Could a "lost decade" of economic stagnation - akin to that experienced by Japan - be in store for the UK, the EU and the US?This theory has been gaining traction among increasing numbers of economic commentators.
The current "soft patch" affecting the UK, the EU and Europe could be described as "Japan-lite," HSBC says. HSBC explored the concept of "Japan-lite stagnation in the West" in a 2010 report, which included the following observation:
Compared with Japan's 1990s stagnation, Western output losses have so far been greater and, compared with Asia's late-1990s crisis, the rebound has been a lot more muted. It may be that the Western world will have to get used to a permanently lower level of economic activity than seemed likely just a handful of years ago.Looking to the US, Dan McCrum notes in the Financial Times:
Interest rates are already so low that businesses and consumers may come to expect years of stagnation ahead. If so, the US will have become like Japan, which is in its 17th year of deflation.Other commentators have considered the parallels with Japan's lost decade:
- The Observer's William Keegan says: "The Japanese story is a complicated one, but it was not helped by a fiscal tightening when the economy was on the verge of recovery in 1997, in the shape of a sharp rise in VAT that completely wrecked consumer confidence." He argues that similar action from the UK Government in recent months is now taking a similar toll on UK consumer confidence.
- The Daily Telegraph's Jeremy Warner quotes "Pimco's Mohamed El-Erian [who argues] that much of the advanced world faces a steady process of "Japanisation". For him, the "new normal" is what Japan has been experiencing for nearly 20 years now." Warner presents his own view of the choices now facing Japan and the west: "So which way forward for Japan? Does it embrace the new global economy, or just resign itself to relative decline and attempting to grow old gracefully? It's a choice which increasingly faces all countries in the developed world."
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