Washington, Mar 27 (Mayank Nigam) The so-called “speed limit” of the global economy, or the maximum speed at which economies can grow without sparking inflation, will decline to a 30-year low of just 2.2 percent by 2030, the World Bank said in a new report on Monday. “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 percent a year,” the World Bank said in a press release summarizing the report.
Developing economies meanwhile will face a decline in their GDP speed limit from 6 percent between 2000 and 2010 to just 4 percent for the remainder of this decade, the release said. The World Bank added that these declines would be much steeper in the event of a global recession or financial crisis. The report marks the first comprehensive reassessment of long-term potential GDP growth in the wake of the coronavirus pandemic and the conflict in Ukraine, the release noted. “A lost decade could be in the making for the global economy,” the World Bank’s Chief Economist and Senior Vice President for Development Economics Indermit Gill said.
“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 World Bank’s analysis states that the global GDP speed limit could be raised by as much as 0.7 percentage points to an average of 2.9 percent if governments adopt growth-oriented policies to incentivize work, boost productivity and speed up investment.