Japan could fall out of the league of developed nations by 2050 as a shrinking and greying population as well as slowing productivity make its economy contract, a think tank has warned.
The 21st Century Public Policy Institute said a dwindling workforce, caused by a chronic low birthrate, will combine with lower savings and shriveling investment to drag the once mighty economy down.
The think tank, linked to Japan’s powerful Keidanren business federation, said the economy will start getting smaller at some point in the 2030s, even if productivity recovers to the average level of the world’s top economies.
Japan’s GDP will fall behind India in 2014 and by 2050 it will lose its economic presence “significantly”, dipping to be only one sixth that of China and the United States and one third that of India, said the report.
Until it was overtaken by China last year, Japan’s economy was the world’s second largest.
In the most pessimistic scenario, the economy will continue contracting because of a worsening fiscal condition, with its GDP shrinking to the point where it is no longer among the the world’s top economies.
The think tank said, however, the future was not necessarily doom and gloom and if policymakers could boost workforce participation by women to the same level as that of Sweden by 2040, Japan could still be the world’s fourth largest economy by mid-century.
Japan sprinted up the league of world economies in the 1970s and 80s, but the bursting of the twin bubbles of stocks and property two decades ago took the wind out of its sails.
Years of anaemic growth and unsuccessful pump priming by successive governments have burdened Japan with public debt equivalent to twice GDP, with analysts warning only higher tax revenues or spending cuts can bridge the gap.
Prime Minister Yoshihiko Noda has worked to push through a bill to raise sales tax from the present five percent to 10% by 2015.
But even with this boost, the report warned, the nation’s public debt could swell to nearly 600% of GDP by 2050 without further curative measures.
Japan’s population is already declining thanks to a low birthrate and almost non-existent levels of immigration.
A government report released earlier this year predicted it could shrink to a third of its current size over the next century.