World Bank warns of ‘lost decade’ for global growth due to pandemic, inflation and war

World Bank

The World Bank has warned of a "lost decade" for global growth because of structural challenges triggered by the Covid-19 pandemic, high inflation, and the war in Ukraine, and pitched for concerted policies to restore growth in the next decade.

The three main factors holding back economic growth are an aging workforce, slowing investment, and slowing productivity. Potential growth decreased from 3.5 percent in the decade 2000 to 2010 to an average of 2.6 percent per year from 2011 to 2021 and, from 2022 to 2030, it is expected to decrease to 2.2 percent.

Governments around the world have introduced tax cuts, subsidies and laws to boost investment, combat climate change and expand the workforce. But it's perhaps too little, too late, as the world is still prone and ill-prepared to face any financial crisis, especially in major economies, which might lead to a global recession. In such a scenario, weak growth can be more pronounced.

Major economies are trying to increase the workforce, often due to strong resistance. In France, protesters went against President Emmanuel Macron's overhaul of the pension system, while China's shrinking population forced local governments to offer cash bonuses for childbirth and permits for more births.

The World Bank identified a number of challenges conspiring to reduce global growth, including weak investment, sluggish productivity growth, restrictive trade measures such as tariffs and the negative effects of the pandemic. It has recommended pro-growth policies to increase the labour force participation among discouraged workers and women to reverse the negative trend and declining birth rates.

It is to be noted that, some prominent economists consider the World Bank's "lost decade" projection too pessimistic as well. According to Harvard University economist Karen Dynan, the aging population around the world will drive global growth, while the productivity of a worker may not suffer at all.

The World Bank has issued similar warnings in the past, including one after the 2008 financial crisis and the trade and investment uncertainty caused by the Covid-19 pandemic. Topics such as inflation, supply chains, global trade, artificial intelligence and human capital will be discussed at the April 10-16 spring meeting of the International Monetary Fund and the World Bank.

Adam Posen, president of the Peterson Institute for International Economics, believes that the missing decade projection of the World Bank is significant, and attention is needed for regions such as sub-Saharan Africa, Central America and South Asia. However, he has also pointed out on economic stability in Europe and emerging markets in recent years, despite the Federal Reserve raising interest rates dramatically, with major emerging markets and most of the Group of 20 countries doing well in terms of GDP and population.