The global economy may be headed towards a "lost decade" as nearly all drivers of economic progress in recent history fade, warns a report by the World Bank titled 'Falling Long-Term Growth Prospects: Trends, Expectations, and Policies'. The report states that the global economy's 'speed limit' is on track to crash to a three-decade low by 2030, referring to the maximum long-term growth rate without sparking inflation concerns.
The report outlines several factors contributing to the current situation, including a global slowdown in productivity, weakening investment growth, sluggish global labour force growth, human capital reversals triggered by the coronavirus pandemic, and growth in international trade barely matching GDP growth.
Without a significant policy push to rejuvenate the global economy, the report warns of a "lost decade" for the whole world. The global average potential GDP growth rate is expected to fall to a three-decade low of 2.2 percent a year between now and 2030, down from 2.6 percent in 2011-21. This is sharply lower than the 3.5 percent recorded in the first decade of the century.
Developing countries are expected to be impacted the most, with their average annual potential GDP growth rate seen falling to 4 percent this decade from 6 percent between 2000 and 2010. The report warns that these declines would be much steeper in the event of a global financial crisis or recession.
However, the report suggests specific policy moves to promote long-term growth, including aligning monetary, fiscal, and financial frameworks to smoothen the ups and downs of business cycles, taming inflation and reducing debt, investing in climate-aligned projects, reducing trade costs, and focusing on the services sector as the "new engine" of economic growth.
The report concludes that international economic integration has helped to drive global prosperity for more than two decades since 1990 but has faltered. Restoring it is essential to catalyse trade, accelerate climate action, and mobilise the investments needed to achieve the Sustainable Development Goals.
Outgoing World Bank President David Malpass warns that it will take "an exceptional mix" of policies and international cooperation to revive growth in a world that has been hit by 'an extraordinary series of setbacks.' He steps down on June 30 after more than four years at the helm, and his most likely successor is US nominee Ajay Banga.