Medium and Long-term
Global Economic Outlook(FY2018-FY2030)

Summary
Global trends: global order will be fragmented; domestic economic disparity
will expand; real and cyber society will be integrated.
China will likely surpass the United States in the economic scale until 2030,
and the economic power will shift to Asia.

Japan should implement the five imperatives to realize “a society wherechallenges and reforms nurture affluence.”

Megatrends in the Global Economy
The rise of China's economy has become significant since the 2008 Financial Crisis.
International order in the past has based free market and democracy as common principle.
However, we are facing a major turning point at the moment. With the development of theemerging market, represented by China, we are shifting from single to multi order world offragmentation. This change enhances another important moment, the State Capitalism– asystem in which the government functions as the leading economic player and uses markets
primarily for its political gain.
In Europe and in the United States, the expansion of domestic economic disparity andsocial divide have fully materialized due to two major reasons: (1) weak redistributionfunctions of wealth; and (2) globalization of supply chains. There can no longer be any
doubt that we are going through a populism and protectionism age. In China and otheremerging economies, various social issues such as environmental and aging concerns are
becoming increasingly serious in line with the rise in their economic levels.
Amid the increasing political and economic uncertainties throughout the world, thenecessity for resolving societal issues through innovation has become significant.
Implementation of new technologies into society will be a driving force for both developedand emerging economies, to reach to a sustainable and affluent society.
Based on this understanding, we have categorized into four areas, the major trends thatwill impact the world economy up to around 2050. They are politics/geopolitics,
economics, society and technology (Figure 1). The timing and impact of their urgencies will
differ depending on the trends. Furthermore, from the long term trend above, we haveextracted five major trends that will shape the global economy in 2030.
(1) Fragmented global order and State Capitalism(2) Shift of the Economic Power to Asia
(3) Expansion of Domestic Economic Disparity throughout the World(4) Circular Economy through Growth of Sharing Business(5) Integration of Real and Cyber Society
Figure 1: Trends that will influence the appearance of the global economy over thelong term

Politics

政治

Economics

政治 Multi-poralization

 Shift of Economic Power to Asia

 The State Capitalism Overtake of China-US/India-Japan Centralization and Decentralization

 Expansion of Young Islamic Economy

 Geopolitical Risks Expansion

 Catch up of Developing Economies

Social政治

Technology

政治 Aging Society AI, IoT and Robotics around us Economic Disparity and Social Divide Integrating Data in whole World Circular Economy through Sharing Tech Growth under severe Medical Divide Integration of real and cyber society Tech Solutions to Resource Problems
 Growing Attentiond to the Climate Change

Source: MRI.
Copyright (C) Mitsubishi Research Institute, Inc.

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Trend 1: Development of Fragmentation and Spread ofState Capitalism
Fragmentation of global economy
With the development of China and other emerging economies, the world economy isshifting from the one dominated by the United States and Europe to a more fragmented
structure. The trend of fragmentation will continue towards 2030 as China, followed byIndia, ASEAN and other countries increase their shares in the global GDP. Using the
Herfindahl-Hirschman index (HH index), MRI calculated the degree of concentration of
the economy (Figure 2). The HH index has remained steady at a certain level since theperiod of Japan’s rapid growth. However, as China and other emerging economies have
expanded their GDP shares, the HH index started to decrease again from 2005. Sincevarious emerging powers will grow through 2030, MRI forecasts that the concentration of
global GDP share will gradually decline in the future and the trend of fragmentation willcontinue.

State Capitalism
State Capitalism countries are projected to increase their presence in the global economy.
The difference between State Capitalism and free market capitalism is not necessarily
obvious. However, the presence of state owned enterprises was used in this report as anindicator to quantify State Capitalism. Countries where the ratio of people working for state
owned enterprises exceeds global average are defined as those with State Capitalism
tendency. Based on this definition, the GDP share of State Capitalism countries is expected
to increase to over 30% towards 2030.
The State Capitalism countries do not necessarily respect the rule-based multilateralframeworks developed by the United States and Europe, such as WTO and IMF, so long as
such framework does not directly benefit their regime. China is expressing her intention to
rewrite the global order. Even within the free economy, Trump Administration is pursuing
its own economic diplomacy. There are concerns that free market tide may decline towards
2030.
Figure 2: Herfindahl-Hirschman index calculated based on the GDP shares of various
countries

2,500(Index)
Rapid economic
growth of Japan

Growth ofEmerging Economies

2,000

Forecast
1,500

1,000

2030

2025

2020

2015

2010

2005

2000

1995

1990

1985

1980

1975

1970

1965

1960

500
Note : The GDP for Europe has been calculated by adding the GDPs of the current EU member countries.
Source : “World Development Indicator” (World Bank) and MRI staff estimate.
Copyright (C) Mitsubishi Research Institute, Inc.

