.

3. Wages and Inflation: Normalization of Low Wages and Low Inflation

• Long-term interest rates in Japan and the US have been declining since the 1970s, reflecting low wage growth and inflation.
• The normalization of low wages and inflation is a structural issue in Japan.
• Monetary easing will need to shift to a "game of endurance" as the growth of all three indicators (wages, inflation, and interest rates) is expected to remain subdued.

II. Medium-term Outlook on the Japanese Economy

1. Sustaining 1% GDP Growth

• Japan is expected to sustain 1% growth in the 2020s by overcoming three major challenges: labor shortage, productivity improvement, and fiscal reform.
• The growth will be supported by three mega-trends: geopolitical shifts, Asia's population bonus, and normalization of low wages and inflation.

2. Demographic Decline and Economic Growth

• Japan's potential growth rate is expected to remain around 1% for some time despite demographic decline.
• The growth will be supported by an increase in the labor force through the acceptance of female and elderly workers, foreign labor, and productivity improvements.
• The slowdown of potential growth will occur as labor input peaks.

3. Consumer Spending and Household Changes

• A mild rise in consumer spending is expected, but the decrease in two-or-more-person households will act as a downward pressure.
• The savings rate is expected to decline, increasing consumption propensity.
• The impact of household changes on consumption is estimated to drag down personal consumption by approximately -0.36% y-o-y by 2030.

4. Current Account Surplus

• Japan's current account surplus is expected to remain around 3.5% of GDP (over 20 trillion yen).
• The corporate sector will maintain a high surplus, while the government sector's deficit will improve but remain limited.
• The household sector's savings rate is expected to turn negative by the end of the forecast period, but the I-S balance will remain positive due to low net investment and demographic aging.

5. Social Security Expenditure

• Social security benefits are soaring due to demographic aging.
• "Elderly" benefits will account for 46.4% of social expenditures, the highest among major countries.
• The cost of social security benefits is projected to rise from 121.3 trillion yen in FY2018 to 140 trillion yen in FY2025 and 190 trillion yen in FY2040.

6. Fiscal Reform

• The primary balance will improve until around 2020 due to the consumption tax hike and other factors.
• However, the fiscal deficit as a percentage of GDP will remain limited due to rising medical and nursing care costs.
• Outstanding government debt will gradually decline due to nominal GDP growth and low interest rates, but will remain extremely high.
• Effective fiscal reform is necessary for long-term sustainability.

7. Challenges for Sustained Growth

Issue 1: Impact of the 2020 Tokyo Olympic Games

• The Olympics may boost inbound tourist demand and support construction investment.
• However, post-Olympic construction investment in Tokyo will decline, but legacy effects and demand for aging facility renewal will support the economy.
• Japan's tourism competitiveness is high, ranking 2nd globally in 2017.

Issue 2: Addressing the Labor Shortage

• Incorporating underutilized labor (youths, women, elderly) is essential.
• Teleworking and improved infrastructure for work opportunities are needed to address the labor shortage.
• The Olympic Games could serve as a key juncture to promote these efforts.

Issue 3: Improving Productivity

• Productivity and labor quality are positively correlated.
• Investment in education and the adoption of AI and IoT are necessary to improve productivity.
• Efforts should also focus on sectors that use ICT for productivity improvements.

III. Global Economic Outlook

• The global real GDP growth is expected to remain stable around 3.6% from 2025 to 2028.
• Asia, including China, India, and ASEAN5, is expected to maintain strong growth, with China's growth slowing down but still outperforming Japan.
• Japan's GDP growth is expected to remain around 1% throughout the 2020s.
• The US and Eurozone are expected to maintain policy interest rates around 1% to 3%, while Japan's long-term interest rates will likely remain near 0%.