Japan Center for Economic Research
January, 2020

2060 Digital & Global Economy

JCER, Japan Center for Economic Research, the Japan's leading think tank, predicts theglobal economy in 2060, focusing on digital technologies that continue to evolve and have adisruptive impact on the economy and society. We illustrate the results in series.

Lead Economist,
Sumio Saruyama*
Principal Economist, Kengo Tahara

1. The U.S. or China, which will take hegemony in 2060?
The Japan Center for Economic Research released its long-term economic forecast for
the first time in five years in December 2019. We would like to introduce our findings infive parts. In this first part, we look at the size of the national economies expected in 2060.
The United States is likely to rank first in GDP, followed by China, India, Germany, andJapan. The United States and China will continue to compete.
Economic Growth Prospects of Leading Countries
40

Tr. US$、2014 prices

35

USForecast

30

China

2520

India

15

Germany

10502000

Japan
2010

2020

2030

2040

2050

2060

（year）

Source: Japan Center for Ecnomic Research, Long-term Forecast, December 2019

Intangibles Lead Economic Growth in Digital Age
We focus on three factors in our forecasts.
First is the increase in the importance of intangible assets as the basis for generating
wealth compared with tangible assets. Intangible assets are invisible corporate assets
including software, intellectual property, and business and organizational know-how,such as business models. In the United States and some European countries, investment
in intangible assets has already surpassed that in tangible assets.
*

Email: saruyama-at-jcer.or.jp12060 Digital & Global Economy
Japan Center for Economic Research

Second is the role of mechanisms to distribute and share data between individuals andfirms in improving productivity. Unlike ordinary goods, data has a "non-rival" property.
Non-rival goods are defined in economics as goods that can be owned or used by multiple
entities without reducing its value, and thus has a large spillover effect on the entire
economy. That means that if one makes it accessible to people who are able to make useof it, the potential to create new value increases. For example, since local electric power
consumption data could be a good indicator of the movement of people, that data would
be useful for nearby shops and restaurants to predict the number of visitors and streamline
procuring and staffing.
Third is the importance of maintaining a globally open economy. Globalization brings thebenefits of international specialization and enhances productivity through competition
with superior overseas firms. As cross-border service will become common withdigitalization, it is important to maintain the free flow of data both within and outside
border. One of the features of our forecast is that it considers the fundamental quality ofsocial framework as factors of enhancing productivity. We adopt the indicator of opennessof the economy in terms of both data flow and economic transactions, and politicalstability as social quality factors.
We forecast the global economy through 2060 based on our econometric model reflecting
trends of population, tangible and intangible investment, and social quality factors statedabove.
The United States has the ground to drive innovation
Our forecasts suggest that China’s GDP will overtake that of the United States in the early2030s, but subsequently will turn rather stagnant thereafter. By 2060, the United Stateswill catch up again and remain competitive (Figure).
The strength of the U.S. would come from not only a growing population thanks to theinflux of immigrants, but also a social climate that encourages innovation throughdigitalization.
Data isolation will eventually become a barrier to China
China's momentum is likely to slow down for four reasons.
First, China is imposing restrictions on free cross-border data flow. In some cases, the useof overseas Internet services and transferring of domestic data to overseas are prohibited.
Our forecast indicates that China’s data isolation policy would hinder its productivity

2January, 2020

2060 Digital & Global Economy
Japan Center for Economic Researchgrowth.
Second, there are gaps between China and other countries in the quality of social quality
factors outside of the digital field. As found in empirical studies, lack of political freedom
could be an obstacle for productivity enhancement and that would be happening in China.
In some cases, overseas firms are not allowed to operate in China as free as domestic
firms. Too much restricted regulations for physical markets may also have a negativeimpact on China’s productivity.
Third is the demographic factor. Around 2030, the population begins to decrease in China.
Working population declining rate in China will be higher than in Japan.
Fourth is a slowdown of catch-up factors. By this time, China would have narrowed thegap with developed countries, and there would be less room for increased productivity by
the adoption of new technologies.
Prospects of Population
1.8

Billion

Forecast

1.6

India

1.4
1.2

China

1.0
0.8

USA

0.6
0.4

Japan

0.2
0.0
1960

1980

2000

2020

2040

2060 Year

Source:United Nations,World Population Prospects 2019.

That is our baseline forecast, with the assumptions that the U.S.-China severe conflict
will subside in the future. However, as China gains economic and technical strength, theUnited States could further strengthen its stance on China. Employment could become
unstable when automation is progressing with Artificial Intelligence(AI) and othertechnologies. American people's dissatisfaction may increase and they could demandstronger protectionist policies. The scenario where the conflict between the U.S. andChina deepens will be introduced in the next part.

3January, 2020