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Trend 2: Shift of the Economic Power to Asia

This economic growth is expected
notwithstanding the structural problems
these countries are facing of current accountdeficits, fiscal deficits, and private debts.

Figure 3: Global GDP share of majorcountries
United States
ASEAN
Japan

（%）
60

China
EuropeIndia
Asia (Total)
Forecast

50

40

30

20

10

Source : “Maddison Historical Statistics”, “World
Development Indicator” (World Bank) and MRI
staff estimate.

Trend 3: Expansion of Domestic Economic Disparity
throughout the WorldOver the decades, growth has occurred in all regions of the world including developing
countries. The gap in economic levels between the United States and emerging economies
has narrowed (Figure 4, left).
Meanwhile, the domestic economic and social disparities have expanded in bothdeveloped and emerging economies (Figure 4, right). Major reasons behind the expansion
are: (1) the imbalance between high corporate earnings and weak wage increases; (2) the
persistent inequality in education; and (3) the rise in the unemployment rate among young
people. Such disparity causes division of society in both developed and emerging
economies. In addition, concentration of profits is expected to further increase in the
future due to the thriving of AI/IoT and other digital-related businesses, and domestic
economic disparity is likely to further expand through 2030.
Figure 4: Distribution of income in countries according to income level with the figure set as
100 for the United States (left) and distribution of countries according to income
share by the upper income class (right)
25

（%）

（%）

2010's (N=191)
1980's (N=157)

20

60

2010's (N=37)
1980's (N=28)

50

40

15

30
10

Income Level (US=100)

60~70

50~60

40~50

30~40

20~30

100~

50~100

20~50

10~20

5~10

2~5

0

0~2

10

0

10~20

20

5

Income Share of TOP 10%

Note: Among the countries listed in the World Bank “World Development Indicator,” the per capita GDPs of those countries
with relevant data for the decades indicated have been tabulated in the figure on the left, with the per capita GDP for
the United States set as 100. With regard to countries listed in the World Inequality Database, the income share by theupper 10% income class has been calculated in the figure on the right.
Source : “World Inequality Database”, “World Development Indicator” (World Bank) and MRI staff calculation.

Copyright (C) Mitsubishi Research Institute, Inc.

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2030

2020

2010

2000

1990

1980

1970

1960

1950

1940

1913

1870

1900

0

1820

Asian economies will continue to make rapid
growth. It is expected that the GDP share of
Asian countries will rise from around 20% of
the global GDP in 2000 to nearly 40% in
2030 (Figure 3). It should also be emphasizedthat China will become No. 1 in the world interms of economic scale, with its GDP
exceeding that of the United States by 2030,
and the age of Asia lies ahead. Due totechnological advances, India, ASEAN andother Asian countries have room for per
capita GDP growth.

Trend 4: Circular Economy through Growth of Sharing Business
Amid the wave of globalization, a trend tocreate a self-sufficient Circular Economy
within single economic sphere, is expected to
expand. There are three major factors topromote the trend towards 2030: (1) progressin local production for local consumption; (2)sharing business expansion which reduces
demands for physical resources; and (3)expansion of resource recycling (Figure 5).

Figure 5: Shift toward a recycling-oriented
society will progress throughlocalization and sharing(1) Progress in local
Production reduces
the import

Intermediate
R&D/
Production

RecycleFinal Goods(3) Sharing business ownercollects disused articles andproceed recycle

There is a strong trend toward Circular
Economy which creates new supply chain,including recycling, within the scope of aregional economic zone.

Operation &Maintenance(2) Sharing business
reduces demands forphysical resource

Local production and sharing businessshape the Circular Economy

Source: MRI.

Trend 5: Integration of Real and Cyber Society
Progress in digitalization of information
Full-scale implementation of IoT will progress and the number of consumer devices
connected to the Internet will likely increase to 50 billion globally by 2030 (Figure 6).
Information that has not been digitized before will be captured and stored in cyber space at
explosively rapid pace.

The emergence of cyber society
Our daily work and life will become more convenient due to advances in AI,
communication technology, etc. Resolution of many societal problems will become
possible. Also, businesses that can be completed within cyber space are expected toincrease. These changes contribute to the emergence of a “cyber society”, where various
activities are mingled and carried out by integration of real and cyber world.

