Some commentators such as Nobel-prize winning economist Paul Krugman believe the West or even the whole world faces such a period of low economic growth thanks to the fall-out from the financial crisis.
However Carrick (pictured) is more optimistic about the the UK and US and says they can expect economic growth of 2 per cent to 2.5 per cent over the next five years. This is not too far off their pre-crisis 10-year rolling average of roughly 3 per cent.
He says the situation is bleaker for Europe however, which, thanks to a mixture of high regulation and poor demographics, is most at risk of following the course Japan took in the 1990s.
"On balance, we believe that the world today is a stronger place than Japan was after its bubble. There are more positives than negatives, particularly in the US and UK," he said.
"Demographics – a key factor behind weak growth in Japan – are much better than in the UK."
"The US and UK are also more dynamic and competitive economies than Japan was six year after its stock market peaked."
"Although debt levels remain high, the US and UK have acted aggressively to support their banking systems and asset prices have already started to recover."
"Europe has less debt, but its economy is still suffering from the solvency crisis that was exacerbated by the ECB’s rate hike in 2011."
"Nationalistic problems prevent the rich north from overtly bailing out the indebted south. Fiscal austerity, subdued export prospects and heavier regulation also hinder Europe."
Carrick and his team set out to examine why Japan suffered more than a decade of poor economic growth following its stock market crash in 1989.
Performance of index in 1980s and 1990s
Source: FE Analytics
They examined five different indicators: demographics, competitiveness, credit creation, fiscal policy and export markets.
The researchers looked at what happened to these indicators during and after the stock market peaks that signalled the start of the respective crises, in the six years following the Japanese crisis and the six years between 2007 and today.
Demographics was one of the key reasons that Japan’s economy slumped, Carrick says, with a fall in the working-age population responsible for one half of the decline in Japanese growth since the stock market suffered its dramatic crash.
"The working-age population fell around 1 per cent," he said. "The GDP per working-age population isn’t that bad: it has grown by about 2 per cent over a decade."
"This is great news for the UK. Pre-crisis Japan working-age population was growing, but post crisis it started to fall."
"Over the past 50 years, the UK average workin-age population has grown about 0.25 per cent a year and is projected to rise in line with that for two reasons."
Carrick explains that the first reason is immigration: Japan never saw a growth in immigration when its post-war baby boom came to an end, unlike the UK.
"In Europe, the working-age population will fall, but it won’t be as bad as Japan as it was never booming before."
Competitiveness is the other key contributor to Japan’s economic slump, Carrick explains, and the UK looks much better on this metric too.
The strength of the yen has been a serious problem for Japan over the past two decades, he explains, and this is one aspect of the problem.
In 1995, six years after the financial crisis, the Japanese price index was 70 per cent higher than that of the US.
"Is it any wonder the Japanese economy has been deflationary when its price level was 70 per cent above the world’s technology leader?" Carrick asked.
This phenomenon derived from the Plaza Accord of 1985 which led to a revaluation of the Japanese yen against the dollar.
The second drag on competition was over-regulation and bureaucracy in the economy, Carrick claims.
He gives the example of a Japanese law that allows local retailers to veto a new entrant into the area, which blocks the expansion of more efficient supermarkets with lower prices.
Research into labour laws by the OECD shows that the amount of regulation in Japan is far higher than in the UK and was even higher in the past.
The eurozone is even more regulated than both these markets, however, another warning sign for that economy.
"We are far less regulated than Japan was in the 1990s," Carrick said.
In terms of government debt, Carrick finds it hard to pick between Japan and the UK. However, Japan had a big problem with the prices of assets, which remained higher than their historic averages many years after the crisis.
The Schiller P/E [price to earnings] ratio shows that after peaking above 90x earnings, the Japanese market fell back to 50x earnings after six years.
In the UK and US, however, valuations have been much quicker to return to pre-crisis levels, and were never as extreme as those in Japan at the height of its boom.
The response of policy makers has been mixed, in Carrick’s view. While the banking system has also been repaired faster in the UK and US, the stabilisation of real, inflation-adjusted spending has reduced money in the economy.
The UK also has issues when the health of its export markets is considered. Whereas Japan was able to sell into the fast-growing Asian tiger economies, the UK’s main export market is the slow-growing eurozone.
"While we’re more confident now that the US and UK should avoid as rapid a decline in growth that Japan experienced, the situation in Europe today is only slightly better than in post-bubble Japan, and we therefore believe that Europe is at greater risk of suffering continued weak growth," Carrick concluded.
