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World Bank Warns Of ‘Lost Decade’ In Global Growth

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Unless officials take bold steps to increase labor supply, productivity, and investment, the world’s economy will experience a three-decade low of 2.2% per year through 2030, ushering in a “lost decade.”

Growth is being impeded by the impacts of war and pandemics. To boost investment, fight climate change, and increase their workforces, governments have been announcing tax breaks, subsidies, and new laws over the past year. These efforts so far might be too little, too late.

According to World Bank experts, “restoring growth in the next decade to the average of the previous one will require a herculean collective policy effort.” An aging workforce, weakening investment, and slowing productivity are the three major causes of the economic downturn.

In line with current patterns, the global potential growth rate—the fastest rate at which an economy can expand without sparking inflation—is predicted to decline to a three-decade low over the course of the 2020s, according to the World Bank.

After the United States passed the Inflation Reduction Act, which contains hundreds of billions in incentives and funding for clean energy as well as a law to ramp up investments in semiconductors, the World Bank has issued its most recent warnings about the state of the global economy. As a result, the European Union is loosening its regulations on tax breaks and other government advantages for clean-tech businesses.

Major countries are currently attempting to increase their labor force sizes, frequently in the face of stiff opposition. In France, protesters violently reacted to President Emmanuel Macron’s reform of the nation’s pension system, while local governments in China are using monetary incentives and extended maternity leaves to encourage births because of that country’s declining population.

Weakness in growth could be even more pronounced if financial crises erupt in major economies and trigger a global recession, the World Bank report cautions. The warning comes just weeks after the collapse of Silicon Valley Bank sparked turmoil in the U.S. and European banking sectors.

The World Bank significantly cut its short-term growth estimate for the global economy earlier this year, citing consistently high inflation that has increased the risk of a global recession. It anticipates a 1.7% slowdown in global development in 2023. Other organizations anticipate a stronger 2.9% expansion of the global GDP in 2023, including the International Monetary Fund and the Washington-based Peterson Institute for International Economics.

The World Bank has previously issued a lost decade warning. The lender claimed that the Covid-19 pandemic raised the possibility in 2021 due to decreased trade and investment brought on by the pandemic’s uncertainty. After the financial crisis of 2008, it released similar cautions. The average annual rate of global development from 2009 to 2018 was 2.8%, down from 3.5% during the previous ten years.

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