The global economy is set for a “lost decade” according to the World Bank as it forecasts that economic growth is set to hit a 30-year low.
A report from the organization warns average global domestic product growth will drop to 2.2 percent a year between 2022 and 2030 – down from the 3.5 percent rate that prevailed in the first decade of this century.
According to its latest forecast, the decline for developing economies will be especially steep – with growth shrinking from 6 percent a year between 2000 and 2010 to 4 percent a year up until 2030.
“A lost decade could be in the making for the global economy. 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.” said the World Bank’s Chief Economist and Senior Vice President for Development Economics Indermit Gill.
He added: “But this decline is reversible. The global economy’s speed limit can be raised—through policies that incentivize work, increase productivity, and accelerate investment.”
Analysts from the World Bank theorized that if the world embraced sustainable and growth-oriented policies, potential GDP growth could be raised by 0.7 percentage points to an annual average rate of 2.9 percent.
“The global economy’s “speed limit”— the maximum long-term rate at which it can grow without sparking inflation — is set to slump to a three-decade low by 2030. An ambitious policy push is needed to boost productivity and the labor supply, ramp up investment and trade, and harness the potential of the services sector,” stated the report.
Aligning monetary, fiscal, and financial frameworks is the first World Bank recommendation that could be used to moderate the fluctuations of business cycles, therefore instilling investor confidence.
The report also suggested ramping up investments, cutting trade costs and increasing labor force participation as ways to enhance potential growth in the national economies.
Additionally, capitalizing on the services sector could become the new engine of economic growth.
The World Bank concluded: “International economic integration has helped to drive global prosperity for more than two decades since 1990, but it has faltered. Restoring it is essential to catalyze trade, accelerate climate action, and mobilize the investments needed to achieve the Sustainable Development Goals.”