Japan: Hard to Advance Structural Reforms, Less Optimistic about Economic Growth Prospects

Japan’s economy, highly dependent on external demand, was seriously impacted after the international financial crisis and sovereign debt crisis. Also because of the earthquake, tsunami, and the nuclear leakage that happened recently, the recovery of Japan’s economy is undergoing a series of twists and turns. From 2011 to 2013, Japan’s economy experienced an annual increase, respectively, by -0.5%, 1.4%, and 1.5%. In 2013, Japan implemented the extremely loose economic stimulus policies known as the Abenomics, including additional issuance of currency to propel depreciation of yen, increase of public financial expenditure to expand domestic demand, and promotion of structural reforms to improve market environment. According to the current situation, these policies and measures achieved certain results in boosting growth and relieving deflation.

In terms of momentum, the effect of monetary policies on wealth in Abe Economics will gradually attenuate. The Japanese government’s debt accounts for over 200% of GDP, not enough to support the continuous implementation of massive stimulus policies, and whether the innate drive for Japan’s economic growth goes stronger depends on the progress and result of its structural reforms. According to the current situation, Japan has raised the consumption tax and advanced¹ the reforms and measurements including the establishment of special economic zones to attract foreign technology, talents, and funds; reduced the tax burden of enterprises in capital, expenditure, and R&D investment, promoted industrial integration, restart of nuclear power station, and enterprise’s participation in agriculture. In addition, Japan is also trying to join the TPP to exert reversal pressure on domestic reforms. The various structural reforms in Japan are interrelated with each other, the overall progress is difficult and the comprehensive effect is uncertain. In addition, the chronological factors, like the aging population, still exist. Once the growth and inflation go beyond synchronization, the prospect of economy will become gloom. Overall, the annual growth rate, on average, of the Japan’s economy during the 13th Five-Year Plan period is about 1.5% or so.

Emerging Markets and Developing Countries: Entirely on a Rapid Rise, Still with Obvious Structural Problem

After the international financial crisis, emerging markets and developing countries took the lead in picking up and reviving the global economy, with their growing share in global economic output. From 2011 to 2013,² the economy of emerging markets and developing countries, respectively, grew by 6.3%, 5%, and 4.7%, significantly higher than the developed countries. However, owing to the factors of concepts, institutional mechanisms, and management models, structural adjustment in economy of emerging markets and developing countries lagged behind the developed countries. Additionally, due to the weak demand from foreign markets and an increasing capital outflow, the economic growth rate has significantly slowed down since 2013.

With great potential in industrialization and urbanization, abundant energy resource reserve, and abundant labor supply, emerging markets and developing countries have vigorously promoted scientific innovation and development in industries with comparative advantage in recent years, and as expected, still in a rapid growth during the 13th Five-Year Plan period. However, we also find that emerging markets and developing countries face structural problems; some heavily depend on exports and external markets, mainly on resource industry, or excessively on international capital inflow, while others are in a state of inharmonious industrialization and urbanization or a rapid rise in domestic costs. Therefore, the growth of emerging markets and developing countries will be restricted by many factors of adjustment of monetary policies, flow of international capitals, and fluctuation in bulk stock prices and capacity change of foreign demand markets. It also determines that though emerging markets and developing countries can achieve rapid growth, they find it difficult to be not dependent on the market, technology, element, and industry of developed countries. Strenuous efforts are required to decide whether to balance the economic growth and stabilize inflation stabilization, or whether to properly handle external risks and advance the structural reform of economy. Upon overall consideration, the economy of emerging markets and developing countries is expected to maintain an annual growth, on average, at the rate of about 5.5% during the 13th Five-Year Plan period, remarkably faster than developed countries, with the overall pattern of world economy still at a momentum of South Up and North Down.

World Economy: Probably in Continuous Low Growth, Hopefully in Enhancing Steadiness

There is little possibility for the momentum of world economic growth to be as it was before the crisis. On the one hand, the financial crisis has not changed the trend of economic globalization and continuous development of science and technology, with the chronological constraints for growth of world economy still existing. It is about eight years between the outbreak of international financial crisis and the advent of the 13th Five-Year Plan period. Most systemic risks have been fully released at this stage, with little possibility of crisis or turbulence. Developed countries propose re-industrialization and economic rebalancing to emphasize again the development of real economy, while emerging economies focus on expanding domestic demand and promoting the industrialization and modernization of the countries with billions of people, which is conducive to the continuous revival of world economy. On the other hand, it is impossible to succeed in one move, that is, whether to solve the problems of high unemployment, high deficits, and high debts in the developed countries, or whether to solve the structural problems in emerging markets and developing countries. Since 2014, some economies, such as Japan, European Union and Russia, have suffered slowdown in growth or even negative rise. Therefore, during the 13th Five-Year Plan period, the momentum of world economic growth will hardly go back to the level before the crisis, and will most likely be on a continuous low rise by 3%.

Global economic imbalance will be further improved. Both international financial crisis and the European sovereign debt crisis, in essence, are the mandatory adjustments on the critical imbalance of global economy. From 2004 to 2007, before the financial crisis, global economic imbalance was intensified. During this time, the current account deficit per year of the United States of America was up to 800 billion US dollars, accounting for nearly 6% of GDP and about 60% of global current account deficit. Correspondingly, the current account surplus of Japan, Germany, and Asia’s emerging economies and oil-exporting countries continues to increase. After the crisis, the developed countries made active or passive adjustment on structural problems like excessive consumption, virtual high welfare, and scarcity of financial supervision, which gradually eased global economic imbalance. Such process is expected to continue during the 13th Five-Year Plan period, and the stability of global economic recovery to improve.

By and large, during the 13th Five-Year Plan period, the world economic growth mode and economic structure adjustment are estimated to maintain at a low growth before the formation of new growth model and scientific revolution. Taking into account the reduction of systemic risks, the comprehensive stability of recovery is promising to improve.