Digital Hoarding
Meanwhile, the trend of digital hoarding will become more rigid. The digital hoarding raises
another trend of data bi-polarization between data that freely circulates in cyber society, anddata that is bound by regions and corporations. As a result, we will see more offragmentation in the digital world.
Figure 6: Per capita number of devices connected to the Internet
15(Devices)

Japan

Forecast

1015

United States(Devices)

15

Forecast

10(Devices) China

15
Forecast

10(Devices) World

10
Forecast

5

5

0

5

0
2012

2017

2030

5

0
2012

2017

2030

0
2012

2017

Note : Number of consumer-use devices excluding those for business use.
Source : “Consumer Barometer” (Google) and MRI staff estimate.
Copyright (C) Mitsubishi Research Institute, Inc.

5

2030

2012

2017

2030

Global Economy in 2030 based on the Five Trends
The above five trends bring dramatic changes to the global economy in 2030. If the stableeconomic environment continues, China will surpass the United States in the economic
scale, while both India and ASEAN also will surpass Japan (Figure 7).
US economy : While strong innovation and new businesses will underpin economic vitality,
mismatch in the labor market and expanding domestic economic disparity will become aburden, and the US growth rate is expected to fall from around 2% in 2020 to the upper
1% level through 2030.
European economy : While the conservative corporate behavior and the decline in qualityof human capital will be a downward factor, the rise in productivity in Nordic countries, etc.
through the development of advanced technologies will sustain the European economy. As
a result, European economy is expected to maintain a growth rate of the upper 1% level
until 2020. After that, the growth rate is expected to fall to the upper 0% level in line withthe decline in the working-age population.
Chinese economy : Due to the decline in the working-age population and slowdown in
the growth of traditional industries, the growth rate of the Chinese economy is expected togradually decelerate from the mid-6% level in 2020 to near the 4% level through 2030.
ASEAN economy : Although the working-age population will decelerate slowly,
productivity will continue to rise. As a result, the growth rate of the ASEAN countries is
expected to maintain 4% level through 2030.
Indian economy : Thanks to such factors as increase in the young population andcontinued expansion of domestic demand due to the rise in income levels, India's growthrate is expected to maintain around the 6% level through 2030.
Figure 7: Comparison of the scale of nominal GDP of major emerging
economies and developed countries
40

United States
India(trillion $)Japan
ASEAN10

China
EU

10

(trillion $)Japan
ASEAN10
Forecast

Forecast

30

India

20

10

Note 1 : Since the result will differ significantly depending on the assumed exchange rate, it is necessary to view this over abroad range. The growth rates are MRI’s prediction. While basing the exchange rate on assumptions in the IMF “World
Economic Outlook,” partial revisions have been made. China’s nominal GDP is based on the assumption that yuan
appreciation will progress at a rate of slightly less than 1% through 2030, and India’s nominal GDP is based on theassumption that rupee appreciation will progress at a rate of about 0.5% per year, while that for Japan is based on themedium and long-term outlook prepared by MRI.
Note 2 : ASEAN 10 refers to the following 10 countries: Indonesia, Thailand, Malaysia, the Philippines, Vietnam, Singapore,
Myanmar, Laos, Cambodia, and Brunei.
Source : “World Economic Outlook” (IMF) and MRI staff estimate.

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2030

2025

2020

2015

2030

2025

2020

2015

2010

2005

2000

1995

1990

1985

1980

2010

0

0

Standard Scenario and Growth Scenario of the Japanese
EconomyThe natural potential growth rate will be about 0%
Amid shrinking and aging population, the potential growth rate of the Japanese economy
will gradually decline to around 0% in 2030. The improvement of the GDP gap leads
Japanese economy out of deflation. However, with the continuing trend of the aging
society, the Government’s fiscal situation will even worsen. Consequently, the budget
deficit will expand and the outstanding debt will likely increase.

Five imperatives for implementing blueprint of the Japanese
economy
MRI proposes that Japan should pursue “a society where challenges and reforms nurture
affluence” as the blueprint. Here “affluence” refers not only to the economic affluence but
also to the overall satisfaction of livelihood, including social connection, joy of work andhealth. Five imperatives necessary for implementing the blueprint are as follows: (1)transforming society through innovation; (2) taking advantage of the growing global
demand; (3) self-directed and proactive learning; (4) developing sustainable local
economies; and (5) transforming fiscal and social security systems supporting 100-year-life.

