Global economy’s “speed limit” set to drop to three-decade low – World Bank

“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.”


A new World Bank report says the global economy’s “speed limit” is set to drop to a three-decade low by 2030.

The” speed limit” is the maximum long-term rate at which the economy can grow without sparking inflation.

This is contained in a statement issued by the World Bank.

The statement said the report is titled ” Falling Long-Term Growth Prospects: Trends, Expectations, and Policies”.

It said the report offered the first comprehensive assessment of long-term potential output growth rates in the aftermath of the COVID-19 pandemic and the Russian invasion of Ukraine.

“These rates can be thought of as the global economy’s “speed limit.”

It said the report introduced the world’s first comprehensive public database of multiple measures of potential Gross Domestic Product (GDP) growth covering 173 economies from 1981 through 2021.

“The report documents a worrisome trend: nearly all the economic forces that powered progress and prosperity over the last three decades are fading.

“As a result, between 2022 and 2030, average global potential GDP growth is expected to decline by roughly a third from the rate that prevailed in the first decade of this century to 2.2 per cent a year.

“For developing economies, the decline will be equally steep, from six per cent a year between 2,000 and 2010 to four per cent a year over the remainder of this decade.”

The statement said these declines would be much steeper in the event of a global financial crisis or a recession.

It quoted Indermit Gill, World Bank’s Chief Economist and Senior Vice-President for Development Economics as saying, “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.”

Gill said the challenges include 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.”

The statement said analysis showed that potential GDP growth could be boosted by as much as 0.7 percentage points to an annual average rate of 2.9 per cent if countries adopted sustainable growth-oriented policies.

“That would convert an expected slowdown into an acceleration of global potential GDP growth.”

The statement quoted Ayhan Kose, a lead author of the report as saying, “we owe it to future generations to formulate policies that can deliver robust, sustainable, and inclusive growth.”

Kose, who is also the Director, World Bank’s Prospects Group, said that a bold and collective policy push must be made now to rejuvenate growth.

“At the national level, each developing economy will need to repeat its best 10-year record across a range of policies.

He said at the international level, the policy response required stronger global cooperation and a re-energisqed push to mobilise private capital.

Franziska Ohnsorge, a lead author of the report and Manager of the World Bank’s Prospects Group said recessions tend to lower potential growth.

“Systemic banking crises do greater immediate harm than recessions, but their impact tends to ease over time.”

The statement said the report highlighted specific policy actions at the national level that could make an important difference in promoting long-term growth prospects.

It said one policy action was to align monetary, fiscal, and financial frameworks.

“Policymakers should prioritise taming inflation, ensuring financial-sector stability, reducing debt, and restoring fiscal prudence.

“These policies can help countries attract investment by instilling investor confidence in national institutions and policymaking.”

The statement said another policy action was to ramp up investment in areas such as transportation and energy, climate-smart agriculture and manufacturing, and land and water systems.

“Sound investments aligned with key climate goals could enhance potential growth by up to 0.3 percentage point per year as well as strengthen resilience to natural disasters in the future.”

It said another policy action was to cut trade costs, especially costs associated with shipping, logistics, and regulations

The statements said another policy action was to capitalise on services because the services sector could become the new engine of economic growth.

It said another policy action was to increase labour force participation.

“Boosting overall labour force participation rates by the best ten-year increase on record could increase global potential growth rates by as much as 0.2 percentage point a year by 2030.”

The statement said the report also underscored the need to strengthen global cooperation.

“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 catalyse trade, accelerate climate action, and mobilise the investments needed to achieve Sustainable Development.