In a grim report issued last week, the World Bank warned of a slow-growth crisis in the global economy that could persist over the coming decade unless governments worldwide adopt what it calls “sustainable, growth-oriented policies.”
The World Bank report says that global growth in gross domestic product between 2022 and 2030 is on track to decline to about 2.2%, down one-third from the rate that applied between 2000 and 2010. Although the growth rate in developing economies will be higher, it will also likely decline by one-third, from 6% to 4%, according to the document titled “Failing Long-Term Growth Prospects.”
The report says that a number of factors are depressing long-term growth prospects, including an aging workforce, slower population growth and lower rates of productivity-enhancing investment. The negative effects are exacerbated by global shocks to the economy, including the lingering effects of the COVID-19 pandemic and the ongoing war in Ukraine.
“A lost decade could be in the making for the global economy,” said Indermit Gill, the World Bank’s chief economist, in a release accompanying the report. “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.”
Growth strategies
The World Bank report includes specific recommendations that, according to its own estimates, would boost the average predicted global economic growth rate to 2.9% from 2.2% through the remainder of the decade.
The report urges governments worldwide to lower inflation and assure stability in the financial sector. The report also recommends reducing sovereign debt levels, which would free up funds for investment in productivity-enhancing infrastructure.
Recommended infrastructure investments include upgraded transportations systems and environmentally sustainable improvements to agriculture, manufacturing, and land and water management systems.
The report also calls on countries to lower barriers to international trade, focus on ways to globalize service economy growth and increase labor force participation.
Social progress slowed
Macroeconomists generally agree with much of the World Bank’s assessment, saying that concerns about global growth have been on the rise for several years, and warn that the consequences of a sustained decline — especially in emerging economies — might be severe.
Liliana Rojas-Suarez, a senior fellow at the Center for Global Development and director of its Latin American Initiative, told VOA that growth began to slow several years ago in Latin America.
“A period of high growth in Latin America occurred in 2000 to 2014,” she said. “That was a period when commodity prices were very high and the region was really growing. But the important thing is that social indicators improved dramatically. Poverty declined, income inequality improved, food security, educational health — name any indicators, they were all improving.”
Since then, she said, much of that progress has reversed.
“Growth is not the only thing,” she said. “You need many more things to actually improve poverty and inequality, but growth is an important component. After [2014], it stopped, and now the social indicators are reverting.”
Impacts unevenly distributed
In a news briefing last week, Adam Posen, president of the Peterson Institute for International Economics, said the World Bank was correct to warn of a difficult period ahead but that the effects were not likely to be evenly distributed.
“If you look at the last couple years, not only was there surprising resilience in Europe, but a big surprise — a positive surprise — has been the sustained growth in India, Brazil, Mexico, Indonesia, as well as China, once you take out COVID. Indonesia plus India plus Brazil plus Mexico is an awful lot of human beings and an awful lot of global GDP.”
He said that all of those economies had weathered a year of Federal Reserve interest rate hikes without apparent damage to their own domestic currencies, and that most appear well-positioned to continue growing. However, he noted, the same thing cannot be said about many other regions of the globe.
“The World Bank, I think, is right to draw concern to the possibility of a lost decade in sub-Saharan Africa and Central America and South Asia,” Posen said. “An awful lot of human beings are at risk or are facing very grim situations. But from a global GDP outlook, or even a global population outlook, most of the major [emerging markets] along with most of the G20, essentially, are doing pretty well. I think it should be a concern for the poor people of the world but not for the world in general.”
New database
As part of the report, the World Bank announced that it is now using a new public database to assess global GDP growth, with data currently extending from 1981 to 2021. The database, according to the World Bank, is the first to track the way in which temporary economic disruptions, including “recessions and systemic banking crises,” affect economic growth over time.
The latter has particular relevance today, given the recent failures of several U.S. banks and the forced takeover of Swiss financial services giant Credit Suisse by UBS.
“Recessions tend to lower potential growth,” Franziska Ohnsorge, a lead author of the report and manager of the World Bank’s Prospects Group, said in a statement. “Systemic banking crises do greater immediate harm than recessions, but their impact tends to ease over time.”
Rojas-Suarez of the Center for Global Development praised the creation of the new database, saying that it “could be very useful, not only for future research but also for monitoring countries moving forward, and for international comparisons.”
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