The World Bank says the global economy's 'speed limit' has fallen dramatically.
The global economy is facing an era of worsening demographics, ongoing inflation pressure and financial instability, according to a gloomyIf the economy is like a car, its potential growth rate is how quickly it can go without risking a ticket — or excess inflation. The World Bank says this "speed limit" has fallen dramatically, warning that forces juicing global economic growth are now in retreat.
A nation's potential growth rate sets boundaries that can affect a slew of policies, including government spending and benchmark interest rates."The result could be a lost decade in the making—not just for some countries or regions as has occurred in the past—but for the whole world," bank officials wrote in the report.The World Bank estimates that the globe's potential growth rate will average 2.2% throughout the rest of this decade.
That includes sluggish productivity and labor force growth and tempered international trade. The organization points to a lasting shock to human capital from COVID-19, learning losses and school closures that will weigh on potential growth.The drop-off will have wide-ranging consequences, limiting every nation's ability to invest in measures that would reduce poverty, combat climate change or boost job creation to find new venues to up productivity.
"All of these things will be curtailed because of weaker potential growth going forward," Ayhan Kose, the group's chief economist, told reporters this morning.The World Bank says a slew of policies — including ones that slash trade-related costs, embrace globalization and increase labor force participation rates — could raise the globe's potential growth rate.
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