According to a report by the World Bank titled “Falling Long-Term Growth Prospects: Trends, Expectations, and Policies,” the global economy may face a “lost decade” due to the fading drivers of economic progress in recent history.
The report warns that the global economy’s “speed limit,” which refers to the maximum long-term growth rate without sparking inflation concerns, is on track to crash to a three-decade low by 2030.
The authors of the report say that a global slowdown in productivity, weak investment growth, sluggish global labor force growth, human capital reversals triggered by the pandemic, and barely matching growth in international trade are all adding to concerns about long-term economic prospects.
The report notes that the result could be a “lost decade” for the entire world rather than just certain countries or regions as has occurred in the past.
The global average potential GDP growth rate is expected to fall to a three-decade low of 2.2% per year between now and 2030, down from 2.6% in 2011-21, without a significant policy push to rejuvenate it. At 2.2%, the global average potential GDP growth rate would be significantly lower than the 3.5% recorded in the first decade of the century.
This report suggests that the global economy is facing significant challenges, and governments and policymakers will need to take decisive action to reverse this trend.
The pandemic has exacerbated the existing problems, and if left unchecked, the global economy could face a prolonged period of slow growth, which would have far-reaching consequences for businesses and individuals around the world.
World Bank warns of a possible lost decade for the global economy
The World Bank has warned that the global economy could face a “lost decade” due to the decline of almost all the drivers of economic progress in recent history.
The bank’s staff wrote in a report titled ‘Falling Long-Term Growth Prospects: Trends, Expectations, and Policies’ that the global economy’s “speed limit” is set to plummet to a three-decade low by 2030.
The report recommends policy moves to promote long-term growth, including aligning monetary, fiscal, and financial frameworks, making sound investments that align with climate goals, reducing trade costs, and increasing labor force participation.
The report also noted that outgoing World Bank President David Malpass believes it will take an “exceptional mix” of policies and international cooperation to revive growth, especially for developing countries that could be hit the hardest by the declining drivers of growth.
According to the report, developing countries could see their average annual potential GDP growth rate drop to 4% this decade from 6% between 2000 and 2010, with even steeper declines in the event of a global financial crisis or recession.
However, the report also suggests that “sound” investments aligned with climate goals could increase annual potential growth by up to 30 basis points.