Global economy's growth speed limit to slump by 2030: World Bank

29 Mar '23

2 min read

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Insights

Global potential GDP growth is set to decline by roughly a third by 2030, hitting a three-decade low, as per a report by the World Bank.
The report suggests that a policy push is necessary to boost productivity, labour supply, investment, and trade to counteract the decline.
The report also recommends cutting trade costs and strengthening global cooperation.

Global economy's maximum long-term growth rate, without causing inflation, is set to decline to a three-decade low by 2030, according to a new report from the World Bank. The report shows that nearly all of the economic forces that have driven progress and prosperity over the past 30 years are beginning to fade, resulting in a projected decline in average global potential GDP growth from 2.2 per cent to 6 per cent per year for developing economies between 2022 and 2030.

The global economy can improve productivity, the labour supply, investment, and trade. If countries adopt sustainable growth-oriented policies, potential GDP growth can be increased by as much as 0.7 percentage points to 2.9 per cent annually, which would help offset the anticipated slowdown in global potential GDP growth, as per World Bank’s ‘Falling Long-Term Growth Prospects: Trends, Expectations, and Policies’ report.

The report provided specific policy recommendations at the national level to promote long-term growth prospects. The policies include aligning monetary, fiscal, and financial frameworks to ensure stability, reducing trade costs, increasing labour force participation, and ramping up investments. The report also stressed the need to strengthen global cooperation to catalyse trade, accelerate climate action, and mobilise investments necessary to achieve sustainable development goals.

Furthermore, the report introduced the world's first comprehensive public database of multiple measures of potential GDP growth, covering 173 economies from 1981 to 2021. It also evaluates how a range of short-term economic disruptions, such as recessions and systemic banking crises, reduce potential growth over the medium term.

Countries should prioritise taming inflation, reducing debt, and restoring fiscal prudence. These policies can help attract investment by instilling investor confidence in national institutions and policymaking. Policymakers can also make sound investments aligned with climate goals in areas such as transportation, energy, agriculture, and manufacturing, which can enhance potential growth by up to 0.3 percentage points per year, the report added.

“A lost decade could be in the making for the global economy,” said Indermit Gill, the World Bank’s chief economist and senior vice president for development economics. “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 incentivise work, increase productivity, and accelerate investment.”

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