The growth scenario will push up real GDP by about ¥80
trillion
Implementation of the five imperatives will likely increase the growth rate in 2030 by about
1% from the natural growth rate of around 0%(Figure 8). If we resolve societal issues
through challenges and transformation, Japan will realize a society that nurtures affluence.
If Japan can achieve this, she will not only maintain a certain presence in the world but also
increase its per capita GDP by about ¥700,000. The fruit of the economic growth can beallocated to future investments and hence Japan will realize a sustainable economic society.
Figure 8: Pushing up real GDP by ¥80 trillion through realizing the growthscenario
Reform scenario（Trillions of chained 2011 yen）

2.0

（%）

Forecast¥639 trillion

640

1.5

620

Reform scenario+1.4%

Forecast

600

About ¥80 trillion

1.0
About +1.2%

580¥562 trillion

560
540

Standard scenario

520

0.5

+0.2%
0.0

Standard scenario

500

Source：“System of National Accounts”(Cabinet Office) and MRI staff estimation.

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2021-25

2016-20

2011-15

2030

2025

2020

2015

2010

2005

480

2006-10

2001-05-0.5

2026-30660

Point 1: Transforming Society through Innovation
To achieve the future that Japan should target, it is important to resolve a variety of societal
issues through innovation based on new technologies. There is high expectation for
innovation to solve problems in daily life and to improve quality of life. According to our“Survey on Exciting Future Living” targeting 5,000 consumers, there is strong demand for
products and services that help resolving such societal problems as wellness and mobility.
We estimate a potential consumer market of ¥50 trillion in 2030 which is roughly 15% of
total household expenditure (Figure 9).
Figure 9: Size of the potential consumer
market for services in the futureis ¥50 trillion
Education and cultivation
human resources
Regional
revitalization

Automation andimprovement ofefficiency

Healthcare
2

4

15

¥50

9

Trillion

3

Energy8

9

Mobility

Security andresilience

Note :

Market size has been calculated bymultiplying the population by the rate ofdesire to use (services) and thewillingness to pay (for the services).
With regard to the willingness to pay,
the upper 25% point in the distributionof the consumer willingness to pay wasused for people who replied that they“want (future services) to be absolutely
realized,” while the average of the
distribution of the consumer willingness
to pay was used for people who repliedthat they “would use (future services) if
available.” A preliminary estimate of thesize of the market for various goods
and services was made by using the
population derived by multiplying
gender by age groups in 2030.
Source : The survey panel of MRI’s “Market
Intelligence Forecast (mif)”.

New investments are also necessary to achieve affluent society in the future. We estimate
the required domestic investment amount by 2030 is about ¥200 trillion yen (cumulative
investment from 2018 to 2030) (Figure 10). It should be noted that the preliminary
calculation of the required investment amount here is not directly linked to the estimate of
the potential consumer market mentioned above.
In order to promote innovation, it is important for corporations to challenge developing
new businesses. In addition, it is also important to reform regulations to accelerate social
implementation of digital technology, and to streamline rules and policies to promote data
distribution.
Figure 10: Cumulative total of about ¥200 trillion required for realizing
the future society
Healthcare

Mobility

Energy¥20-45 trillion¥15 trillion¥65-85 trillion

Improvement of productivity inmedical and long-term careservices：¥20-45 trillion
Health-related market：¥2-5 trillion

Self-driving car・EV・MaaS：¥35 trillion
Decrease of gasoline car：▲¥20 trillion

Renewable energy：¥25 trillion
Energy-saving：¥40-60 trillion

Digital technology¥65-90 trillion
New digital products(Ex: robotic process
automation, factory automation) to improve
productivity：¥65-90 trillion

Source: MRI.
Copyright (C) Mitsubishi Research Institute, Inc.

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Point 2: Taking Advantage of Global Demand
The current trend of “local production for local consumption” and building demandoriented value chains is likely to further accelerate through 2030. This trend will also bring amajor change to the current account structure in Japan. Although localization will decrease
export of goods from Japan, return on investments and payment receipt of services will
increase. Led by Asia, global direct investment market is expected to expand from $1.6
trillion (average during the period between 2014 and 2016) to $3.4 trillion through 2030
(Figure 11).
The acceleration of the cross-border investment from Japan will increase return on
investments such as dividends and payment of services related to intellectual property
rights from overseas subsidiaries. In order to realize such multifaceted earning, thefollowing two points are required: (1) to lead the world by generating an economic order
based on free and fair rules without giving in to the trend of protectionism; and (2) toenhance competitive edge of core products; and to enhance value added by combining
upstream (high value-added materials and parts) and downstream (operations fully utilizing
IoT technology).
Figure 11: Forecast of the size of the cross -border direct investment market
The market size of cross-border direct investment$1.6 trillion→$3.4 trillion(2030)(
average during )(The2014
and 2016 )United states

