Courtesy of John Mauldin:
“Abe’s reforms require significant economic growth. Japan has had none for two decades, and now conditions for growth are even more difficult. Growth in GDP comes from two (and only two) sources: growth in productivity and growth in (working-age) population. Japan’s population is actually shrinking, and its working-age population is falling even faster as the country rapidly ages.
Because of the demographic problems of an aging Japan, economic growth will require even greater productivity growth than normal. Where is that going to come from? Real productivity growth (as opposed to nominal growth due to inflation) is not something you can just dial up with government policies and quantitative easing. It is incremental in nature. If you want 3% GDP growth in a country whose population is shrinking by 1%, you need 4% productivity growth, give or take. That just doesn’t happen on a sustained basis in a developed country.”
