In a blog based on chapter 3 of its forthcoming World Economic Outlook (WEO), IMF said expectations of weak growth could discourage investment, possibly deepening the slowdown.
“This threatens to reverse improvements to living standards, and the unevenness of the slowdown between richer and poorer nations could limit the prospects for global income convergence,” the blog said.
Increasingly inefficient distribution of resources across firms has dragged down total factor productivity and, with it, global growth.
Two additional factors have also slowed growth. Demographic pressures in major economies, where the proportion of working-age population is shrinking, have weighed on labour growth. Meanwhile, weak business investment has stunted capital formation, the blog noted.
A persistent low-growth scenario, combined with high-interest rates, could put debt sustainability at risk—restricting governments’ ability to counter economic slowdowns and invest in social welfare or environmental initiatives, it said.
“All this is exacerbated by strong headwinds from geoeconomic fragmentation and harmful unilateral trade and industrial policies,” it said.
The new forecast reflects downward revisions for medium-term growth across all income groups and regions, most significantly in emerging market economies.
Urging countries to take urgent action to counter the weakening growth outlook, the IMF cautioned that it worsened prospects for living standards and global poverty reduction.
Fibre2Fashion News Desk (DS)