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Turning Japanese could be in Europe's destiny. Depending on the metrics you look at, Deutsche Bank says that may not be such a bad thing.
Low economic growth, weak inflation, high debt and underperforming stocks all come to mind when “Japanification” is mentioned. The euro area is hitting some of those buttons as it grapples with a global slowdown, low inflation and fiscal weakness without proper political unity across the region.
But according to Deutsche Bank, Japan also boasts decent per capita economic growth, high living standards and relatively good income inequality.
“On many measures, Japan looks like a healthy and balanced society and economy,” analysts including Jim Reid said in a report. “Could Europe possibly reach such a scenario?”
Deutsche Bank outlines the challenges Europe faces and why it remains vulnerable. It sees Italy in the most trouble, saying its public debt problem is “perhaps the greatest threat to the sustainability of the single currency area.” Noting the growth divergence following their respective crises, it also said that for Italy, “the Japan outcome looks like the equivalent of climbing Everest without oxygen.”
Read More: Europe Isn't Japan in the 1990s. You Should Still Be Worried
At the other end of the spectrum are euro region's big exporting nations like Germany, also under threat from a world that's changed hugely since Japan's crisis of the 1990s. While Japan had strong global growth and a worldwide commitment to globalization, the multilateral order is in danger.
“Europe urgently needs to rethink its business model: it can't rely on China economically, it can't rely on the U.S. geopolitically, and it is falling behind in information technology,” the analysts wrote. “It is time for Europe to spend its excess savings to prepare for a new global order -- and a very different one to the relatively benign one faced by Japan nearly 30 years ago.”
To contact the reporter on this story: Fergal O'Brien in Zurich at fobrien@bloomberg.net
To contact the editors responsible for this story: Craig Stirling at cstirling1@bloomberg.net, Brian Swint, Zoe Schneeweiss
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