"Annual Growth of 2.2% Until 2030, The Lost Decade Approaches: World Bank's Warning"

A pessimistic forecast has emerged suggesting that the global economic growth rate could be limited to an annual 2.2% by 2030. This is the lowest figure in 30 years. Without drastic measures such as increasing labor supply and productivity, there is a warning that we may face a 'lost decade.'

[Image source=Reuters Yonhap News]

The World Bank (WB) diagnosed in a report released on the 27th (local time) that the global potential growth rate has slowed to the lowest level in the past 30 years due to recent consecutive crises such as the COVID-19 pandemic and Russia's invasion of Ukraine.

The global GDP growth rate from 2022 to 2030 is projected to average only 2.2% annually. This is the lowest level in the past 30 years. It is not only slower than the 2.6% average from 2011 to 2021 but also reduced by about one-third compared to the 3.5% average from 2001 to 2010. Indermit Gill, WB’s Chief Economist, expressed concern that "the global economy could experience a lost decade."

The report forecasts that global productivity will grow at its slowest pace since 2000. The investment growth rate from 2022 to 2024 is expected to be halved compared to the past 20 years, and international trade is anticipated to grow at an even slower pace.

Such low investment is estimated to reduce the average GDP growth rate of developing countries to the 4% range. The report pointed out, "Productivity and income growth, along with reduced inflation, have helped one in four developing countries reach high-income status over the past 30 years, but such economic power is now retreating."

Additionally, recent rapid interest rate hikes by major countries and concerns over banking crises are also worrisome factors. Aihan Kose, head of the WB’s Outlook Group, warned, "If another global financial crisis occurs, especially one accompanied by a worldwide recession, the slowdown we describe could become much more severe."

However, the WB defined the average GDP growth rate in this report as a kind of 'speed limit' for the global economy. It emphasized that growth projections could be much higher if policy changes occur.

The WB’s diagnosis is that activating investment in sustainable industrial sectors, reducing trade costs, and expanding labor force participation could increase GDP growth by up to 0.7 percentage points. Chief Economist Gill explained, "Policies that encourage work, increase productivity, and accelerate investment can reverse the trend."

The report recommends that policymakers prioritize curbing inflation, ensuring financial sector stability, and reducing debt. It also emphasized expanding climate-friendly investments, which could raise annual growth by up to 0.3 percentage points, and increasing labor participation rates among women and others. Furthermore, it predicted that lowering costs related to transportation, logistics, and regulations would lead to trade activation.