Buttonwood RESEARCH TOOLS Economist.comsuRveYs A pair of deadbeats Sep 18th 200 From The Economist print edition Can Germany and Japan be reinvigorated? THEY are the world's second- and third-largest economies. Measured at market exchange rates Japan and Germany together make up about 20% of global output. And they are both in a Germany's economy has been stagnant for three years. It is the sickest in a region with many weaklings. Unemployment is running at 10%. Japan s economy has barely grown for a decade the worst performance of any rich country since the Great Depression. Both unemployment and public debt levels have doubled over the past ten years. Very recently however, it has begun to show signs of life Japan and Germany (along with the rest of western Europe)also face serious demographic challenges as their populations age and fertility declines fertility rates in both countries are well below the level needed to keep the population constant. With a median age of 41, Japan has the oldest population in the world. Germany, Italy, Sweden and Switzerland are close behind. These demographics will make Japan and western urope the first victims of the pension time-bomb that hangs over most of the rich world In America, by contrast, the population is younger and both fertility and immigration are higher. According to projections by the United Nations, on present trends the median age of Americans, now 35, will rise by only five years by 2050, and the population will grow by over 40%.Japan s median age, on the other hand, will rise by 12 years to 53, and its population will fall by 14%0. Germany's is due to drop by 4%and Italy,'s by 22%o. Falling and ageing populations will make it harder to boost demand. As people age and their children grow up, they tend to save more and spend less, though usually after retirement a prolonged period of dissaving sets in But difficult demographics are only one factor. More importantly continental Europe 's and Japan's economies have miserably failed to live up to their own potential, thanks largely to home-made policy failures. better economic policy could give both regions a shot in the arm and would certainly help the global economy to rely less heavily on America Top of the list in both Europe and Japan must be structural reforms to make labour and product markets more flexible and, in Japan especially, to overhaul the banking system. In addition both need better macroeconomic policy to make reforms politically viable and allow them to work Does either region have the political will for reform? And can such reform be introduced aheadA pair of deadbeats Sep 18th 2003 From The Economist print edition Can Germany and Japan be reinvigorated? THEY are the world's second- and third-largest economies. Measured at market exchange rates, Japan and Germany together make up about 20% of global output. And they are both in a mess. Germany's economy has been stagnant for three years. It is the sickest in a region with many weaklings. Unemployment is running at 10%. Japan's economy has barely grown for a decade, the worst performance of any rich country since the Great Depression. Both unemployment and public debt levels have doubled over the past ten years. Very recently, however, it has begun to show signs of life. Japan and Germany (along with the rest of western Europe) also face serious demographic challenges as their populations age and fertility declines. Fertility rates in both countries are well below the level needed to keep the population constant. With a median age of 41, Japan has the oldest population in the world. Germany, Italy, Sweden and Switzerland are close behind. These demographics will make Japan and western Europe the first victims of the pension time-bomb that hangs over most of the rich world. In America, by contrast, the population is younger and both fertility and immigration are higher. According to projections by the United Nations, on present trends the median age of Americans, now 35, will rise by only five years by 2050, and the population will grow by over 40%. Japan's median age, on the other hand, will rise by 12 years to 53, and its population will fall by 14%. Germany's is due to drop by 4% and Italy's by 22%. Falling and ageing populations will make it harder to boost demand. As people age and their children grow up, they tend to save more and spend less, though usually after retirement a prolonged period of dissaving sets in. But difficult demographics are only one factor. More importantly, continental Europe's and Japan's economies have miserably failed to live up to their own potential, thanks largely to home-made policy failures. Better economic policy could give both regions a shot in the arm, and would certainly help the global economy to rely less heavily on America. Top of the list in both Europe and Japan must be structural reforms to make labour and product markets more flexible and, in Japan especially, to overhaul the banking system. In addition, both need better macroeconomic policy to make reforms politically viable and allow them to work. Does either region have the political will for reform? And can such reform be introduced ahead