World Bank in its report has disclosed that the global economy’s “speed limit’ – the maximum long-term rate at which the economy can grow without sparking inflation, is set to slump to a three-decade low by 2030.
According to World Bank, an ambitious policy push is needed to boost productivity and the labor supply, ramp up investment and trade, and harness the potential of the services sector.
The report, themed: “Falling Long-Term Growth Prospects: Trends, Expectations, and Policies,” offers the first comprehensive assessment of long-term potential output growth rates in the aftermath of the COVID-19 pandemic and the Russian invasion of Ukraine. These rates, as stated by World Bank, can be thought of as the global economy’s “speed limit.”
The report documents a worrisome trend which indicates that nearly all the economic forces that powered progress and prosperity over the last three decades are fading.
World Bank in its projections disclosed that between 2022 and 2030, average global potential GDP growth is expected to decline by roughly a third from the rate that prevailed in the first decade of this century to 2.2% a year.
For developing economies, World Bank noted that the decline will be equally steep: from 6% a year between 2000 and 2010, to 4% a year over the remainder of this decade. These declines would be much steeper in the event of a global financial crisis or a recession, it stated.
“A lost decade could be in the making for the global economy. The ongoing decline in potential growth has serious implications for the world’s ability to tackle the expanding array of challenges unique to our times – stubborn poverty, diverging incomes, and climate change.
“But this decline is reversible. The global economy’s speed limit can be raised through policies that incentivize work, increase productivity, and accelerate investment.”
World Bank
World Bank Urges Countries To Adopt Growth-Oreinted Policies To Boost GDP
More so, World Bank in its report analysis revealed that potential GDP growth can be boosted by as much as 0.7 percentage points to an annual average rate of 2.9% if countries adopt sustainable, growth-oriented policies, adding that: “That would convert an expected slowdown into an acceleration of global potential GDP growth.”
A lead author of the report and Director of the World Bank’s Prospects Group, Mr. Ayhan Kose has averred that a bold and collective policy push must be made now to rejuvenate growth.
At the national level, he said, each developing economy will need to repeat its best 10-year record across a range of policies. At the international level, the policy response requires stronger global cooperation and a reenergized push to mobilize private capital.
“We owe it to future generations to formulate policies that can deliver robust, sustainable, and inclusive growth.”
Mr. Ayhan Kose
The report has laid out an extensive menu of achievable policy options, breaking new ground in several areas. It introduces the world’s first comprehensive public database of multiple measures of potential GDP growth covering 173 economies from 1981 through 2021. It is also the first to assess how a range of short-term economic disruptions such as recessions and systemic banking crises reduce potential growth over the medium term.
According to Mrs. Franziska Ohnsorge – another lead author of the report and Manager of the World Bank’s Prospects Group, recessions tend to lower potential growth, nonetheless systemic banking crises do greater immediate harm than recessions, but their impact tends to ease over time.
“International economic integration has helped to drive global prosperity for more than two decades since 1990, but it has faltered. In restoring, it is essential to catalyze trade, accelerate climate action, and mobilize the investments needed to achieve the Sustainable Development Goals.”
Mrs. Franziska Ohnsorge
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