8％ EU

CIS

China

15％

7％

Eastern Europe
8％

North Africa
and Middle East
Sub-SaharanAfricaOther Asian countries
and Oceania

Central and South America（Including India, ASEAN and Australia)

Note Inner circle：The result value during 2014 and 2016
Outer circle：The predicted value in 2030
Percentage ：The share of Japan in cross-border direct
investment in each region

Note: The value forecast for 2030 has been calculated by multiplying the GDP by the direct investment ratio. The GDP forecast
was done by MRI, while it is assumed that the ratio of direct investment to the GDP of various countries will rise
gradually in line with the trends since 1980.
Source : “Foreign Direct Investment”(UNCTAD), “World Economic Outlook” (IMF) and MRI staff estimation.

Copyright (C) Mitsubishi Research Institute, Inc.

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Point 3: Self-Directed and Proactive Learning
The job condition in Japan will change dramatically in the future. The shortage of humanresources will continue to be a serious problem until the early 2020s with the declining
birthrate and aging population. However, dissemination of digital technology will decrease
the demand for labor-force and promote unmanned operations, resulting in surplus ofhuman resources after the mid-2020s. At the same time, a mismatch in the labor market,
such as a shortage of 1.7 million professional workers is expected for supporting thetechnological innovation.
In this report, we categorized all occupation into two axes –routine/non-routine andcognitive/manual– to characterize the task and skill of human resources required for
professional work. Using this chart and analyzing each segment where employees areconcentrated, the share of non-routine segment, where most professional workers arelocated, is only around 20% in Japan. This is two-thirds of the United States and one-halfof the UK. In the Japanese labor market, about 80% of workers have remained in routine
type tasks in 2015 (Figure 12).
Figure 12: International comparison of human resources portfolios(2005-2015)
Note 1 : The two axes were defined asfollows: “routine ⇔ nonroutine” was set for the verticalaxis, while “manual ⇔cognitive” was set for thehorizontal axis, following earlier
studies by Autor, Levy, andMurnane (2003), etc.
Note 2 : The numerical values in the
figure indicate shares in 2015.
Source : O*net (US), Office for National
Statistics (UK), Population andHousing Census (Japan) and
MRI staff calculation.

If workers do not shift to non-routine type tasks at the macro level, about 80% ofJapanese human resources will be exposed to the competition with robotics and AI. To
resolve skill mismatch in the Japanese labor market, self-directed and proactive learning
becomes important. The following four points will be the solution for the self-directed andproactive learnings: (1) changing people’s mindset; (2) clarification and disclosure ofoccupational information; (3) providing life-long learning programs and support for
occupation changes; (4) promotion of human resources challenging creative businesses.

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Point 4: Sustainable Local Economies
By 2030, we will probably be able to freely choose where to live, where to work, and where
to consume, thanks to development of digital technology. There is a possibility that theexcess concentration of population and industry in the Tokyo metropolitan area will be
resolved, and many people can choose areas to live based on well-being of environment,richness of culture and history. Through synergies among people moving into these areas
and the locals, new business opportunities may be created. To strengthen regional power, it
is important to upstart local innovation by combining human resources, entrepreneurshipand local power. Local innovation will lead not only to resolving local societal problems but
also to take advantage of global demand.

Point 5: Fiscal and Social Security Systems Supporting 100-YearLife
Digital technology, local community, and systemic reforms
Japan's social security system is experiencing institutional fatigue in the “super-aged society”. Inview of an era of 100-year-life, Japan needs to implement systemic reforms toward avoiding
excessive services and expanding the range of self-help as soon as possible. Furthermore, if newtechnologies enable many elderly people to live without support, they in turn can contribute to the
local communities. Independence of the elderly people also contributes to extending healthy life
expectancy. Following measures are necessary for both improving the quality of life and maintaining
sustainable social security system: (1) systemic reforms, (2) utilization of new technologies; and (3)mutual support in local communities.

