World Bank Report: With the release of the World Bank’s latest report titled, Falling Long-Term Growth Prospects: Trends, Expectations, and Policies, the world view has now shifted to the decline in the growth rate of the world economy. The report has categorically highlighted the rate of economic growth and raised concerns over it hitting a three-decade low figure of 2.2 per cent. In the 2000s, the growth was reported at 3.5 per cent; in the second decade of the century, from 2011 to 2021, it declined to 2.2 per cent. The report says the further decline would largely impact the developing economies, and the world’s banking and finance sector, apart from further deepening the job crisis.
The report highlights the series of overlapping crises that have weakened almost all the key drivers of long-term economic growth, including the Covid-19 pandemic and the war in Ukraine. To reverse this trend, the World Bank has urged policymakers to act urgently and prioritize measures such as taming inflation, ensuring financial-sector stability, and reducing debt.
The report said investment growth is weakening, the global labour force is growing sluggishly, the coronavirus pandemic has triggered humans, and growth in international trade is barely matching GDP growth. It also referred to potential GDP growth as an economy’s “speed limit” and how much growth policymakers can realistically target without risking excess inflation.
India’s infrastructure deficit and recommendations by the World Bank
The World Bank report also pointed out India’s infrastructure deficit and suggested reforms proposed by the Task Force on the National Infrastructure Pipeline should be implemented. The report recommended improving project preparation processes, enhancing the capacity and participation of the private sector, improving contract enforcement and dispute resolution, and improving sources of financing.
Raising the economic “speed limit”
The World Bank report warned that policymakers would need to get more creative in addressing global challenges without being able to rely on the rapid economic expansions of countries like China. The report suggested that coordinated efforts to fix the problem could help raise the world’s economic capacity. Policies that facilitate international trade and investment, strengthen globalization and ensure financial stability can help increase the world’s economic capacity.
Key to any efforts to raise productivity is increasing labour supply through education and immigration, and fast-tracking automation to take over routine occupations, according to the report.
The impact on Asian economies
According to the report, some major Asian economies such as the Philippines, Vietnam, Indonesia and Thailand would not be able to avoid economic slowdowns and witness slow recovery. The global slowdown, spillover from the war in Ukraine, and climate change disasters would impact these economies. The report also acknowledged the huge strides made by these countries in the recent past to fight poverty, reduce inequality and progress toward higher incomes, yet the same seems to stall due to slowing productivity gains and reforms.
The World Bank’s report paints a worrying picture of the global economy, highlighting the potential for coordinated efforts to raise the world’s economic capacity. Urgent action is needed to prioritise measures such as taming inflation, ensuring financial-sector stability, and reducing debt. Policies that facilitate international trade and investment, strengthen globalization and ensure financial stability can help increase the world’s economic capacity. Policymakers must also get more creative in addressing global challenges, increasing labour supply through education and immigration, and fast-tracking automation to take over routine occupations.