After three decades of generally rapid growth, the global economy may finally experience a significant slowdown. A number of economic risks, including an aging global workforce and declining private sector investment, are converging to limit economic growth. Left unchecked, these threats could undo decades of efforts to reduce poverty and accelerate development, while setting the stage for a “lost decade”.
This is the warning of a new report published Monday by the World Bank, which concludes that almost all the factors that have fueled global economic growth and poverty reduction since the 1990s could disappear by the end of this decade. Global GDP growth could shrink to 2.2% per year by 2030, down a third from the average rate of 3.5% from 2000 to 2010 and a potential source of economic stagnation for years. coming.
“A lost decade could be in the works for the global economy,” said Indermit Gill, chief economist at the World Bank. A declarationreferring to the long periods of growth at a snail’s pace that have plagued countries including United States And Japan. But the next lost decade could be much larger in scale, affecting the global economy and inhibiting countries’ ability to invest in countering future threats.
“The continued decline in potential growth has serious implications for the world’s ability to meet the growing array of challenges unique to our times: entrenched poverty, divergent incomes and climate change,” Gill said.
The report refers to potential GDP growth as an economy’s “speed limit”: the level of growth that policymakers can realistically target without risking excessive inflation. The speed limit of an economy is a moving target that can be increased as productivity and economic activity increase. But currently, almost all major economic trends are moving in the opposite direction, with major implications for rich and developing countries alike.
“Today, almost all of the economic forces that have driven economic progress are in retreat,” World Bank President David Malpass wrote in the report’s foreword. “The result could be a lost decade in the making – not just for certain countries or regions as has happened in the past – but for the whole world.”
A new economic reality
The main culprit for the lowering of the speed limit of the global economy is the slowdown in labor productivity gains around the world, a long-standing trend that has been aggravated by the COVID pandemic. -19 and the war in Ukraine. According to the World Bank, productivity this decade is expected to grow at its slowest pace since 2000.
Productivity – a measure of employee output for every hour worked – is falling around the world, but not because people are working less. In the United States, labor productivity fell 4.1% last yearthe biggest drop since the government began measuring productivity in 1948. Economists and CEOs have been scratch your head why american productivity is slowing a historically tight labor market and with a workforce work more hours than any other industrialized country. The consensus is that productivity is suffering from a range of factors, including high rates of Burnout, job dissatisfactionAnd a lack of understanding and trust between employer and employee in the age of remote work.
But the World Bank has identified a much broader global trend that could deal a fatal blow to the speed limit of the global economy: an impending decline in young skilled workers that is dragging down the global workforce. Due to declining birth rates around the world, this is a challenge that is likely to get worse before it gets better.
An aging global workforce is shaping up to be one of the major demographic issues of the 21st century, with the lack of young workers already weighing on prospects for economic growth in rapidly aging countries like Japan And South Korea. The growing number of workers reaching retirement age without enough young people to replace them is also becoming a growing challenge in United States, ChinaAnd several European countries. Aging populations have fueled fears stretched government budgetswhile efforts to raise the retirement age have been successful public resistance and protests in countries like France.
Malpass warned in the report that the global workforce is “growing slowly” due to aging populations in rich and developing countries, while overall learning losses for children caused by the pandemic should create more of a brake on human capital. Meanwhile, the war in Ukraine has strained international relations, damaging the global movement of goods and people in another blow to the speed limit of the global economy, according to the report.
The World Bank is not the first to warn of converging factors that are difficult to deal with and that threaten to radically alter the global economy. The World Economic Forum has made the polycrisis—the idea that multiple economic, political and ecological threats are about to shake the globe simultaneously—a central theme of its last World Leaders Summit in Davos earlier this year. economists including Adam Tooze And Nouriel “Dr. Doom” Roubini also often talk about the impact of a polycrisis on the economy of this decade.
Although the global economic speed limit is shrinking, coordinated efforts to address the problem could also raise it again, the World Bank said in its report. Policies that facilitate international trade and investment, enhance globalization and ensure financial stability can help increase global economic capacity. According to the report, the key to any effort to increase productivity is to increase the supply of labor through education and immigration, and to accelerate automation to support the jobs of routine.
“This decline is reversible. The speed limit of the global economy can be increased through policies that encourage work, increase productivity and accelerate investment,” Gill said.