Wednesday, October 21, 2009

China, Japan and the United States

Though recent wild currency swings could delay the reckoning, many economists expect Japan to cede its rank as the world’s second-largest economy sometime next year, as much as five years earlier than previously forecast.
At stake are more than regional bragging rights: the reversal of fortune will bring an end to a global economic order that has prevailed for 40 years, with ramifications across arenas from trade and diplomacy to, potentially, military power.
China’s rise could accelerate Japan’s economic decline as it captures Japanese export markets, and as Japan’s crushing national debt increases and its aging population grows less and less productive — producing a downward spiral.
“It’s beyond my imagination how far Japan will fall in the world economy in 10, 20 years,” said Hideo Kumano, economist at the Dai-Ichi Life Research Institute in Tokyo.
Not long ago, Japan was “the economic miracle,” an ascendant juggernaut on its way to rivaling the United States, which has the biggest economy.
While China has caught up quickly to Japan in recent years in terms of its total economy (due to China's rapid growth and Japan's stagnation) it still has a way to go on a per capita basis.

But the Japanese growth miracle and its subsequent slowdown, crisis and stagnation show that things change. We often think about China growing forever on a linear path, without recession and without a generalised slowdown.

No doubt if it does Australia will benefit, but contrariwise if problems emerge this will badly affect Australia.

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