Realistic options for financial reform
The government has extended the target period for achieving surplus in the primary balance to 2025.
However, it still may be difficult to achieve despite the extension. In financial reform, cuts ingovernment spending and tax increase are essential in addition to growth strategies. Achieving
surplus in the primary balance becomes possible by combining the following three points: (1)realization of a growth scenario; (2) suppression of the annual increase of social security related
expenditures to 400 billion yen; and (3) raising the consumption tax rate to 13%(Figure 13).
Figure 13: Combination of choices to make primary balance in FY2025
GrowthExpenditure suppresion

Revenue expansion

Real GDP growth rate

Social security expenditure

Consumption tax rate

PB deficit in(FY2019-2025)(FY2019-2025)(Untill FY2025)

FY2025

Standard scenario

0.5%+\0.9 trillion/year

10%▲¥15.4 trillion

The consumption tax rate

0.5%+\0.9 trillion/year

to make PB profitable

16%+6% increase\15.4 trillion

Eliminated deficit

The combination of

0.9%+\0.5 trillion/year

13%(±¥0 trillion)

three choices+0.4% increase\0.4 trillion/year decrease+3% increase(Reduced amount of PB deficit)\5.0 trillion\3.3 trillion\7.1 trillion(Reduced amount of PB deficit)

Source: MRI.

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US Economy：

Despite Being Sustained by Innovation, Burden ofa Divided Society Remains
Environment peculiar to the United States that fosters innovation
The contribution of total factor productivity (TFP) is significant in the economic growth of theUnited States over the medium to long term. The high level of TFP in the United States is
supported by active creation of innovation, and is based on the following three strengths: (1)sufficient R&D investment; (2) abundant funding to entrepreneurs (Figure 14); and (3) federal
policies boosting innovation. Under such environment, productivity growth due to innovation is
expected to continue in the future.

Three structural problems
However, there are also concerns that economic growth of the United States can be suppressed.
Those are the following three areas: (1) division of the labor market due to structural problems; (2)division of domestic society due to increasing economic disparity; and (3) separation frominternational society that will be left behind by the Trump administration.
The structural problem of the labor market is thought to be a factor to drag down the labor
participation rate in the United States. Also, it is aggravated by insufficient support of training
programs for adult workers. Long-term stagnation of the labor participation rate will push down
human resources in terms of both quantity and quality.
Economic disparity in the United States is expanding (Figure 15). Also, the disparity tends to be
fixed through generations partly because of the sharp increase of university tuitions. The surge intuition fees of universities is making it difficult for students from low-income families to accessuniversity education. If the economic disparity further widens in the future, productivity growth will
be suppressed through reduction of innovation.
Adverse effects of the Trump administration may harm the US economy over the medium tolong term. An example is the unilateral and unreasonable claim by the United States toward othercountries through its protectionist policy. It may create conflict with other countries and will make it
difficult for the United States to join new trade agreements in the future. If the United States is shutout from the framework of free trade, she may lose advantage in economic and international politics.
Figure 14: Ratio of VC investment toGDP
0.4

Figure 15: Disparities of assets andincome in the United States

（%）
60

（%）

Early stage
0.3

The share of the top 1% in national wealth

Later stage

48.0

50

The share of the top 1% in national income

before taxes

40

0.2

The Great
Dipression

30

0.1

38.3

21.2

20

20.2

Italy

12

Source: World Wealth & Income Database.

2013

2008

2003

1998

1993

1988

1983

1978

1973

1968

1963

1958

1953

1948

1943

1938

1933

1928

1923

1918

0

Note
: The data is from 2016.
Source : “Entrepreneurship at a Glance 2017” (OECD).

Copyright (C) Mitsubishi Research Institute, Inc.

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1913

Portugal

Japan

Belgium

Netherlands

Germany

United Kingdom

Spain

Denmark

FranceCanadaSwedenUnited States

0.0European Economy:

Growth Slowing Down due to Aging;
Backpedaling EU Integration Is a Risk
Growth of productivity is the challenge
In the EU, economic growth is expected to fall to the upper 0% level after 2020, due mainly to thedecrease in the working-age population. To maintain long-term growth, the common challenge inEurope is the productivity growth. The potential growth rate in the future depends on whether totalfactor productivity can be increased under the progress in aging and the slowing down of capital
accumulation in Europe.

Spillover of innovation
There is a possibility that the innovation power of the EU will significantly improve in the future. In
fact, many countries with high innovation ability are included in the EU region (Figure 16). The
overall innovation ability of the EU will be raised if the innovation spillover, such as knowledge andtechnology as well as the adoption of policies and systems of countries with high innovation abilities,
spread through the EU region.

