By Andrea Schalal
WASHINGTON, March 27 (Reuters) – Average potential global economic growth will plummet to a three-decade low of 2.2% per year by 2030, ushering in a “lost decade” for the global economy if policymakers fail to take ambitious initiatives to increase labor supply, productivity and investment, the World Bank warned on Monday.
Failure to reverse the expected broad-based slowdown in potential gross domestic product (GDP) growth would have profound implications for the world’s ability to tackle climate change and reduce poverty, a new report says.
But concerted efforts to boost investment in sustainable sectors, lower trade costs, boost growth in services and increase labor force participation could boost potential GDP growth by as much as 0.7 percentage point to 2.9%, the report said Report.
“The global economy could be facing a lost decade,” said World Bank chief economist Indermit Gill, though he said policies that encourage work, boost productivity and accelerate investment could reverse the trend.
The World Bank is also monitoring developments in the banking sector, which, with rising interest rates and tightening financing conditions, is driving up borrowing costs for developing countries, Ayhan Kose, director of the World Bank’s forecasting group, told reporters.
“The slowdown we’re describing … could be much more pronounced if another global financial crisis hits, especially if that crisis is accompanied by a global recession,” Kose said, noting that recessions could weigh on growth prospects for years.
The average GDP growth rate is a kind of “speed limit” for the global economy, representing the maximum long-term rate at which it can grow without triggering excessive inflation.
According to the report, the overlapping crises of recent years, including the COVID-19 pandemic and Russia’s invasion of Ukraine, have ended nearly three decades of sustained economic growth and heightened concerns about the slowdown in productivity, impacting income growth and higher from Crucial is wages.
As a result, average potential GDP growth fell to 2.2% in 2022-30, down from 2.6% in 2011-2021 and almost a third lower than the 3.5% in 2000-2010.
Low investment will also slow growth in developing countries, as their average GDP growth will slow to 4% for the rest of the 2020s, from 5% in 2011-2021 and 6% in 2000-2010.
Rising productivity, higher incomes and falling inflation have helped one in four developing countries achieve high-income status over the past three decades, but these economic forces are now in retreat, the report says.
It said productivity is likely to grow at its slowest pace since 2000, investment growth in 2022-2024 will be half that of the past 20 years, and international trade is growing at a much slower pace.
To change course, policymakers should prioritize containing inflation, ensuring financial sector stability and deleveraging, while encouraging climate-friendly investment, which could increase annual potential growth by 0.3 percentage points.
Reducing costs associated with shipping, logistics and regulations could boost trade, it said, calling for changes to remove the current bias towards high-carbon goods inherent in many countries’ tariff plans and restrictions on access to green goods and services remove.
Expanding digital services exports could lead to large productivity gains, while increasing labor force participation among women and others could increase global potential growth rates by up to 0.2 percentage points per year through 2030.
(Reporting by Andrea Shalal, editing by Marguerita Choy and Hugh Lawson)
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