World Economy

Japan’s Declining Workforce Hinders Growth

Japan’s Declining Workforce Hinders GrowthJapan’s Declining Workforce Hinders Growth

The fundamental problem of the Japanese economy is a declining workforce, an Australia international economist told Xinhua in an exclusive interview.

Joseph Capurso, Commonwealth Bank of Australia international economist, said: “It’s very hard to grow your economy when your workforce is falling.”

The May Markit/Nikkei manufacturing PMI declined the fastest since January 2013 to register 47.7%, continuing a downward trend in the sector that’s been contracting over the past six months.

The decline in manufacturing makes sense, Capurso said, as the Japanese consumers are buying less goods in a weak economy.

Though private consumption—60% of GDP—rose 0.5% in the March quarter thanks to increases in discretionary spending to help keep the Japanese economy out of recession, it failed to make up for the 0.8% slump in December.

Japan’s economy has traditionally been reliant on manufacturing high-end goods, such as cars and electronics for its consumer base, but as its economy matured, Japanese companies shifted plants offshore to countries such as Vietnam and Thailand.

“This sort of trend is happening globally, it’s not just in Japan, but it’s fair to say Japan is the leader in these sorts of issues,” Capurso said.

Adding to the pressure, other Asian-based manufacturers such as China and South Korea have been significantly increasing product quality while taking market share due to more favorable exchange rates against a strengthening Japanese yen.

Australian imports of Japanese manufactured cars are slightly weaker in the year to May compared to the same period in 2015, while imports from South Korea and Thailand have surged 18.1%, and 12.78% respectively, according to data from the Australian Federal Chamber of Automotive Industries.

The surge in Thai manufacturing was from light commercial vehicles built for Japanese companies, while South Korean manufacturers have increased market share.

Japan should begin to shift away from manufacturing into expanding its services sector as its population ages, instead of focusing on legacy industries that are being out-competed.

“If other countries are getting better at manufacturing, I’m not sure there’s a lot of point trying to hang onto declining competitive advantage there, and maybe the Japanese economy needs to focus on providing services rather than production of goods like cars and electronics,” Capurso said.

“I would have thought a growth industry in Japan would be things to do with the aging population, like aged home care and of course health services.”

Service industries however are human capital intensive, a significant issue for the Japanese economy.