Tuesday, 5 April 2011

Japanese business confidence falls after quake, India on the rise

The latest report from the BoJ shows rather unsurprisingly that Japanese business confidence fell after the earthquake. AFP/CNA reports:

Japanese business confidence in the outlook for the next three months has plunged following the March 11 earthquake-tsunami and subsequent nuclear crisis, the Bank of Japan said Monday.

The central bank re-released Friday's quarterly Tankan survey to show the breakdown in the replies it received before and after the disasters...

The BoJ's report on Friday showed business sentiment among large manufacturers improving to "six" in March from "five" in December, but only 23.6 per cent of responses were received after March 11.

Monday's survey illustrated the views of firms polled after the quake, which showed the sentiment index among those major manufacturers fall to "minus two" for the April-June period.

But Japan is a declining economic power anyway, mainly due to its demographics. The true rising power of the future is India. Shekhar Aiyar and Ashoka Mody explain why:

An increase in a country’s working-age ratio can raise its rate of economic growth, resulting in a “demographic dividend”. Workers are more productive and save more than dependants. In addition, the fertility decline that is the source of the changed age structure may act directly to induce a larger female labour supply (Bailey 2006) and increase attention to primary education and health (Joshi and Schultz 2006). Cross-country evidence for such a dividend is strong, but contingent on favourable economic policy environments (Bloom and Canning 2004).

India, a demographic latecomer relative to the mature industrial economies and East Asia, is in the midst of a major transition in age structure. The country’s working-age population as a share of the total population has risen substantially over the last three decades. This process is set to continue over the next 30 years or so, during which India will gain about 300 million workers (UN 2009). During these years, India will be – by an order of magnitude – the largest single contributor to the global workforce. By contrast, the working-age ratio in China is projected to fall substantially in the decades ahead. For those engaged in the sport of India-China comparisons, these diverging trends offer the best hope for India to catch up with its neighbouring powerhouse (Kelkar 2004, Economist 2010).

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