Potential growth of the global economy has slowed to its lowest level in 30 years due to the impact of COVID-19and the conflict in Ukraine, according to a World Bank report. The report says that the global economy's "speed limit" will fall to 2.2% per year between 2022 and 2030, marking the world economy's lost decade. This reduction in potential growth has serious implications for the world's ability to deal with issues such as poverty, income inequality and climate change. However, the report suggests that potential growth could reach 2.9 percent if policymakers implement the right programs to boost productivity, labour supply and investment.
About half of the expected slowdown in potential growth through 2030 is due to demographic changes, including a smaller labour force and lower labour force participation, the report said, as is with China’s demographic crisis and France pushing back its retirement age. The authors also refer to economies that lag behind in terms of female participation and estimate that some of these economies in the South Asia, Middle East and North Africa region could achieve growth between 2022 and 2030 by 1.2 percentage points per year, if these participation rates were raised to average levels across developing economies and emerging markets.
Analysts in the report warned that the situation could worsen if a global financial crisis or recession materializes. Overall, the report highlights the need for policymakers to act to address key factors holding back potential growth and promote policies that support productivity, labour force participation and investment to reduce risks to the global economy.
(Sources: The World Bank, Live Mint)
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