The World Bank has released a report detailing the expected trajectory of the global economy’s potential growth rate, which is projected to experience a significant decrease by 2030. The report titled “Falling Long-Term Growth Prospects: Trends, Expectations, and Policies,” provides an analysis of the long-term potential output growth rates post the COVID-19 pandemic and following geopolitical events, such as the conflict in Ukraine.
The report predicts a reduction in the average global potential GDP growth, which is anticipated to drop from the rate seen in the early 2000s to an average of 2.2% per year from 2022 to 2030. Similarly, developing economies may witness a decrease from a 6% annual growth to 4% within the same period. These projections underscore the potential for a more pronounced downturn in the event of a global financial crisis or recession. World Bank Chief Economist Indermit Gill emphasizes the implications of the declining growth potential, which could affect efforts to address poverty, income inequality, and climate change. However, the report also suggests that these trends can be reversed through effective policy measures.
The study indicates that adopting comprehensive and sustainable growth-oriented policies could enhance potential GDP growth by up to 0.7 percentage points, potentially reversing the expected slowdown. Ayhan Kose, one of the report’s lead authors, calls for urgent policy actions both at national and international levels to renew growth dynamics. Outlined within the report are several policy recommendations aimed at stimulating long-term growth, including aligning monetary, fiscal, and financial frameworks; increasing investment in infrastructure and climate-smart sectors; reducing trade costs; leveraging the services sector, particularly digital services; and encouraging greater labor force participation.
The World Bank also stresses the importance of global cooperation to rebuild economic integration, which is crucial for trade, climate initiatives, and mobilizing investments to meet the Sustainable Development Goals. The report represents a comprehensive assessment of potential growth and offers a public database tracking potential GDP growth across 173 economies from 1981 to 2021. It also examines the medium-term effects of economic disruptions such as recessions and banking crises on potential growth.
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