According to the World Bank, global economic growth is near its limit and could result in a lost decade

According to the World Bank, global economic growth is near its limit and could result in a lost decade

After 3 decades of rapid growth, it seems like the global economy might be heading toward a significant slowdown. Several economic risks are coming together, like the aging workforce worldwide and a decline in private-sector investment. If we don’t address these challenges, they could undo decades of progress in reducing poverty and accelerating development. It could also create a scenario where we experience a “lost decade” in terms of economic growth.

A new report released by the World Bank on Monday is warning that the factors that have driven global economic growth and poverty reduction since the 1990s could disappear by the end of this decade. It’s a cause for concern, as global GDP growth could shrink to 2.2% annually between now and 2030, which is a third less than the 3.5% average rate from 2000 to 2010. This decline could lead to economic stagnation that lasts for years to come.

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The World Bank’s chief economist, Indermit Gill, warns that a “lost decade” could be in the making for the global economy. This kind of situation has already affected countries like the US and Japan, but the next one could be much larger in scope and affect the global economy, making it harder for countries to invest in addressing future threats.

According to the report, the ongoing decline in potential growth has serious implications for our ability to face the challenges of today, including poverty, divergent incomes, and climate change.

Growth potential was referred to as an economy’s “speed limit” in the report. It’s the amount of growth policymakers can realistically target without risking excess inflation. When productivity and economic activity increase, an economy’s speed limit can be raised. Yet right now, practically every significant economic trend is moving in the opposite direction, which has significant ramifications for both developed and emerging countries.

As the World Bank President David Malpass wrote in the report’s foreword, “Today, nearly all the economic forces that drove economic progress are in retreat. The result could be a lost decade in the making not just for some countries or regions as has occurred in the past but for the whole world.”

A new economic reality:

The global economy is facing a major slowdown, according to a new report from the World Bank. Almost all factors that drove global economic growth and poverty reduction since the 1990s could vanish by the end of this decade, with global GDP growth potentially declining by a third from the 3.5% average rate between 2000 to 2010 to just 2.2% annually until 2030. The report warns that this could lead to a “lost decade” of economic stagnation with serious implications for poverty reduction, income inequality, and climate change.

One of the main causes of the decline in economic growth is the slowing productivity gains in labor forces around the world. Productivity is expected to grow at its slowest rate since 2000, with declining rates of employee output per hour worked worldwide. This is a challenge not just in the U.S. but globally, and it is not yet fully understood why this is happening. Factors that could be contributing to the decline include high rates of burnout, job dissatisfaction, and a lack of trust between employers and employees in the age of remote work.

However, the World Bank identifies a much larger trend that threatens the global economy’s speed limit: the looming decline of skilled young workers worldwide. Globally, declining birth rates are causing a challenge that will likely worsen before it improves. Economic growth prospects are already hampered by aging populations and a lack of young workers in rapidly aging countries like Japan and South Korea, and this is also happening in China and several European countries. Efforts to raise the retirement age have been met with public resistance and protests in some countries, while an aging workforce is also creating strains on government budgets. The pandemic has worsened this trend by creating more drag on human capital, especially for children who have suffered global learning losses.

The report also identifies the Ukraine war as a contributing factor to the world economy’s slowdown. The war has damaged the global movement of goods and people, straining international relations, and posing another challenge to the world economy’s speed limit.

The World Bank report emphasizes that the global economy’s decline is reversible, and coordinated efforts can raise its speed limit. To boost productivity, policymakers need to increase the labor supply through education and immigration and speed up the adoption of automation.

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