According to the think-tank, which is linked to Japan’s powerful Keidanren business federation, Japan’s shrinking workforce, caused by a chronic low birth-rate, combined with lower savings and investment rates could see the country lose its cherished ‘developed nation’ status by mid-century.
Last year, China overtook Japan as the world’s second largest economy, and the think-tank predicts Japan will fall behind India in 2014, be overtaken by South Korea by 2030, and lose its ‘economic significance’ by 2050.
The report said:
Calling for urgent labour market reforms for women and the elderly, as well as an implementation of fiscal reconstruction, the think-tank warns that in the most pessimistic scenario, Japan’s GDP will decline an average of 1.32 percent from 2041 through 2050, to one-eighth of the United States and China.
If Japan addresses its economic challenges and boosts female labour market participation rate to that of Sweden’s by 2040, Japan could still be the world’s fourth largest economy by mid-century.
Japan experienced an economic boom in the 1970s to 80s, but its subsequent stock and property market crash led to over 20 years of economic stagnation.
While the government has taken steps to stimulate economic growth, the report warns that unless Japan introduces steep spending cuts or higher taxes, public debt could swell to nearly 600 percent of GDP by 2050.