The last couple of decades have been written off as lost decades for Japan. GDP has only risen by around 1% a year, and in several years has struggled to grow at all. Meanwhile, until 2008, the western advanced countries grew at more than 2% a year. Both Japan and the west grew in part as a result of a big build up of debt.
The big difference between Japan on the one hand, and the US and the UK on the other was population change. The US and the UK were expanding their populations by inward migration and higher birth rates. Japan’s population was shrinking, with very little inward migration. The southern European countries are adding to their Euro anguish by also experiencing population decline.In the UK at the peak of Labour’s rapid migration you had to take 0.4% off the growth rate or up to one fifth of the growth, to get to the growth per head. Now migration is lower and so the adjustment is smaller.
Recent UK figures have posed a couple of puzzles to economists. The first is the productivity puzzle which we have talked about before. It is not much of a puzzle. The numbers in jobs have been rising and productivity has been falling, because the two most productive sectors, finance and oil and gas have been contracting.
The second is the retail puzzle. Retail sales over the last year have risen despite the obvious squeeze on average real incomes. This can be explained in part by people saving less. We also need to recognise that continuing levels of inward migration, even allowing for the one third reduction achieved by this government so far, will serve to boost retail spending. There are also a large number of temporary visitors who indulge in retail therapy when here. Just visit Bicester Village or central London and see the large number of expensive purchases made by overseas visitors.
We need to keep in mind when reading different country figures the population background. You would expect the US and UK to grow faster than Japan or Germany, because of the rising populations. Adjusted for population the Japanese performance is not very different from the west.