'Lost decade': World Bank warns of slowest decadal economic growth in 30 years

The global economy's growth rate is set to plunge to a three-decade low by 2030, the World Bank has warned in a new report on Monday. It said that nearly all the economic forces that powered progress and prosperity over the last three decades were fading. 

"As a result, between 2022 and 2030 average global potential GDP growth is expected to decline by roughly a third from the rate that prevailed in the first decade of this century—to 2.2 per cent a year," the global institution said in its new report titled - 'Falling Long-Term Growth Prospects: Trends, Expectations, and Policies'.

For developing economies, the report said, the decline will be equally steep from 6 per cent a year between 2000 and 2010 to 4 per cent a year over the remainder of this decade. "These declines would be much steeper in the event of a global financial crisis or a recession," the report said.

The World Bank has in the last few reports predicted that the global economy may be heading towards recession in the second half of this year. In September last year, the institution said that as central banks across the world simultaneously hike interest rates to fight high inflation, the world may be edging toward a global recession in 2023.

The latest report offers the first comprehensive assessment of long-term potential output growth rates in the aftermath of Covid and the Russian invasion of Ukraine. These rates, the report said, can be thought of as the global economy's 'speed limit' - the maximum rate at which the economy can grow without sparking inflation.

"A lost decade could be in the making for the global economy," World Bank's Chief Economist Indermit Gill while commenting on the report released on Monday.

The analysis, however, showed that potential GDP growth can be boosted by as much as 0.7 percentage points to an annual average rate of 2.9 per cent if countries adopt sustainable, growth-oriented policies. "That would convert an expected slowdown into an acceleration of global potential GDP growth," the report said.

In January this year, the International Monetary Fund (IMF) said the global economy was poised to slow this year, before rebounding next year. "Growth will remain weak by historical standards, as the fight against inflation and Russia’s war in Ukraine weigh on activity," it said in a blog post. The financial institution said that global growth will slow from 3.4 per cent in 2022 to 2.9 per cent in 2023 and then rebound to 3.1 per cent in 2024.

According to the report, India and China will be the major engines of growth this year. "India remains a bright spot. Together with China, it will account for half of the global growth this year, versus just a tenth for the US and euro area combined," the IMF said. India is projected to grow at 6.1 per cent this year and 6.8 per cent in 2024.

For advanced economies, the slowdown will be more pronounced, with a decline from 2.7 per cent last year to 1.2 per cent in 2023 and 1.4 per cent in 2024. Nine out of 10 advanced economies will likely decelerate. The US is expected to grow at just 1.4 per cent in 2023.

Also read

Davos 2023: ‘India remains a bright spot amid global geopolitical crisis,’ says WEF Chairman Klaus Schwab

IMF chief says India remains a 'bright spot', to contribute 15% of global growth in 2023