The World Bank has issued a warning that the global economy’s long-term growth potential has been negatively impacted by the Covid-19 pandemic and Russia’s war in Ukraine. This could lead to what the bank has termed a “lost decade,” characterized by increased poverty and limited resources to combat the effects of climate change.
These overlapping crises have resulted in a decline in average potential global output, which is projected to fall to a 30-year low of 2.2% per year between 2023 and 2030. This is a significant drop from the 3.5% per year growth that was experienced in the first decade of the 21st century.
Developing economies are expected to be hit even harder, with an anticipated decline in average annual growth from 6% between 2000 and 2010 to 4% this decade. Indermit Gill, the World Bank’s chief economist and senior vice president for development economics, warned that this decline in potential growth has serious implications for the world’s ability to tackle challenges such as poverty, income inequality, and climate change.
The World Bank officials stated that the “golden era” of development appears to be coming to an end, and policymakers will need to be more innovative in addressing global challenges in the absence of rapid economic growth from countries such as China, which has been a key driver of worldwide growth.
The bank recommended closer alignment of international monetary and fiscal policy frameworks and urged world leaders to reduce trade costs and increase labor force participation. However, they acknowledged that restoring growth to the levels seen in the previous decade would require a collective policy effort of significant magnitude.
The global economy is facing a potential “lost decade” as the coronavirus pandemic and Russia’s invasion of Ukraine have contributed to a decline in long-term growth potential, according to the World Bank. The organization warns that this could result in more poverty and fewer resources to combat climate change. The decline in potential growth is projected to be particularly significant for developing economies, which could see their average annual growth rate fall to 4% this decade from 6% between 2000 and 2010.
The global economy is facing a potential “lost decade” as the coronavirus pandemic and Russia’s invasion of Ukraine have contributed to a decline in long-term growth potential, according to the World Bank. The organization warns that this could result in more poverty and fewer resources to combat climate change. The decline in potential growth is projected to be particularly significant for developing economies, which could see their average annual growth rate fall to 4% this decade from 6% between 2000 and 2010.
The world is dealing with overlapping crises, including the pandemic and the disruption of global supply chains caused by the Ukraine conflict. At the same time, the banking sector is showing signs of stress, with a series of banking crises threatening to undermine economic growth. The failures of Silicon Valley Bank and Signature Bank in the US, as well as the rescue of Credit Suisse by UBS, are examples of this trend.