Issues on business sector and labor market
However, we must be aware of the low expected growth in the corporate sector and delays inaccumulation of human capital. First, the expected growth rate in the corporate sector is declining inmany countries within the EU. If this situation continues in the future, it could lead to a slowdown
in the improvement of innovation ability and productivity growth resulting from restraints on entry
of enterprises and reduction of investment. Second, high unemployment rate causes the delay inhuman capital accumulations, mainly among young people. Declining human capital will not only
slow down productivity growth but also reduce labor mobility to new growth industries.

Further EU integration is not straightforward
The direction of further EU integration in the future includes: (1) unification of the deposit
insurance system; (2) unification of capital market rules (financial alliance); and (3) strengthening ofmacro stabilizing function through fiscal measures within the eurozone (fiscal alliance). However,skeptical views on the EU integration have been prevailing since the financial crisis and theEuropean debt crisis. Further integration of EU will not move forward in a straight line as acommon consensus of the member countries.
Figure 16: Global innovation index ranking
130（The average of developed countries=100)

120
110
100
90
80

Switzerland
SwedenNetherlands
United States
United Kingdom
Denmark
Singapore
FinlandGermany
Ireland
Korea, Republic of
Luxembourg
IcelandJapan
FranceHong Kong (China)
IsraelCanadaAustria
NorwayNew Zealand
China
EU
Australia
Czech Republic
Estonia
Malta
Belgium
Spain
Italy
CyprusPortugalSlovenia
LatviaSlovakia
United Arab Emirates
Bulgaria
Malaysia
PolandHungary
Lithuania
Croatia
Romania
TurkeyGreeceRussian Federation

70

Note

: 2017. The UK, which has decided to withdraw from the EU, has been counted as a non-EU country. The
value for the EU is the average of the combined GDPs of each member country. Orange bars indicate EU
member countries, blue bars indicate developed countries other than EU members, and gray bars
indicate emerging economies other than EU members. The definition of developed countries andemerging economies is according to the IMF.
Source : “Global Innovation Index” (Cornell INSEAD WIPO) and MRI staff calculation.
Copyright (C) Mitsubishi Research Institute, Inc.

13

Chinese Economy ：Slow Reform on Structural Problems Causes
Concern despite Growth in New Industries
China catching up the United States
In China, the working-age population has already entered a declining phase. In aging society withdeclining working-age population, innovation is key for economic growth. We compared China's
innovation power on global basis using the global innovation index which consists of input andoutput indicators. The composite index indicates there is still a gap between China and the UnitedStates. Meanwhile, China is already close to the level of the United States when measured in the
output index (Figure 17).

Huge government support and investment boosting innovation
China’s innovative power is boosted by huge government support and investments. The major
investors are venture capitals and PE funds that have expanded in scale in recent years. Current
investments to venture firms have been noticeably biased towards the coastal areas. The key tomedium- and long-term growth of the Chinese economy is whether clusters like those in Shenzhen
will emerge in the inland areas in the future.
The Belt and Road Initiative (BRI) is another important key for the sustainable economic growthin the long run. The BRI is assumed to have the following four objectives: (1) development ofinland part of the country; (2) solving over capacity of manufacturing facilities; (3)internationalization of the Renminbi; and (4) contribution to security measures, including resource
security. Currently, progress differs by each objective. However, since the long-term vision is clear,
the achievement of the vision will likely accelerate in the future.

Nonperforming loans and possible burst of bubble
Meanwhile, the Chinese economy carries many risks. The following three risks warrant caution: (1)overcapacity of industrial production; (2) rapid contraction of private debts due to emergence of thenonperforming loan problem; and (3) delays in reforming the social security system.
To grasp the risk of China's nonperforming loan problem, we made comparison with the postbubble level in Japan. After the bubble burst in Japan, the amount of nonperforming loans stayed at
a level of approximately 4% to 8% of the GDP. Meanwhile, the amount of China's nonperforming
loans is estimated to be about 4.2% of its GDP. This level is close to that of Japan in 1995, after thecollapse of the credit bubble. If the bubble of the nonperforming loans market in China bursts andthe prompt liquidation is required, it may add downward pressure on the economy to the same
extent as during Japan's bubble burst.
Figure 17: Global innovation index (Composite: Left, Output: Center, Input: Right)
130（USA=100）

Composite

130

120

（USA=100）

CHE

110

100
KOR

DEU

JPN

80

90

70

60

DEU

2017

100
DEU

JPN

JPN
KOR

80
70

CHN

CHN

60
2008

Note

2017

2008

: CHE represents Switzerland, DEU represents Germany, KOR represents Korea (Republic of), JPN
represents Japan and CHN represents China.
Source : “Global Innovation Index” (Cornell INSEAD WIPO) and MRI staff calculation.
Copyright (C) Mitsubishi Research Institute, Inc.

