Overlapping crises could lead to a sharp slowdown, the institution warns
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Average potential global economic growth could slump to a three-decade low of 2.2% per year through 2030, the World Bank warned on Monday, citing the fallout from the Covid-19 pandemic, the conflict in Ukraine, and the ongoing risks to the financial sector in the US and EU.
According to the report, all these factors are weighing on the global economy, which the bank expects to expand by just 1.7% this year.
“A lost decade could be in the making for the global economy,” the World Bank’s chief economist, 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.”
World Bank analysts have warned that things could get worse, with steeper declines in potential growth if a global financial crisis or recession occurs.
“The slowdown we are describing … could be much sharper if another global financial crisis erupts, especially if that crisis is accompanied by a global recession,” the director of the World Bank’s forecasting group, Ayhan Kose, was quoted by Reuters as saying.
The Washington-based institution predicts that low investment will also slow growth in developing economies, with their average GDP growth dropping to 4% for the rest of the 2020s, from 5% in 2011-21 and 6% from 2000-10.
Productivity is likely to grow at its slowest pace since 2000, the report said, noting that investment growth in 2022-24 will be half the rate seen in the last 20 years. Global trade is growing at a much slower rate, it added.
The World Bank urged policymakers to prioritize taming inflation, ensuring financial-sector stability, and reducing debt, saying that potential growth could then reach as high as 2.9%.