CHE

90

60
2008

120

USA

KOR

80
CHN

Input

110

100

90

（USA=100）

USA

USA

70

130
CHE

120

110

Output14

2017

ASEAN Economy：

Continuing Moderate Growth while Bearing
Structural Problems
ASEAN economy sustaining growth
We forecast that moderate growth will continue in ASEAN economy, in consideration of thefollowing three points: (1) increasing population; (2) improvement of technical capabilities throughdirect investment and expanding manufacturing network; and (3) increasing exports to growing
China.
ASEAN’s population will increase up to 730 million in 2030, in line with the working-age
population ratio reaching 67% by 2030. Population will grow parallel to income, resulting in rapid
growth of consumption within the region.
Manufacturing network of ASEAN is developed by abundant incoming direct investment and isbeing molded into the global supply chain. Further expansion of manufacturing network is expectedin the future.
With regards to the relationship with China, the share of ASEAN export to China has been
increasing gradually. If the labor cost of China continues to increase and imports are stimulated by
the Belt and Road Initiative, the ASEAN exports to China will further expand.

Structural problems in ASEAN member countries
There are number of risks associated with ASEAN economy. The following three structural problems
in ASEAN economy warrant attention: (1) difference in economic levels among member countries; (2)get old before it gets rich; and (3) government debts and current account balance. By measuring
fundamentals-related indicator, we can clarify the differences among ASEAN countries(Figure 18).
Countries that failed to resolve their structural problems will end up in the middle-income trap.
Figure 18: Evaluation of fundamentals related to indicators of various countries
Indonesia

Malaysia

Philippines

Inflation
3

Inflation
3

Inflation
3

Corporate

1.5

Debt

0

Current Acc.

Corporate

1.5

Debt

0

-1.5

Savings

Debt

Corporate

1.5

Debt

0

-1.5

-3

HouseholdCurrent Acc.

-1.5

-3

Household

Savings

Debt-3

Household

Savings

Debt

Government

Government

Government

Government

Government

Debt

Deficit

Debt

Deficit

Debt

Thailand

VietnamInflation
3
Corporate

1.5

Debt

0

Inflation
3
Current Acc.

Corporate

1.5

Debt

0

-1.5
Savings

Debt

Current Acc.

Savings

Debt

Deficit

1.5 Low

Corporate

Debt

Low

0

-3

Household
Debt

Current Acc.

SurplusHigh

Savings

Low

Government

Government

Government

Government

Government

Debt

Deficit

Debt

Deficit

Debt

Note

Legend-1.5-3Household

Government

Inflation
3

-1.5

-3

HouseholdCurrent Acc.

Low

Low
Government
Deficit: Indicators related to the fundamentals of the various countries have been extracted and evaluated bycomparing with the average of the developed countries. The evaluation method has been set so that thelower the inflation rate, the higher the evaluation point. The current account (Current Acc.) has been set
so that the higher the ratio of the surplus to GDP, the higher the evaluation point. The savings ratio has
been set so that the higher the gross national savings to the GDP, the higher the evaluation point.
Government, household, and corporate debts have all been set so that the lower their ratio to the GDP,the higher their evaluation points. With regard to the Philippines and Vietnam, the evaluation points forhouseholds and corporate debts have been recorded as zero because data does not exist in the BIS.
Source : “World Economic Outlook” (IMF), “BIS Statistics Warehouse” (BIS) and MRI staff calculation.
Copyright (C) Mitsubishi Research Institute, Inc.

15

Medium and Long-term
Global Economic Outlook(FY2018-FY2030)

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Mitsubishi Research Institute (https://www.mri.co.jp/)2-10-3 Nagata-cho, Chiyoda-ku, Tokyo 100-8141
Inquiries concerning contents

Inquiries about coverage

Yoko Takeda
Research Center for Policy and Economy
Tel: +81-3-6705-6087
Fax: +81-3-5157-2161
E-mail: ytakeda@mri.co.jp

Yoshizawa, Shibuya, and Tsunoda
Public Relations Department
Tel: +81-3-6705-6000
Fax: +81-3-5157-2169
E-mail: media@mri.co.jp

Authors:
Yoko Takeda, Junya Inose, Akihiro Morishige, Yasunari Tanaka, Go Taniguchi,
Hirotsugu Sakai, Masashi Santo, Tetsuya Yoshimura

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